Samuel M. Morgan is president of a D.C. construction company, MBE Inc., which was the low bidder on a multimillion-dollar city contract to help construct a major water line through parts of Georgetown and downtown. Morgan, who is black, says he calls all the shots at MBE.
But the city's Minority Business Opportunity Commission is threatening to block Morgan from winning the contract, because officials have questioned whether he might be a front for a white contractor from Northern Virginia.
While the city has been attempting to resolve the issue of minority control of Morgan's firm, work on part of the $33 million water project--a vital link in the city's water distribution system--has been delayed for six months.
Morgan's case demonstrates the difficulties the city has in promoting minority businesses--a major goal of Mayor Marion Barry's administration--and simultaneously policing the $140 million-a-year minority contracting program to ensure that white businessmen are not secretly setting up companies to siphon off money intended for minorities.
The controversial and much-publicized delay in the city's award of a major lottery contract has centered on a similar dispute over the degree and validity of minority participation in the firm initially selected to get the contract. Under pressure from Barry, the D.C. Lottery Board has agreed to rescind its decision and to invite new bids. The delay is expected to cost the city at least $2.8 million in revenue.
The water main segment that Morgan bid on is part of a larger project aimed at improving water service to downtown, Anacostia and parts of Northeast Washington and guarding against the possible loss of water service to those areas in case of a major fire or other disaster.
Morgan denies he is a front for anyone. "I run MBE," he says.
A former construction supervisor and later the operator of a truck hauling firm, Morgan started MBE two years ago to take advantage of the District's and other governments' efforts to promote minority businesses by granting them government contracts.
The company's largest contract of any kind up to now has been for about $300,000, Morgan said. The $4.3 million water contract would be the company's biggest job by a long shot.
Lawyers for Morgan and his company maintain that Morgan has demonstrated to the city that he runs MBE. "I think that in no uncertain terms MBE has answered fully all the questions raised," said James M. Christian, a lawyer representing Morgan.
Christian strongly criticized the city for taking since January to reach a decision, and said that the delay undermines the city's goal of trying to help minority businessmen such as Morgan. Christian said Morgan has been prevented from seeking other city contracts while he awaits the outcome of his case.
The Minority Business Opportunity Commission MBOC , which oversees the city's minority contracting program, notified MBE last November that it was considering revoking the company's certification as a minority-controlled business. The commission then heard MBE's response at a hearing in January. No decision has been made.
William C. Jameson, the commission's executive director, agreed that the issue has taken "just a little too long" to resolve and said that a decision may come this week. However, Jameson said, the city also has a responsibility to make sure that firms holding themselves out to be minority companies are in fact controlled by minorities.
"You don't want to set up a program to benefit minorities that does not," Jameson said.
D.C. law requires city agencies to spend at least 35 percent of their contract dollars for goods, services and construction on minority-controlled firms.
To help achieve that goal, city agencies have the option of restricting bidding on certain contracts to minority-controlled firms. That was the case with the water contract MBE bid on. Before a business can seek a city contract restricted to minorities, the company must win certification from the MBOC, good for two years, that it indeed is minority controlled. The commission has the right to revoke the certification. Minority controlled means that the company is run by minorities, that at least 51 percent of the stock is minority owned, and that minorities share in at least 51 percent of the businesses profits or losses.
Morgan's company was able to bid on the water contract in July 1982 because the MBOC previously had certified it as minority-controlled. MBE submitted the low bid.
The contract was scheduled to be awarded in October, but has been delayed because the MBOC had "serious questions" about MBE.
The central issue is whether MBE is secretely controlled by Robert E. Post, a white contractor who is president of Shirley Contracting Corp. in Lorton.
City officials declined to discuss the case. The following account is based on a transcript of MBOC's January hearing on the case and on interviews with Christian, Morgan's lawyer:
* Morgan owns 55 percent of MBE's stock. Post's children own 45 percent of the company's stock, which Post purchased for them.
* City officials learned that when the company was formed in March 1981 Morgan invested $5,100 and Post put in $200,000.
* Morgan originally was the only minority on the company's board of directors.
* Post was given broad powers over the company's operations, including the authority to sign company checks, hire and fire employes, sign contracts and negotiate loans for the business.
* The company's stock was divided into two classes, with the stock purchased by Post given preferred status. This gave him the right to recover his investment first from the company if MBE folded.
* Post guaranteed a performance bond obtained by Morgan for the city water contract after the bonding company determined that MBE did not have adequate assets to obtain the bond on its own.
* At least three employes hired at various times by Morgan had worked in the past for Post.
Christian said that despite the arrangements that aroused the commission's concern, Morgan, as majority stockholder, has controlled the company since it was formed. Moreover, Christian said Morgan has changed MBE's structure and taken other actions to make it clear that he, not Post, runs MBE.
For example, Christian said, last December the makeup of the board's directors was changed to give minorities a majority, and Morgan rescinded Post's authority to conduct company business. Christian said that Post never used that authority.
In addition, Christian said, MBE has returned to Post $150,000 out of the $200,000 he originally invested, and the stock he bought for his children no longer is classified as preferred.
"Simply because Post's children have 45 percent of MBE's stock and he advanced some money that was repaid is certainly no indication of a front," Christian said. "Minority businesses are started every day in this country by white investors, because where else are minorities going to get the money?"
"He Post has no authority here at all," said Morgan, during a brief interview at the company's offices in the basement of a townhouse at 404 Rhode Island Ave., NW. Morgan declined to talk further about the company and referrred all inquires to Christian.
Post did not respond to a reporter's messages left at his office. Christian said Post had been told to let the lawyers speak about the case.
Morgan said in testimony before the MBOC last January that he met Post several years ago and turned to him for help when he decided to set up MBE.
Morgan testified that he told Post he intended to bid on the city water project, and Post left it up to him to pursue it without offering any advice.
Commission chairman Herman (Tex) Wilson said to Morgan during the hearing: "What concerns me . . . is, here is a company that owns 45 percent of MBE, Inc. The president of that company is Mr. Post, who has put the majority of the money in the company, and a year and a half after the company is organized it is bidding on a $4 million project, and you as president of the company didn't even discuss it with Post beyond saying I want to bid on it?"
"Well, my answer to that," Morgan replied, "is simply because he had enough confidence in me that I said to him I could do it and he said I'm willing to take a chance."