Judged by his impressive sounding titles, Henry Ferguson would seem to success story - the model of how a black entrepreneur can get ahead in American business.
Ferguson is the former secretary-treasurer of Technical Service Enterprise, Inc., a North Carolina firm that has earned hundreds of thousands of dollars by providing labor services at U.S. military bases. He was also a director of three other firms with similarly lucrative government contracts.
As part of his duties, Ferguson was supposed to act as recording secretary at Technical's board meetings. However, according to a confidential report by the General Accounting Office, Ferguson wasn't even able to write his name and used as "X" to denote his signature.
Ferguson, it turned out, was an elderly laborer on the farm of a white businessman, identified in the GAO report as the real, behind-the-scenes power at Technical and the other firms. As for Ferguson, he told government investigators that his real job at Technical was "to clean up around theoffice."
Actually, Ferguson was a man of critical importance to Technical's operations. Because he and other blacks were - at least on paper - the principal officers and stockholders, the firm was able to qualify as a "black-controlled" company eligible for a special program of the Small Business Administration intended to aid businesses rin by the "economically and socially disadvantaged."
It's known as the 8(a) program, a reference to a provision in the federal law authorizing the SBA to act as middleman in including federal agencies to take part of their contracting for goods and services out of the competitive bidding process and give the jobs to small businesses. Throughout the 1970s, this 8(a) authority has been used to help minority-owned firms get a foothold in the government contracting business.
According to the SBA's most recent figures, there are approximately 1,000 such firms around the country working on roughly 2,000 8(a) contracts with a total value of $379 million. Most are in manufacturing, construction or the providing of custodial, security or food services at government installations.
Because there is no competitive bidding and because most of the contracts contain what amounts to learning-process subsidies for inexperienced minority entrepreneurs, the cost to the taxpayers for 8(a) jobs is greater than if the contracts were given to established firms through normal channels.
Until now, these additional costs have been justified on the grounds that there is a compelling national interest in helping the disadvantaged to break into the business world and, as they prosper and become competitive, to provide employment opportunities for others.
Now, however, questions are being raised about whether the aims of the 8(a) program are being perverted in a way that gives the advantage not to those who need help but to unscrupulous white business owners who use blacks and other disadvantaged persons as fronts to cut themselves a slice of the government contracting pie.
Conversely, many black businessmen have charged that the 8(a) program, instead of helping them to prosper, has involved them in projects that exceed their technical and financial resources and ulimately force them into "front" arrangements as a means of staying afloat.
These charges are being examined by Sen. Lawton M. Chiles Jr. (D-Fla.), who recently roamed through the South holding an almost unnoticed series of one-man hearings on the SBA's administration of the 8(a) program.
Last fall, the SBA send Edward A. Goodbout, an official of its Chicago office, to examine the situation in the southestern region. In a confidential report sent to his superiors last Nov. 12, Goodbout detailed 31 major deficiencies in the program's administration and concluded that the 8(a) program in the southeastern region is "out of control."
The facts brought out by the Chiles hearings and by the confidential reports of Goodbout and the GAO make clear that the apparent lur of the big money set aside for 8(a) contracts has caused some highly unusual business relationships to grow up around the program.
For example, there's the story told by another black, Charles C. Wilson II. Unlike Ferguson, Wilson has no trouble with his signature. He's a college graduate employed as a personnel interviewer by the Pratt and Whitney aircraft firm in West Palm Beach, Fla.
From 1972 to 1975, Wilson also had a second job. He was president and board chairman of Markham Brothers, a vegetable canning concern in Okeechobee, Fla. But, Wilson has told SBA officials, he received no salary, knew nothings about the firm's business or financial affairs and had no function except to sign blank checks for the use of the white businessmen who recruited him into Markham.
Markham's only asset was an out-moded, almost imoperate cannery. Yet, because the firm was ostensibly under black control, it received $1.8 million in government contracts to provided canned goods to the Veterans Administration and the Defense Department.
The purpose was to get the cannery functioning as a viable black business. But the whites who controlled Markham used the governmental payments to buy the canned goods from another firm and then resold them to the government.
Even then, the VA rejected more than 2,000 cans substandard, and the firm eventually went broke. As for Wilson and the three other blacks who ostensibly owned 51 per cent of Markham's stock. they never received their stock certificates from the white promoters who had recruited them; and they made nothing from Markham's government contracts except some part-time payments of $2.30 an hour.
Most allegations of abuse centered on the program's use of so-called "sponsorship" arrangements. This is a system under which an experienced firm is required to take a minority enterprise under it wing and help it to perform government contracts by providing technical assistance, resources and assistance in obtaining financing and bonding.
Normally, the arrangement continues until the sponsored firm is ready to be "graduated" from the 8(a) program - brought to a level of experience and expertise where the SBA regards it as able to compete in the business world without special government assistance.
The way in which these arrangements can be manipulated was outlined in a confidential 1975 report by the GAO on the activities of the Dunn Group, an interlocking combination of three service contracting firms head-quartered in Dunn, N.C. This groupwas controlled by three white businessmen: George F. (Rick) Marsall, Eddie P. Draughon and Robert P. Rupert.
Between 1971 and 1974, the Dunn Group formed and sponsored seven firms, where the majotiry of stock was held by blacks or other disadvantaged person. As a result, all seven firms qualified for the 8(a) program and they received a total of $16.5 million in government service contracts.
However, the GOA study contended, real control of the seven firms rested with the three white principals of the Dunn Group. Although they technically were only minority stockholders in the seven firms, they handpicked as the "disadvantaged" officers and majority stockholders persons who allowed them a free hand in running the companies.
One of these minority firms, for example, was Techinial Service Enterprise. Ferguson, the secretary-treasurer who signed his name with an "X" was an employee on Ruppert's farm.
The GAO said its review of the seven firms' records disclosed that approximately $4.37 million or about 25 per cent of the gross revenues to these companies actually went to officers stockholders and employees of the Dunn Group. By contrast, the disadvantaged stockholders of the seven8(a) firms received a total of $734.000.
Eventually, pressure from the SBA froced the three Dunn principals to sell thei Marshall, Rupert and Draughon held 37,500 shares in these firms, for which they had paid $37,500 or $1 a share at the time the companies were formed.
But, the GAO report said, when they got out of the minority firms, they sold their stock for $1,066,660. By contract, the GAO added, those disadvantaged persons in the firm who also sold their stock "received only" par value or forgiveness of their personal notes" for their original stock purchases.
Theprofits reaped by white sponsors like the Dunn Group stand in stark contrast to the experience of those whom the 8(a) program was designed to help. Since its inception, the program has succeded in "graduating " only about 90 minority firms.
The others have never been able to put themselves on a competitive footing. and many have come out of the program with nothing more than the sort of sad tolg to the Chilcs hearing by Robert L. Singleton, a black building contractor from Jacksonville, Fla.
Singleton, who had a successful small masonry contracting business, asaid he was recruited by the SBA to take on two larger contruction jobs for the government, with promises that he would would earn a 10 per cent profit.
However, he charged, the SBA never made good no promises to provide him with adequate technical guidance and help. As a result, he continued the jobs proved to be too much for his resources, encountered substantial cost overruns and eventually brought him to the verge of bankruptcy.
When he applied for help, Singleton charged, SBA officials offered to get him additional contracted of he would split them with the Lenoir Construction Co., of Kinston, N.C. - a firm headed by Fred Gadner, a former brother-in-law of John T. Scruggs, the SBA's assistant regional director in Atlanta.
The apparent intention. Singleton said, was to turn him into a "front" enabling Lenoir to get in on 8(a) contracts. Singleton said he refused to go along with this.
His charges about Lenoir and Scruggs are now under investigtion by the Justice Deparment and his other allegations that the SMA got him into jobs beyond his capacity and then abandoned him are about to be investigated by the new Carter administration team at SBA.
"We've heard about these things, but at this point they are still in the realm of unproved allegation," said Edward H. Lewis, the newly appointed SBA deputy administrator in charge of - 8(a) programs. "We're going to take a look, get as much information as we can, and if we find there are problems and abuses, we will go to Congress and ask for direction about how clean the situation up."