Someone who earns almost $40,000 a year as an assistant to the President of the United States wouldn't seem to be an "economically and socially disadvantaged" person who needs special help from the taxpayers to earn a living.
Yet, according to internal documents of the Small Business Administration, the SBA obligingly gave that designation to two former Nixon administration aides - Robert J. Brown and Antonio Rodriguez - when they left the White House staff in 1973.
Although the documents don't say so explicity, the SBA justified its decision on the grounds that Brown is a black and Rodriquez a Hispanic American. For both, the decision was the ticket of entry to a special SBA program that gave them noncompetitive business contracts with the federal government worth hundreds of thousands dollars.
This program slices roughtly $300 million a year from the $7 billion spent by the government annually on outside contracting and reserves it for firms run by the "economically and socially disadvantaged." Its aim , according to SBA officials, is to assist persons who, because of poverty, discrimination and other handicaps, have been denied the education, working experience and financial resources necessary to become established in the business world.
But, as the cases of Brown and Rodriguez indicate, the SBA has issued some remarkably liberal interpretations of what it takes to qualify as "disadvantaged." Nor were the two former White House staffers the only people benefit from the SBA's elastic definition, as this and a subsequent article will show.
Internal SBA documents seen by The Washington Post show that others who received lucrative government contracts on grounds of being "disadvantaged" include a man who last year was offered a presidential nomination to be a director of the Export-Import Bank, a man who built up a mini-conglomerate of businesses in California and Mexico, and a former high-ranking official of the SBA who switced from the giving to the receiving end of government business.
The story behind these contracts is scheduled for a public airing beginning Wednesday when SBA officials trek to Capitol Hill for three days of hearing by the Senate Federal Spending subcommittee headed by Lawton M. Chiles Jr. (D-Fla.).
"The subcommittee will be asking the SBA's new director, Vernon Weaver, about mounting evidence that it's "disadvantaged" program has served less to help its intended recipients than to enable undeserving people to cut themselves a piece of the government's contracting pie.
It's commonly known as the 8 (a) program, a reference to a provision in federal law authorizing the SBA to act as middleman in inducing government agencies to take part of their contracting for goods and services out of the competitive bidding process and give the jobs to small business.
Under policies established by the Nixon administration in the early 1970s, this 8 (a) authority is now used primarily to help firms owned by blacks and other minorities obtain a foothold in government contracting.
Participating federal agencies, such as the Defense Department and the General Services Administration, assign to the SBA part of their contracting work that appears to be within the capabilities of minority firms. The SBA, in effect, then subcontracts the jobs to firms that at the discretion of the SBA, have been certified as under "disadvantaged" ownership.
SBA officials estimate that, as of early this year, approximately 1,000 firms in different parts of the country were working on roughly 2,000 8 (a) contracts with a total value of $379 million. Most are in manufacturing, construction or the providing of janitorial, security or food services at government installations.
Because they are sheltered and noncompetitive, 8 (a) contracts frequently cost the taxpayers more than thoseawarded through normal bidding. The government argues that these additional costs are justified by the need to help minorities break into the business world and and, as they posper and become competitive provide jobs for other disadvantaged persons.
However, that premise was called into question at hearings conducted by Chiles in southeastern states a few weeks ago. Minority businessmen charged that 8 (a) is saddled with red tape and restrictions that frequently bar them from qualifying for contracts or, when they do get jobs, that deny them the technical assistance needed to perform the work successfully.
These charges are underscored by the SBA's own admission that after almost a decade of 8(a) operation only about 90 firms have been "graduated" to a level where they are able to compete for business without special help.
The Chiles hearings also turned up evidence that many 8(a) firms actually were fronts for white businessman, who controlled them through handpicked "minority" executives and stockholders. Finally, there was evidence that some people were disadvantaged but because they had good political connections or personal relationships with SBA officials.
The way many of these threads come together is illustrated by the case of Robert Brown, who was the highest-ranking black on the White House staff during much of the Nixon administration. At the White House, Brown worked primarily on minority political affairs; he was widely credited with enlisting entertainer Sammy Davis Jr., as a Nixon supporter.
When Brown left the government, he and another black, Harrison Cade, who ostensibly was experienced in food service operations, founded Cade Service, Inc. The firm, headquartered in Santa Ana, Calif, then applied for 8(a) assistance.
In correspondence with the SBA, Brown reported that his salary in the White House had been $36,000 a year. Nevertheless, Cade Services was approved as a "disadvantaged" minority firm and in June, 1973, was awarded a one-year contract paying $886,651,40 to provide food and janitor services at El Toro Marine Air Station in Santa Ana.
In his application to the SBA, Brown listed himself as secretary-treasurer of Cade Services and said his principal job would be to develop commercial markets for the firm. However, the SBA documents show, questions soon arose about whether he really was doing much beyond lending his name to an operation run by whites.
The Cade Services contract called for paying $90,000 a year to ABC Food Services for assistance in managing the El Toro job. ABC is controlled by happy Franklin, a white El Paso, Tex, businessman who has been involved in several attempts to obtain 8(a) contracts for minority firms with which he had financial ties.
The SBA then investigated this arrangement to find out why so much was being paid to ABC when Brown's partner Cade, was supposedly knowledgeable about food service management.
The results of this probe were spelled out in a Dec. 5, 1973, report by the SBA's Los Angeles office. It found the Cade had no idea how the business functioned ("Mr. Cade simply does not comprehend what the numbers on a financial statement mean"), that Brown, despite his title and the job description he had given the SBA, "seldom if ever had any participation" in the firm's activities, and that Cade Services actually was being run by Happy Franklin.
Brown, who is now a Washington public relations consultant, could not be reached for comment. An assistant at his Washington office said he was away from the city, and a request that he return a reporter's call went unanswered.
Franklin, however, in atelephone interview, said he had become involved in the El Toro contract at the request of SBA officials "who took me to lunch to introduce me to Mr. Brown and ask if I could help him get established in the food service business."
Franklin said he brought Brown and Cade together. He said, "Cade knew only the bottom end of the business, and Brown knew nothing about any part of food service work, but the SBA still wanted them to have that contract." As a result. Franklin asserted, his ABC firm had to give them "a terrific amount of help." This he felt, fully justified the fees he collected from the contract.
Franklin also recalled that he was with Brown at the SBA's regional headquarters in San Francisco "when SBA officials tore up his original 8(a) application and showed him, literally line by line, how he should redo it to make out a case that he was disadvantaged."
"They noted that he'd gone to some black state college in North Carolina." Franklin said. "So they asked him, "Why didn't you go to the University of North Carolina? Because it was segregated, right? He said, 'Right.' So then they told him. "Put down that segregation in North Carolona deprived you of the opportunity to go to the University of North Carolina and put you at a disadvantage."
Brown's former White House colleague, Rodriquez, also cited discrimination and deprivation in his youth as a justification for 8(a) help when he left the Nixon administration in 1973 to head a new Los Angeles firm called RCX Corp.
An internal SBA memo noted that Rodriguex's White House salary had been $39,000 and that he had a personal net worth of $60,000 at the time of his 8(a) application. The memo also pointed out that the college-educated Rodriquez had been a high school teacher, a district manager for an insurance company and a foreign service officer and concluded: "His background does not seem to be disadvantaged."
Yet, even, before he officially left the White House staff, Rodriquez managed to sew up a $75,000 technical services contract from the Department of Health, Education and Welfare for RCX Corp.
RCX actually was a subsidiary of Amex Electronics Systems, Inc., a Riverside, Calif, firm operated by Manueal Caldera, who had capitalized on his Hispanic-American background to get into the 8(a) program in 1971 and had been a major beneficiary of it ever since.
Starting with relatively modest study contracts that paid between $1 million and $2 million a year, Amex currently is installing and modifying electronics equipment at naval bases for contracts in excess of $6.3 million. Caldera reported last year that he personally was drawing $4,920 a month from the firm.
In fact, Caldera's image as a successful businessman won him an offer of nomination to a directorship of the Export-Import Bank last year. But, in June 11, 1976, letter to Louis Laun, then deputy SBA administrator, Caldera said he was turning down the offer because acceptance would have caused him to lose his 8(a) contracts.
Still, Calder's income and standing have raised questions within the SBA about whether he can properly be considered "disadvantaged." Tentative decisions to "graduate" Amex were made at least twice, but SBA records show that, as of the end of April, Amex was still getting about 34 per cent of its business in 8(a) contracts.
Another "disadvantaged" Los Angeles-area businessman described in the documents is Rafael E. Vega, president of Cabrillo Food Services, which has 8(a) contracts of more than $2 million to provide food services at Nellis Air Force Base.
The SBA documents show that Vega also was owner of a popular Los Angeles restaurant, Casa Vega, ran a landscaping business and was at least part owner of a factory in Mexico. In correspondence with the SBA, he admitted that his annual income from the restaurant alone was at least $36,000.
In addition, Vega collected salaries as a public interest director of the Federal Home Loan Bank Board and a commissioner of the Los Angeles City Housing Authority. He also was a director of an educational television station, a trustee of Ponoma College and an advisory committee member of the California Museum of Science and Technology.
A report by an SBA official noted that, in four years of existence, Cabrillo Food Services never acquired any business 8(a) program. The report concluded that Vega "is engaged in other activities at the expense of developing Cabrillo" and asked: "Is the purpose of the 8(a) program to develop a conglomerate for a successful individual?"
Yet another example of how the SBA defines "disadvantaged" involves Arthur McZier, a black who was an SBA official himself from 1969 to 1973. During much of that time, McZier was one of the chief overseers of minority programs as the agency's associate administrator for minority enterprises.
Besides the exposure to the business world given him by this post and subsequent work in private industry, McZier's credentials include a college degree and special advanced study at the Harvard Graduate School of Business and the Ford Marketing Institute.
This year, McZier formed National Business Services, Inc., and turned up at his old agency seeking 8(a) business. The SBA duly certified him as "disadvantaged" - citing a lack of business experience and financial contracts - and aranged a $507,957 contract for his firm to provide food services at March Air Force Base in Riverside, Calif.