Government contracts intended to aid "economically and socially disadvantaged" minority businessmen were awarded to a Washington construction firm that apparently had no assets and no employees except its founder, former District Commissioner John B. Duncan.
Although the purpose of the funds was to help struggling minority businesses get established, an internal report by the Small Business Administration said Duncan, who is black, then subcontracted all the work given his firm to white contractors.
Portions of the SBA report were made public yesterday by Sen. Lawton M. Chiles Jr. (D-Fla.) at a Senate Governmental Affairs spending subcommittee hearing into allegations that federal programs to aid the disadvantaged have been abused. Chiles did not reveal the name of the person in the SBA report, but informed sources identified him afterward as Duncan.
Duncan, who served as commissioner from 1961 to 1967, could not be reached last night for comment. The SBA report noted that he had been certified as "disadvantaged" even though he has an income of more than $43,000 a year and lives in the luxury Watergate apartments.
The contracts received by his firm were among those cited by Chiles yesterday as proof that an SBA program, which takes roughly $300 million a year in federal contracting of the competitive bidding process and awards it to minority firms, has turned into "$1.5 billion sham."
The Washington Post reported earlier this week that many of these contracts for the "disadvantaged" actually have gone to persons with political connections such as two former Nixon White House staffers or to blacks who were acting as fronts for white entrepreneurs.
Another case explored by the Chiles subcommittee yesterday involved allegations that white businessmen in Petersburg, Va., used a black as a front to obtain a $350,000 minority-assistance loan from the SBA to form a sand and gravel company and then pushed the black out of his majority ownership of the firm and sold it at a huge profit.
According to the testimony, a key role in these transactions was played by Richard D. Obenshain, former state chairman of the Virginia Republican Party and a potential candidate for the party's nomination to succeed retiring Sen. William L. Scott.
The black who served as a front for the Petersburg firm told the subcommittee under oath that Obenshain, a Richmond attorney, helped arrange the SBA loan and did the legal work on the internal stock reshuffle that enabled the black's white partners to force him out of his majority ownership.
Obenshain told the Washington Post last night that he could not comment on the allegations since the circumstances of the firm's sale are issues in a pending Virginia law suit.
These were only two of the alleged abuses cited by Chiles. He ticked off case after case of loans for the disadvantaged going to the wealthy, of illiterate black janitors functioning as fronts for white entrepreneurs, of established businessmen prospering through connections with SBA officials and of companies whose entire assets consisted of SBA loans and contracts.
Duncan's name was surfaced as the result of Chiles reading part of an SBA surveillance report about a retired District government official who was given federal construction contracts despite a retirement income "in excess of $43,000."
The report said the retired official "knows nothing about construction," was the "sole employee" of his firm and had subcontracted all the work given to him by the SBA to non-minority companies. It did not specify the value of the contracts, what they were for or when they were awarded.
However, informed sources said the firm in question was Capital Contractors, Inc., with offices at 1000 Connecticut Ave. N.W. They added that SBA records list the firms president as John B. Duncan.
Capital's address and telephone number are the same as those for an office maintained by Duncan. A telephone call to the Capital Contractors number yesterday was answered by recording that said, "This is John Duncan . . ." and went on to ask that the caller leave a message.
Duncan was the only black to serve on the triumvirate of commissioners that governed Washington before the city switched to the mayor-council system. He also is a former executive assistant to the Secretary of Interior and is currently a senior vice president of the Metropolitan Washington Board of Trade.
The Virginia case involved Joseph Harris, a Petersburg black, who testified that he quit a $6,500-a-year job as an orphanage superintendent after two white brothers, John and Louis Williams, asked him to help form a sand and gravel company and serve as its president. Harris was given 51 per cent of the stock in order to qualify the company as a minority-owned firm.
Initially, Harris said, officials of the Richmond SBA office rejected requests that the firm, Atlantic Materials, be given a $350,000 minority-assistance loan. He said the officials told him he was clearly serving as a "minority front" for wealthy white businessmen.
However, Harris continued, the situation changed after the firm replaced its black lawyer with Obenshain. He said Obenshain simply resubmitted the previously rejected loan application without any significant changes and the SBA reversed itself to grant the loan.
Harris said he "got the impression" from Richmond SBA officials that Obenshain used his political connections with the Nixon administration to get the loan approved. He admitted, though, that he had no first-hand knowledge of whether that was true.
After the loan was granted, Harris charged, the Williams brothers froze him out of the firm's operations. He said they would not let him see the books, denied him the use of a desk and toilet facilities at the firm's quarry site and, when he protested, cursed him.
When Harris complained to the SBA office in Richmond, he said, then-director Thomas F. Regan told him repeatedly not to worry since the SBA would look out for his interests. Regan was convicted last year of federal charges of fraud and conspiracy to defraud the government in another case and is now serving a nine-year sentence ina federal prison.