Several local Construction companies have taken profits from government water and sewer projects in suburban Maryland by setting up "minority" firms to bid on government contracts or by acting as brokers for companies not allowed to bid on some construction jobs.
As a result of such practices, the Washington Suburban Sanitary Commission, which awards and supervises the contracts, has paid 5 to 10 percent more than necessary for some water and sewer lines it has the exclusive responsibility to build, according to contractors and public records.
The WSSC uses money it collects from taxpayers and homeowners in Montgomery and Prince George's counties to pay construction companies more than $100 million a year for building water and sewer lines and treatment plants. For years, a large portion of these contracts have gone to a circle of about 30 local companies who depend on the agency for their livelihood.
Yesterday, The Washington Post Reported evidence that some of these companies have used an informal "turf" system to arrange prices on some of these contracts and sway the award of others.
This story will show how several WSSC contractors have either circumvented the agency's rules or used its special programs to obtain more work and profits and to get an edge on the competition.
Five established construction companies have set up or used minority firms and either exist only on paper or depend entirely on a regular firm for their existence. These minority firms can bid on WSSC water and sewer set-aside contracts reserved for minorities. All of the minority firms have been awarded either set-aside or regular WSSC contracts.
In some cases, the minority firms' owners have simply taken a percentage cut of the profits on their jobs while the established WSSC company has taken over all of the work -- and the rest of the profits.
The apparent abuses have made the WSSC's widely promoted minority contracting program a failure. "If I thought there were ligitimate (new) minority contractors out there, I would go out there and get them," said Julie Soucy, who supervises WSSC contract bidding. "But I can't find any."
This year, the WSSC has offered four contracts -- worth $65,780 -- to minority firms under its set-aside program, but has yet to award a contract to a legitimate new minority bidder. Says contracting director Robert C. Haven: "It's not working very well."
To qualify for a minority contract, a firm must be at least 50 percent OWNED BY MINORITY BUSINESSMEN, THE WSSC law requires. Paul Sisson, the WSSC's assistant counsel, said that if a firm bidding as a minority was found to be a front for a nonminority company, "We'd have grounds to end that [company's] certfication; he'd never get another contract from us."
Added Sisson: "If a white man set up a minority in business, financed him, gave him the equipment and gave him the men," then the minority investor would simply be "an employe with a bonus contract. He's just a figurehead. It would defeat the whole purpose of having a minority program."
Prehaps the most peculiar aspect of the WSSC's minority contracting program is that the agency's officials put together their regulations and began bidding special set-aside contracts before they had found any deserving new minority firms to bid on them. "I don't know but two legitimate minority contractors . . . and they have both bid with us, for years" said Soucy. "What can I say? This is not just the WSSC, it's a nationwide problem. Every agency is trying to do this and is having the same problems."
The minority set-aside program was adopted by the Maryland legislature in 1978 and formally approved by the WSSC a year later. The purpose was to "encourage the development of minority business firms, and to render effective assistance to minority businesses."
The program provided that the WSSC commissioners would approve a list of specific construction contracts every three months to be set aside for bidding by "responsible minority business firms." No contract was to be over $100,000, and WSSC officials were allowed the relax some of the financial requirements applied to regular WSSC contractors. "I Make Money Too"
The first minority set-aside contract was bid last April, when two new minority companies suddenly appeared before the WSSC. Both firms were created by regular, white-owned WSSC contractors.
One of the firms, Fred Locklear Co., won that first water and sewer contract on 47th Place in College Park with a bid of $13,440.
Before he became president and sole owner of Fred Locklear Co., Fred Locklear, a 46-year-old man of American Indian descent, was a foreman for Concrete General of Rockville, which is owned and run by Carl Miller, a longtime contractor for the WSSC and the Maryland Department of Transportation.
Lockhear still works as a salaried employe for Concrete General Only during the time he was working on his firm's contract with the WSSC did Locklear leave the Concrete General payroll. And even then, it was difficult to distinguish the Locklier Co. force on the 47th Place job from Concrete General's operation.
The work was done by Locklear and four men. Two of them took leave from their Concrete jobs to temparily work for the Locklear Co. The other two -- the backhoe operator and the dump truck driver -- were also Concrete General employes who were "rented "by Locklear from his boss.
The equipment on the job site -- the dumptruck, the backhoe and so on -- also belonged to Concrete General. A Concrete General estimator calculated Locklear's bid on the contract and a Concrete General clerk kept Locklear's books.
When the job was compledted, Locklear Co., for all practical purposes, evaporated. Locklear went back on the Concrete General payroll.
With the proceeds from his job, however, Locklear paid Miller for the use of his men, equipment and machines, paid the two other employes on leave from Miller's payroll, and paid back a $5,000 no-interest loan Miller had given him to set up his company and meet the first Locklear payroll's for the two employes. "All the profit went to me," Locklear said.
Locklear said he had worked with Miller who encouraged him to start his firm and showed him how to do it. "Carl's a fine man to work with," he said. "Why he does this for me is beyond my knowing. He's nice about it."
"It's almost like a son," said Miller. "You have to help somebody get started because they can't do it on their own. And there's coming a time that contractors, with the minority requirements (on jobs they bid on) are going to have to help start these people.
"It's not just out of the godness of my heart," Miller said. "I make money on these people, too."
Locklear, said Miller, "Is the kind of guy I'd like to see make minority contractor. He doesn't have any education but he's got good common sense. He doesn't blow his money. The biggest problem with (some) minority contractors (in all fields) is that they don't handle their money well. They're not used to it."
The second new minority company to bid against Locklear on the first minority set-aside contract was Pipes Unlimited, which went on to bid on other jobs but still has not won one as a minority contractor.
The president of Pipes Unlimited is a woman, Carol Ennis, the wife of WSSC contractor Roy Ennis, the president of Ennis and Son of Camp Springs. The company has no physical presence outside of its incorporation papers, but when it does a job, Ennis and son will provide equipment, men, and financial backing.
The guiding spirit behind Pipes Unlimited, Roy ennis, is unabashed about his intentions. "Minority set-aside money is giveaway money," he said. "I'm losing 25 percent of my makret (as a contractor) to minority contractors, of which there are none. Every (new) minority contractor (I know) is tied up with some other contracor. I've got to find some way of getting into the minority market.
"I might fall flat on my face," Ennis said. "And if I do, I'll get into the minority market."
So far, Ennis has not quite succeeded. Although he has bid on WSSC minority contracts , he could not take one if he were low bidder. Even though Pipes Unlimited is owned by someone who qualifies as a minority -- a woman -- Ennis has not yet met the WSSC's requirement that the company be certified by a government agency as legitimate minority business.
Ennis has not been turned down by government agencies, however, and currently has a hearing for Pipes Unlimited pending before the Maryland Department of Transportation, which the WSSC recognizes as qualified to certify minority contractors.
"Pipes Unlimited is a minority contractor any way you want to cut it," Ennis says. "The only difference is, we don't yet have a number" given by a government agency to approved minority contractors. "If I can get a minority number, it will be worth a lot to me."
From the WSSC's point of view, the essential difference between Locklear and Pipes Unlimited is that Locklear has been certified by a government agency -- the federal Economic Development Agency -- as a ligitimate minority business.
Locklear got his certification in 1978, Fred Locklear says, when Concrete General was awarded an EDA contract of more than $600,000 for a sewer job at North Beach near the Chesapeake Bay.
Federal regulations required that Concrete General give 10 percent of the job to a minority firm. It was then that miller first helped Locklear to set up his firm, under the same arrangements used this year on the WSSC contract. The EDA certified Locklear as a legitimate Minority business, and Locklear and Concrete General went on to do the job together.
When the work was done, Locklear shut down his firm, and did not start up again until the WSSC began its minority set-aside program.
Miller said he planned to make further use of Locklear's firm and another he helped start in a similar way -- Rivers Construction, whose president, John Rivers, works for Concrete General "off and on."
"State roads is starting to have requirements for minority participation" on contracts, Miller said. "If I have minority requirements to take care of, [Locklear or Rivers] can do it." Rivers, Miller said, helped him on his roads contracts by taking over the pouring of concrete, and has worked for "one or two other contractors."
In addition to Locklear, two other minority firms, James R. Roane Co. and Alejo Lopez Jr. Construction Co. have won set-aside contracts.
The Lopez firm, like another WSSC contractor that qualifies as a minority business, Lisbon-Madeira Ltd., is a long-time WSSC contractor that competed for and worked steadily on the agency's contracts for a decade or more before the set-aside program came along. Both Lopez, which won a $9,940 set-aside contract in June, and Lisbon-Madeira, are owned by Hispanics and have no connection to any other company.
In 1979, without any set-aside bids, Lopez won 16 WSSC construction contracts worth $910,127, while Lisbon-Madeira won 12 contracts worth $2,274,007 and was the second largest WSSC contractor in suburban Maryland. $2
Contractors frequently complain that the set-aside program has merely given an enormous advantage to two regular WSSC bidders who need no such help.
"The contractors we've gotten so far [to bid] have often been regular contractors who happen to have Spanish surnames," conceded the WSSC's Haven. "It's a Farce"
James R. Roane, who controls the company that bears his name, says he was "one of the only blacks bidding my own jobs and doing my own work."
But this year, "work got slack," for Roane and financial considerations forced him to disband his two crews. Later, when he had won his $22,925 minority set-aside contract from the WSSC in June, Roane said he turned to a regular WSSC contractor, Ventresca and Sons of College Park, to do the work.
In effect Roane became a broker on the job, turning all the work over to Ventresca while keeping a 15 percent margin for himself. "As long as I get 15 percent I don't care since I won't get much more if I had done it," Roane said.
"Probably somebody will say I'm his [Ventresca's] minority flunkie," Roane said. "but I bid it [the contract]."
Roane said he gave Ventresca the work because he asked Ventresca's managers how much it would cost them to do the job and their price was "much less" than his accepted bid.
Under the arrangement between Roane and Ventresca, Ventresca rented Roane equipement and workers, so officially Roane was still in charge of the work."He'd rent me his equipment. He'd rent me his payroll. I'll pay for his services," Roane said.
Roane, who now spends much of his time at the gas station he owns in the District of Columbia, said he was glad he had made the deal with Ventresca because difficult technical problems came up in the work -- unexpected rock in the ground that was difficult to get out. "If I had done it, I'd be up a creek," Roane said.
John Ventresca of Ventresca and Sons agreed that his firm had taken over Roane's work for him, but said he saw nothing wrong with the arrangement. o
"Roane said work was slack, it was a little small job anyway and could we help," Ventresca said. "I don't know anything about Roane except that he came in to buy things from us."
In an earlier interview, Ventresca spoke more bluntly about the WSSC'a minority contracting program: "It's a farce," he said.
Roane, Lopez and Locklear are the only minority firms to benefit from the WSSC's special set-aside program so far. A fourth contract was bid last April, but that time WSSC threw all of the bids out.
Locklear, which won the bidding with a price of $19,375, and Lopez were disqualified because they did not submit proper documentation. The third disqualified bidder was Ennis' Pipes Unlimited. Eventually, the WSSC rebid the contract on the open market, and Pipes Unlimited won with a price of $17,985, saying the WSSC $1,390 or 7 percent of Locklear's price.
Despite this record, the WSSC is continuing the minority set-aside program for bidding next month. And an expansion of the program is in the works, according to Haven. Soon, he said, some larger WSSC contracts may be offered with mandatory minority participation clauses, in the manner of state and federal contracts.
Marge Johnson, the director of the WSSC's minority program, says that the federal Environmental Protection Agency "has such faith and confidence in our minority program" for contractors that it will be used as a model in revising EPA contracting regulations.
Not all of the WSSC contractors who have backed new minority firms have done so to take advantage of the agency's set-aside program. Officials of two contracting firms, Jones and Artis of Prince George's and Corson and Gruman of the District of Columbia, combined to set up the minority firm P.G. Contractors in January 1979 to take advantage both of set-aside contracts in the District and of nonunion labor, according to officials of the firm.
P.G. Contractors has not yet won a minority set-aside contract from the WSSC, but was awarded a $981,416 paving contract by the agency in 1979, and has been promoted as a minority firm by the WSSC ever since.
The company is certified as a minority firm both in Maryland and the District, and 52 percent of it is owned by the principals of Jones and Artis, an all-black firm, according to Bob Jones, the president of Jones and Artis. The rest of the company is owned by Bituminous Products, a company that is owned by Arthur Cox Sr., who also controls Corson and Gruman.
Jones said that his firm decided to strike a partnership with Cox because his firm pays $8 an hour for union labor while P.G. Contractors can pay its nonunion help $5 an hour. The firm also has more resources than Jones and Artis alone, because it has rented equipment from Corson and Gruman and has that company's financial backing when bidding on contracts.
Cox, for his part, retains part ownership and collects part profits from a firm eligible for set-aside minority contracts, and Corson and Gruman is paid for its equipment rentals. Cox is on the board of governors of P.G. Contractors and his son is vice-president.
"A lot of [minority contractors in all fields] bounce around from contractor to contractor until they can strike a deal," said Jones.
Minority firms are not the only construction companies that depend on established firms working for the WSSC. Some other regular WSSC contractors at times effectively act as brokers for smaller firms that are not allowed to bid at the WSSC themselves.
Ennis, for example, said that for a year and a half in 1977 and 1978, he turned over every WSSC job he won to Meco, a company run by a contractor who had to stop bidding at the WSSC after he got into financial trouble and did not finish some of his work for the agency.
Ennis said that after winning a job, he would simply take his own margin of profit and turn the rest over to Meco, which had its own equipment and personnel. There was no need for Ennis to go to the job site.
Ennis said, however, that he had to modify his practices after several contractors complained about Meco to the WSSC's Haven, who called Ennis in to ask about it. Although Ennis was violating WSSC regulations, he did not admit his offense to Haven and Haven took no action against Ennis and Son or Meco, both men said.
Since then, Ennis has modified his arrangement with Meco by putting the company's men on his payroll and renting their equipment when they work for him, thus technically complying with the rules by changing his accounting. "I'm perfectly legal now," Ennis said. "If Haven comes after me, I've got my house in order."