A 12-year-old federal program intended to help disadvantaged minority businessmen compete in the open market is "a promise unfulfilled," in which a handful of firms with powerful political connections have received nearly one-third of the program's government contracts, according to a new General Accounting Office report.
The congressional watchdog found that $1.7 billion of the $5.5 billion worth of contracts handed out by the Small Business Administration since the program began has gone to 50 firms -- 1 percent of 4,598 participants.
"Numerous instances exist of certain firms receiving multimillion-dollar contracts year after year while other firms having similar capabilities receive nothing," the report quoted an unnamed senior SBA official as saying.
The investigation determined that "the program has done too much for too few for too long" and that, as a result, "the rich get richer and the poor get poorer."
Many firms in the program -- known as Section 8 (a) of the Small Business Act -- have participated as long as eight or nine years, the GAO said. The logjam of firms has caused the SBA to reject the applications of 400 disadvantaged businesses while failing to remove "questionable" firms from the program, the study found.
The program's stated aim is to grant government contracts and other aid, without competitive bidding, to disadvantaged business owners to help them become self-sufficient.The GAO report noted that the program "can take credit for some benefits." In addition, officials of many of the firms involved told the agency that the program has increased sales or income, allowed expansion of employment and provided valuable experience and exposure to managing a business.
Theodore A. Adams, president of Unified Industries of Alexandria, the largest 8 (a) contractor in the Washington area, defended the program's achievements. "The 8 (a) program is probably the only program that I know of in current existence that really puts any part of the economic fruits of this country in the hands of the minorities," he said in an interview yesterday. Adams said the program is the most effective one he knows of, and that if it were eliminated, "we'd all die."
Adams, who was an adviser to the SBA during the Carter administration, said the program helps establish minority businessmen as a symbol of success for black people. "Now we just have sports stars and entertainers," he said. "It counters the symbol of the pimp, the dope pusher. It's a positive symbol."
An example of how influential connections are used emerged earlier this week during a congressional hearing when it was disclosed that a $300,-000-a-year food concession business in California was awarded a $44 million U.S. Army weapons testing contract -- which the firm was unqualified to do -- because two government officials wanted them to have it.
One of the officials, William A. Clement Jr., was the head of the 8 (a) program at the time and was a friend of the head of the food firm, Arcata Associates of Burlingame, Calif., that received the contract. In a letter to Arcata's president, Buck Wong, written a month after the award of the $44 million contract, Clement asked Wong to set him up with a business that would make a "product which can be sold to the federal government," according to testimony at the hearing.
"Such widespread mismanagement by SBA will endanger the program in this time of serious efforts to reduce waste in government spending," said Rep. Jack Brooks (D.-Tex.), chairman of the House Government Operations Committee, which held a hearing on aspects of the 8 (a) program on Tuesday.
Arcata is being investigated by half a dozen government agencies, according to federal sources, and Clement has left the government. Clement, reached by telephone yesterday, said he had no recollection of the letter, which was cited at Brooks' hearing. Clement said he could not elaborate without seeing the GAO report and the transcript of the hearing.
The GAO also found that the SBA, in addition to political considerations, was more concerned with meeting annual targets for numbers of contracts and amounts of money being meted out than in helping disadvantaged minority firms enter the commercial mainstream. "In our opinion," the report said, "the major reason why certain firms receive the bulk of 8 (a) contract collars is to help SBA meet its contract goal."
"The award of increasing amounts of 8 (a) contracts has become the single most important measure of the 8 (a) program's success," the report said. "Region and district officials generally agreed that the contract volume goals are contrary to the business development objectives of the program."
Asked about this latest criticism of the program, SBA administrator Michael Cardenas said yesterday: "Even though I have served as administrator for less than two weeks, I am fully aware of the problems and issues connected with the 8 (a) program. I am looking very seriously into the program and the charges and allegations involved in the GAO report."
When asked about the allegations that political influence was being used to obtain 8 (a) contracts, Adams, Unified Industries' president, said, "That's not true. It's rare that I know of any minorities that have that kind of clout. You're talking about the big companies."
Adams' firm is listed by the GAO as having received $68,150,363 in noncompetitive government contracts. Other local firms in the top 50 nationwide, the GAO said, are:
OAO Corp., Beltsville, $41,880,004; Systems and Applied Sciences, Riverdale, $31,866,857; Rehab Group Inc., Falls Church, $26,782,221; International Business Services, Inc., District of Columbia, $22,619,085; Raven Data Processing, Inc., District of Columbia, $22,307,247; Unified Services Inc., District of Columbia, $18,900,696; Tyroc Construction Corp., District of Columbia, $17,478,568; Misso Services Corp. and Associates, Falls Church, $17,139,044; Automated Datatron Inc., Hyattsville, $15,699,341.
In one of a series of articles entitled "Government Out of Control," The Washington Post reported last September that increasing examples had become known of SBA contracts going to unqualified companies, among them organizations headed by wealthy white businessmen who used poor blacks and other minority persons as fronts.
The new GAO study found that minority companies participating in the program tend to look on awarding of 8 (a) contracts as an end in itself, rather than using the contracts as stepping stones to open competition. As a result, of the 4,598 participants nationwide, only 166 have "graduated" into unassisted enterprise in 12 years, the GAO said.
Adams, who began his engineering firm with two employes in 1974 and now has nearly 300, said SBA's own studies show that it takes nine to 20 years to become a "mature" business. "If all the best studies say it takes 20 years, how can anyone expect us to do less?" Adams said. "Why do we have to be superstars?"
GAO investigators found that most participants were so relectant to leave the comfort of noncompetitive government contracts for the open market that officials in SBA's Atlanta district resorted to enticing them with the offer of a "graduation gift" in the form of a large contract "to soften the impact of leaving the program."
In the last two years under investigation by GAO, 1979 and 1980, the "graduation rate" fell to one firm a year. The agency attributed this "virtual cessation" to SBA's failure to conduct annual reviews of the participating firms. As an example, the report found that none of the 39 firms in the Philadelphia district, which incorporates the District of Columbia, had undergone an annual review between January 1978 and October 1979.
Of greater convern, the report found that the overwhelming majority of ;firms failed to submit the required annual busines plan and quarterly and annual financial statements, and therefore it was not possible to determine whether there was misuse of government funds.
For the last several years the 8 (a) program has been the target of criticism from Congress and the SBA inspector general's office.
A September 1979 inspector general report reviewed 1,500 8 (a) firms and questioned the eligibility of 526. It found, too, that some of the so-called minority contractors were simply operating as fronts for white businessmen; at least five of the contractors were millionaires.
The inspector general's office made 22 recommendations for improving the program. These recommendations were adopted by SBA officials, and the inspector general currently is attempting to determine if they have been carried out.
Later this month the House Government Operations Committee is scheduled to resume its inquiry into the program, and next month, the Senate Small Business Committee, chaired by Sen. Lowell Weicker (R-Conn.), is scheduled to consider the GAO report and other aspects of the 8 (a) program.