Pick a scandal that involves District taxpayers getting screwed, and there’s a healthy chance you’ll find some form of abuse of the Certified Business Enterprise program.
The District, like many jurisdictions, has a well-intentioned and very politically popular law that gives certified small, local, and disadvantaged businesses (known as CBEs) preferential treatment when bidding on city contracts. The justification for the program, according to District code, is threefold: “(1) stimulate and expand the local District of Columbia tax base; (2) increase the number of viable opportunities for District residents; and (3) extend economic prosperity to local business owners, their employees, and the communities they serve.”
In plain English, the CBE program gives minority-owned small businesses in the District opportunities to get off the ground that they might not find in the private sector. But the local CBE program always seems to be in the news for the wrong reasons.
Last year, an independent investigation found that CBEs that won contracts with the city’s technology office “often do little more than find applicants to fill open jobs...and often win awards despite bidding up to 12 percent higher than other vendors,” the Washington Business Journal reported.
Trips to the archives show plenty of problems with bigger, non-minority contractors teaming up with minority contractors to win bids, only to stiff their partners once the contracts are signed. The messy fight over the District’s lottery contract was largely between connected CBEs and their political allies. The prevailing view among cynical long-time political watchers is that the CBE program lets a fortunate few, especially those with connections, enrich themselves at the city’s expense. Any time there’s a chance for a company to get preferential treatment from the city, after all, there’s a chance for someone to help out their friends.
The latest example: The D.C. Council’s investigation into whether former Mayor Adrian Fenty steered millions of dollars worth of park construction contracts to his fraternity brothers. The investigation, led by attorney Robert Trout (which is why everyone calls it the Trout report) found that Fenty, himself, did nothing wrong.
But the report was not so kind to Fenty’s fraternity brothers, Omar Karim and Sinclair Skinner. Trout recommends that the U.S. Attorney’s Office, which could grant immunity to reluctant witnesses, investigate, among other things, whether Karim and Skinner engaged in an illegal pay-to-play scheme.
Trout hasn’t been shy about saying he thinks Skinner, possibly with Karim’s help, ripped off taxpayers for more than $500,000 by adding an unnecessary and expensive layer of management to the contracting process.
And how did they get into position to commit said alleged rip-off? The CBE program.
The Trout report details how established Virginia-based developers, Sean and Thomas Regan, were looking to pair with a CBE to boost their chances of winning District construction contracts. The Regans “considered a number of different [CBE] firms, including firms on the D.C. Public Schools facilities division approved contractor list,” the report says. But they wound up with a CBE that wasn’t on that list, Karim’s Banneker Ventures, at the suggestion of Fenty’s former development director, David Jannarone. Jannarone has a long friendship with both Fenty and Skinner, who he’s gone on trips with to Brazil and the Dominican Republic.
When the Regans met with Karim, they said he told them he was a fraternity brother of the mayor, which the Regans “acknowledged that as businesspeople” was a relationship that “can’t hurt.” (Jannaroe and Karim had fuzzy memories of the meetings; Karim denied ever pimping his relationship with Fenty. The Trout report said the Regans’ “clear recollection” was more believable.)
The report says city officials wouldn’t have chosen Banneker for the contracts had it not teamed with the Regans. That’s not to say Karim wasn’t qualified, but the whole episode, particularly Jannarone’s involvement, shows how the CBE program can be used.
The report says Jannarone even helped Karim prepare a budget spreadsheet for the bid on the park contracts. “You modified them per our conversation? You had edits to make, the ones you sent at 4pm didn’t work. Come on dude, we talked about this,” Jannarone lamented in one email to Karim. Jannarone’s agency, the Office of the Deputy Mayor for Planning and Economic Development, awarded Banneker a contract for $148,800 more than what Karim requested. Neither Karim nor Jannarone responded to requests for comment.
Banneker, once it won the contracts, used the CBE program to help steer business to Skinner’s firm, Liberty Engineering and Design.
In summer 2009, Banneker put out requests for two bids: one for architectural work, and one for engineering work. On the architectural request, Banneker wrote that it “strongly encourages” that bidding design teams have a minimum 33 percent “CBE participation.” But in the request for engineering bids, Banneker wrote that the winning bid “requires” 51 percent “CBE participation.” City officials told investigators that Karim’s CBE requirement was unusual, and the Trout report concluded that Banneker’s “singular emphasis on CBE participation” helped give the impression that Banneker prepared a request that was “tailor-made” for Skinner’s firm.
Karim denies that—but you already know Skinner’s firm wound up winning the contract over three more established engineering firms. Why? Because its bid “addressed the CBE participation that we required,” Karim told investigators. “Since none of the other firms that responded to the [bid request] included any CBE participation, according to Karim, LEAD was the only contractor that was responsive.” (Trout found LEAD only met “few of the limited set of other criteria set out in” the Banneker request for bids.)
In case that’s not clear, Karim apparently used the CBE program to make sure Skinner’s firm won engineering bids for the park contracts, even though its qualifications were questionable. Skinner’s firm wound up billing close to $1 million for its work on the contracts.
Once it had those contracts, Skinner’s firm farmed the work out to firms that were actually capable of doing it, while charging “grossly inflated” rates that wound up ripping off taxpayers by about $540,000, according to Trout. Here’s but one example: LEAD paid two subcontractors $11,800 to do surveying on the Kenilworth Recreation Center project. It then billed Banneker $48,500. And Banneker added a 9 percent markup, worth $4,365, which it passed on to the city. America, what a country!
And Skinner contracted out to firms that weren’t CBEs—or even based in D.C.
So, according to the Trout report, Skinner used the District’s CBE program to get city contracts, farmed the work out to companies outside the District, then got rich inflating the price of their work. Again, LL has to ask, is this a great country, or what?
Of course Skinner doesn’t see it this way. Ever since the report came out exonerating Fenty, he’s been on a victory lap attacking the Gray administration (including in The Washington Post) and asserting that he’s been “vindicated.” Skinner tells LL the report’s findings (save for the part clearing Fenty, naturally) are suspect, because they stem from a two-year smear campaign against the former mayor.
“We did not misuse the program. What we did was make the CBE work in the best interest in the District,” says Skinner. “The quality of the work speaks for itself.”
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Photo by Darrow Montgomery