CBE Problems: Where’s Lew?
If you haven't seen it already, LL wrote this week's cover story about the District's broken Certified Business Enterprise program. Much of the story centers on the recent $62 million renovation at Anacostia High School, where the owner of a CBE-certified company, EEC of DC, says he was essentially used as a front by a larger, Rockville-based company, Forrester Construction, in a joint-venture partnership. As the CBE, EEC of DC was supposed to be the majority partner, but a secondary contract the two companies signed shows that Forrester managed about 95 percent of the work while EEC of DC managed the rest.
That's now the second screwy joint-venture on a large school construction project that LL's written about. In May, LL wrote about the problems with the joint-venture between Arlington-based Sigal Construction and GCS, a local CBE that just happens to be owned by the same guy who owns Sigal. A city commission found that GCS should have been decertified as a CBE but allowed the company to stay certified anyway. GCS-Sigal joint ventures have worked on a number of school projects, including the Wilson High School renovation.
The set up for both GCS-Sigal and the Anacostia joint venture certainly violates the spirit of the city's CBE law. The city mandates that the CBE partners in joint ventures maintain 51 percent control as a way of helping local companies get work on projects they wouldn't be big enough to perform on their own. The idea is to help local companies grow, not to help out-of-town companies be more competitive when bidding on city jobs. (CBEs can have up to 12 points added to their proposals, which are scored out of 100.)
So where was the city in monitoring all this? City Administrator Allen Lew was in charge of the Office of Public Education Facilities Modernization that awarded school contracts to both GCS-Sigal and the Anacostia joint venture when those contracts were awarded. He also was the driving force behind the creation of the Department of General Services, which now oversees school construction (and which Lew keeps close tabs on). But when LL asked him last week about problems with CBE joint ventures at the ribbon cutting for Anacostia last week, Lew said LL was asking the wrong guy.
"You know we don't certify whether they are CBEs or not," Lew said, referencing the Department of Small and Local Business Development office, which certifies CBEs. His spokesman later added via email that while Lew was head of procurement for school projects, he left the CBE details to the small business department. "Given that the certification of CBEs, including joint ventures, was designed to be managed by an agency separate from the procuring agency, [Lew's] focus was on technical capacity, past performance and costs," says spokesman Tony Robinson.
OK, fair enough. Lew was managing hundreds of millions of dollars in school construction projects and couldn't be expected to second-guess another agency's certification decisions. But there are three issues with that.
1) LL noted in the cover story that the DSLBD has virtually no resources dedicated to rooting out potentially fraudulent CBEs, which the agency's director says is the "worst kept secret" in city government. The agency has been plagued with problems for years. Presumably Lew would have been in on that secret as well, so why would he have put any faith in the DSLBD's certifications?
2) The problems extend beyond just certification issues. It's difficult to imagine how city officials didn't notice that Forrester was managing almost all the work at the Anacostia job (purchase order records show that that city sent checks to the joint venture to Forrester's Rockville address). But in a statement sent by his spokesman, Lew says the city wasn't aware of problems with the joint venture until EEC of DC and Forrester became embroiled in a dispute over money at the end of last year. Also hard to imagine: that city officials wouldn't have noticed that GCS and Sigal shared an owner and top executive. The world of big-ticket school construction in D.C., after all, is pretty cozy.
3) Lew thinks he knows the solution. Several contractors and city officials say the city's mandate that CBEs run 51 percent of joint ventures is what invites potential fraud. Most CBEs don't have the capacity to obtain the needed bonding (which is like insurance) for large construction projects, which means the non-CBE minority partner has to assume most of the risk on projects. If they put up the risk, then they are going to want the reward, the thinking goes. "People who put up the money are going to act in their interest," says Courtland Cox, a consultant who has helped craft and execute the city's CBE laws.
When I asked Lew about the perception that problems with joint ventures extend far beyond the Anacostia project, he denied that was the case. But then he explained the reason behind the problem he had just said wasn't there. "I think there's a way to neutralize a lot of this," Lew said, saying city law should be amended to allow joint ventures where the CBEs don't have 51 percent control, but a lower percentage based on their actual capacity. "Maybe the way the law is set up, it almost encourages some of this."
If Lew's made those concerns public before—like while he was awarding hundreds of millions of contracts to joint-ventures during several years—LL's not been aware of them.
At last week's ribbon cutting, Philip Artin, a close friend of Lew and private consultant who evaluates bids for the city on school projects (including the Anacostia renovation), gave LL a hard time for focusing on the wrong issues. "Is this building beautiful inside and out?" Artin asked.
Indeed it is.
Photo by Darrow Montgomery