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A Hispanic-owned firm that won millions of dollars' worth of contracts as an electrical supplier at Denver International Airport actually is nothing more than a front company operating a bogus pass-through scheme to take advantage of affirmative-action rules, a city hearing officer has ruled.
The company, Denver-based M&N Electrical Supply Corporation, shipped everything from generators to wire cable to DIA contractors between 1990 and 1994. It also has worked as a supplier to companies building Denver's new public library and for private-sector clients such as Coors, US West and Public Service Company.
But Margot Jones, a hearing officer for the Mayor's Office of Contract Compliance (MOCC), recently issued an opinion that M&N is an illegal "conduit" that helps white-owned firms circumvent the city's affirmative-action rules for public works projects.
"M&N was a broker," Jones writes in the opinion, which was obtained by Westword. "The business did not perform a commercially useful purpose."
M&N president Normando Pacheco refuses comment. In the past, however, he has insisted that M&N is a legitimate firm and that the city is "full of shit" to contend otherwise ("The DIA Pipeline," March 1). Pacheco's attorney, Remigio Pete Reyes, also declines to discuss Jones's ruling. "I can't comment on my client's business," Reyes says.
Denver's affirmative-action contracting program was established in the 1980s as a way to give companies run by minorities and women a leg up in the construction industry. Firms wanting to participate in the program have had to apply for approval from the MOCC, which maintains a list of "certified" minority firms that contractors can use for credit toward Denver's affirmative-action goals on city jobs.
The program has come under heavy fire in the last year, however. News reports have shown that some companies that qualify for the program act as fronts, lending their names to a job on paper but performing no real work.
Critics say the supply industry is particularly prone to such abuse. With little more than a telephone, minority "brokers" can establish themselves as supply houses and funnel materials from "primary suppliers" to contractors. Any contractor who runs supplies through the broker gets to credit the entire cost of the brokered material toward the city's affirmative-action quota.
To thwart such abuse, city law requires that any certified minority supplier be a "regular dealer" of the material in question and maintain a warehouse where supplies are "bought, kept in stock and regularly sold to the public."
In her opinion, Jones cites a wealth of evidence that M&N is only a broker. The company, she points out, has only a 400-square-foot space for storage inside its headquarters at 1629 Platte Street. It owns no trucks and just one forklift. It has no lines of credit. And the value of its on-site inventory was virtually static for two years: It hovered at just $20,000 in 1992 and 1993.
"There was no evidence in the company's records that there was inventory in and out of the warehouse," Jones writes.
Instead, M&N "drop-shipped" a full 90 percent of its electrical supplies--having material delivered by manufacturers or primary suppliers directly to job sites, Jones writes. Most of the companies that sold material to M&N were fully capable of doing supply work themselves, she says, but contractors used M&N anyway, in order to meet Denver's affirmative-action goals.
Jones cites an instance in which Sturgeon Electric, a large, Henderson-based electrical company that did a significant amount of work at DIA, purchased $220,000 worth of electrical supplies from M&N. To fill Sturgeon's order, M&N turned around and bought supplies from the giant Westinghouse Electric Supply Company. In fact, Sturgeon's check for the material listed both M&N and Westinghouse as co-payees, Jones says.
Sturgeon spokeswoman Elaine Hughes insists that the company had no reason to suspect M&N was a broker and not a bona fide supply house, since the company was on the MOCC's list of approved firms.
"We rely on the city's certification that they're legitimate," Hughes says. Hughes professes ignorance about Sturgeon's $220,000 joint check to M&N and Westinghouse. "I'm not involved in purchasing," she says. "I don't know about that particular issue."
Jones, the Denver hearing officer, also found that Pacheco did not exercise control over day-to-day operations of the company, as required by city law. Though Pacheco, who is Hispanic, owns 97.5 percent of M&N, Jones says the company was actually run by his white partner, Leonard Stevens.
Pacheco has said that Stevens is just a "salesperson" who "doesn't make any [management] decisions." But Jones's opinion points out that Pacheco spends a significant portion of his time working as a criminal defense attorney representing "clients charged with murder and drug-related offenses." Stevens, Jones says, serves as the prime contact for anyone wanting to do business with M&N, and his name appears on company purchase orders.
Indeed, Stevens, who MOCC records show has served time in prison, earned three times what Pacheco did at the company, even though he owned less than 3 percent of M&N. Stevens collected a $6,000-a-month "commission" for his work, Jones found, whereas Pacheco earned a monthly fee of just $2,000.
"Pacheco's control of the company was not shown to be real, substantial or continuing," Jones wrote.
Jones's ruling affirms the opinion of the MOCC staff, which has been trying to remove M&N from its list of certified minority suppliers since last summer. The MOCC began investigating the company after receiving a complaint from a third party. After an investigation, the city moved to decertify the firm, but Pacheco formally challenged that decision. Jones presided at a two-day, quasi-judicial hearing on the matter in March, and she issued her report a few weeks ago.
Assistant City Attorney Nick Pijoan, who represented the MOCC in the case, says M&N has now been removed from the city's list of certified minority firms. But he notes that Pacheco has appealed Jones's ruling in Denver District Court and is asking a judge to keep M&N on the list until the appeal can be heard.
Pijoan says he doesn't believe brokers are operating in Denver on a large scale. "I don't think it's very common," he says.
According to Jones's ruling, M&N did $2.75 million worth of work at DIA between 1990 and 1994. Other MOCC records, however, indicate M&N's DIA contracts exceeded $8 million.