JUST PASSING THROUGH
Haji S. Adnan appeared to symbolize everything that was right about the city of Denver's controversial minority contracting program.
Adnan, who died of lung cancer this summer at the age of 67, had come to the United States from Indonesia in the 1950s, educated himself at the Colorado School of Mines and then established his own engineering firm in south Denver. As a minority-owned business, Adnan's AA Engineers & Associates had an inside track on more than $1 million in city work over the years, but Adnan endeavored to help others as well. He founded the Asian Chamber of Commerce in Denver, and he lobbied public officials to make sure other minority companies got a piece of the pie. At his memorial service on July 28, Mayor Wellington Webb took time from a busy schedule to pay tribute to Adnan. Governor Roy Romer made sure to send a representative to the service, and U.S. Senator Ben Nighthorse Campbell did the same.
But a recent probe by city auditor Bob Crider charged that the Webb administration improperly allowed AA to work as a supplier of concrete pipe on public works projects, including Denver International Airport. And Crider, it turns out, isn't the only one who's raised questions about the company. One of Haji Adnan's competitors has been complaining to city officials for years about the firm, claiming that AA worked as a "conduit" that merely "passed through" pipe supplies from one white-owned business to another. Two years ago the State of Colorado revoked AA's certification as a supplier of concrete pipe on jobs for the Department of Transportation. Today a major pipe manufacturer that had a longstanding relationship with AA openly admits it used the company as a conduit to meet government-mandated minority-participation objectives.
"They're nothing more than a broker," says Don Grzesiek, vice president of sales for the Littleton-based Carder Concrete Products Company. "The only reason you would [use AA Engineers as a pipe supplier] would be to meet the goals."
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AA Engineers insists it is a genuine supplier of concrete pipe, not a mere broker. "I suppose there are companies like that, but we aren't," says Rosalie Adnan, Haji Adnan's widow and a vice president of the company. "Ours has been legitimate [and] above-board from day one." Webb administration officials also defend the company, saying they've thoroughly checked AA's credentials as a supplier and that it meets city specifications.
Critics of Denver's minority contracting program, however, say AA Engineers and companies like it are abusing their minority status in the construction-supply industry. A host of conduits and front companies, these critics say, have combined with large white-owned firms to make money as suppliers without providing any real, commercially valuable service. Even some minority- and woman-owned businesses say the practice has gotten out of hand.
"It's a real big problem," says Robert Chavez Jr., president of Chavez Sheet Metal in Denver. "But so many people get away with it."
For Denver's affirmative action contracting program, 1994 has been a bad year pretty much all the way through.
The program was founded in the early 1980s to promote business ownership among minorities and women, and city officials insist it has been a tremendous success overall. Under current rules, the city mandates that 16 percent of the money it spends annually on construction go to so-called "minority business enterprises" (MBEs). Twelve percent is set aside for "women business enterprises" (WBEs). The city has separate, slightly lower goals for engineering, consulting and other kinds of taxpayer-funded "professional service" work.
But a series of media investigations this year has severely tarnished the program's image. In February the Denver Post reported that the city had awarded almost $30 million worth of work at DIA to thirteen companies whose applications for "disadvantaged" status had been rejected by the State of Colorado. One business owner, Anthony Falcone, was certified by the city as Hispanic even though state regulators determined Falcone was actually Italian. The paper also said the program boosted costs at the airport by as much as $384 million.
That same month, the Rocky Mountain News reported that Willie Kellum, the black owner of a Five Points clothing store, was awarded a substantial share of a DIA concession deal even though he'd been on the brink of financial collapse at the time and owed the city more than $200,000 in economic-development loans.
KMGH-Channel 7 last month aired a report claiming that BAE Automated Systems, the company building DIA's computerized baggage system, used a minority-owned "front company" to circumvent the city's affirmative action goals. BAE received credit for hiring millwrights employed by Chicago-based Harrell Inc., the station said, when in fact the workers were all former employees of BAE who were moved to Harrell's payroll on paper only.
And most recently, the Post ran another story reporting that Minnesota-based CSI Trucking Inc., a Hispanic-owned firm, had admitted in court papers that it posed as a materials supplier for a white-owned firm providing runway concrete at DIA.
On top of all the media reports has come the recent release of Crider's audit. Crider, a political foe of the mayor who hopes to unseat Webb in next May's election, ordered his staff to review Denver's MBE/WBE program from September 1990 to December 1993. The audit, released in November, came to a number of what Crider called "extremely disturbing" conclusions. Among them: that a review of 65 randomly selected companies approved for the program by the city showed that more than 70 percent did not meet certification criteria; that almost 10 percent of companies surveyed appeared to be mere "fronts" for companies owned by white men; and that the Mayor's Office of Contract Compliance (MOCC), the agency charged with administering the program, had been so lax with its procedures and record-keeping that it was incapable of "effective decision-making."
Another of the audit's findings was that a dozen of the 65 companies sampled had been certified as construction "suppliers" by the city even though they were primarily engaged in other kinds of work. Haji Adnan's company, for instance, was approved as a supplier even though it is really a civil engineering firm. Capitol Hill Blueprint, a Hispanic-owned company specializing in blueprints and other "reprographics," also was certified as a supplier of office products. Neosource, a woman-owned business that makes custom light fixtures, had made it onto the city's list of suppliers of electrical products and had won almost $6 million worth of work.
Crider's audit doesn't specifically accuse any of those companies of wrongdoing. But it says that, under the city MBE/WBE ordinance, a company can be properly certified as a supplier only if it is a "regular dealer" of the product in question and engages in supply as its "principal business."
The reason for that rule, those familiar with the affirmative action program say, is to prevent minorities and women from setting themselves up as brokers or conduits for material and equipment that in reality is being supplied by a white-male-owned firm. If such safeguards aren't enforced, there is nothing to prevent a company doing construction for the city from meeting minority hiring goals by running supplies through brokers working with nothing more than a desk and a telephone.
Critics say such pass-through schemes have two nefarious effects. One, they drive up costs to taxpayers, since the minority broker gets paid for performing an essentially valueless task. Two, they shut the door to legitimate minority- and woman-owned companies by allowing white-owned general contractors to unfairly inflate their MBE/ WBE numbers.
"It's not what the affirmative action program was intended to be," says Bonnie Riley, owner of Colorado Wire & Cable Company. "Most of these [minority brokers] started up when the program went into effect--not before. And they have made no attempt in the last ten years of ever becoming legitimate suppliers."
Riley says she's been approached several times by general contractors who've asked her to act as a conduit. One wanted her wire-and-cable firm to "rent" forklifts for a job; the forklifts, she says, would really have been supplied by another, majority-owned firm. "The rental company would just run the bills through me," Riley adds.
Riley says she turned down the offer, even though it promised easy money. "I just don't feel comfortable" with the idea, she says.
Wayne Cauthen, the Webb appointee who runs the Mayor's Office of Contract Compliance and oversees the MBE/WBE program, says he doubts minority brokers are operating in the city on a large scale. If they were, he says, he'd be hearing about them, and he simply doesn't get many complaints. "I don't think it's happening a lot," Cauthen says.
Cauthen derides Crider's audit as nothing more than pre-election grandstanding. Many of the firms that Crider alleged were wrongly approved for the program were in fact properly certified, he insists. Crider's office, Cauthen complains, gave MOCC only a few days to go over its findings before releasing the audit to the media. "I feel that I was ambushed," Cauthen says.
Cauthen and his staff also challenge Crider's finding that minority suppliers shouldn't also be allowed to do nonsupply work such as construction and design. "Our interpretation is, it's okay" to get government contracts in more than one area, says Lupita Gusman, MOCC's certification supervisor.
The city code isn't crystal clear on whether companies who work chiefly in other areas should also be allowed to serve as suppliers. But it does say that a supply firm must "engage in as its principal business... the purchase and sale of the products in question." The dealer, furthermore, must own a store or warehouse in which its supplies "are bought, kept in stock and regularly sold to the public."
Complaints that AA Engineers was violating the spirit of Denver's ordinance have been coming into the city for years. Indeed, one large manufacturer of concrete pipe, Hydro Conduit Corporation, has conducted a veritable campaign to disqualify the company as a supplier on city projects.
Hydro Conduit began protesting AA's certification as a supplier back in the 1980s, after AA teamed up with Hydro's primary local competitor, Carder Concrete Products of Littleton, and began to compete with Hydro Conduit for city business. In a series of letters to the city, Hydro Conduit complained that AA was working as a broker on city projects and served "no useful purpose except to satisfy minority goals."
In a 1992 letter to the Department of Public Works, Hydro Conduit district manager David Fordyce pointed out that AA maintained no active sales force in the Denver market. The company's tiny supply yard, adjacent to its headquarters at 888 South Lipan Street, wasn't sufficient to store significant amounts of concrete pipe. And AA didn't appear to have forklifts, trucks or other equipment necessary to unload deliveries, Fordyce alleged. Carder, meanwhile, maintained a full sales staff and was perfectly capable of dealing with customers itself, without AA's help. "I fail to see any commercially useful function performed by AA Engineers in their sale of reinforced concrete pipe," Fordyce wrote. Fordyce today declines comment.
AA Engineering's Rosalie Adnan says the company's lack of a large stockyard doesn't mean it isn't a legitimate supplier. Most of the concrete pipe the company sells, she says, is customized and has to be shipped directly to a job site. "We've basically dealt in products that can't be warehoused," she says. "It isn't anything you go in a store and shop for."
Adnan says her husband was the "key person" at the company and that out of respect for him she must decline to comment specifically on Hydro Conduit's allegations. "I have to let that go," she says.
But even Carder Concrete, which ended its relationship with AA about a year ago, now says that AA acted only as a broker on city contracts. Don Grzesiek says that about 95 percent of the time, Carder supplies the pipe it makes directly to contractors. The only time Carder used AA Engineers, Grzesiek says, was when it was necessary to meet government affirmative action goals. "If we had our choice, we would rather do it direct," Grzesiek says. "There's one less person in the chain."
MOCC's Lupita Gusman says the city investigated AA Engineering and found that the company was legitimately supplying concrete pipe and other construction material. "We did at least two site visits, maybe even more," Gusman says. "We were satisified with what we found."
But Debra Gallegos, who oversees the state's minority contracting program, says the state took AA off its list of disadvantaged concrete pipe suppliers two years ago, precisely because its facilities did not appear to meet government guidelines. "We made a determination that AA Engineers did not fit the eligibility standards as a regular dealer," Gallegos says. She notes that the state still considers the firm to be a bona fide source of engineering services.
It's easy to tell when a minority-owned supply company is not just a broker.
Take Chavez Sheet Metal in northwest Denver. Founded by Robert Chavez in 1980, the company has grown to become the largest supplier of ducts and vents for commercial heating and cooling systems headquartered in Colorado. It employs about seventy workers in a 75,000-square-foot shop on West 42nd Avenue. The company has invested hundreds of thousands of dollars in computers and manufacturing equipment and has customers from Pueblo to Miles City, Montana.
Chavez's son, Robert Jr., complains that brokers thrive under the current affirmative action program. "It's frustrating," he says. "We brought this [problem] to the city's attention years ago. They just turned their head."
Bonnie Riley of Colorado Wire says she has a simple smell test to separate brokers from real suppliers. "A legitimate supplier has a warehouse, inventory, forklifts, an overhead crank, delivery trucks," Riley says. "They have credit with the manufacturers, and they have a line of credit with a bank. In other words, they have a cost of doing business."
Not everyone agrees. Sue Fickle, president of Architectural Interior Products, a city-certified supplier of doors, lockers, toilets and other products, admits she works mostly out of her home in Highlands Ranch. The company does have a small warehouse off of Broadway in Denver, she says, but most of the time she has her manufacturers ship material directly to job sites. "A lot of people would consider me a broker," she says.
But Fickle insists that she performs a commercially valuable service. She hunts up business. She reviews architectural plans and draws up the orders--something most of her manufacturers don't want to do themselves. And she takes a financial risk on each order, since she pays for the supplies with her own money and then has to bill the general contractors to get repaid. "We have to bankroll the job," Fickle says.
Denver City Councilman Hiawatha Davis, however, says he's even heard complaints about supplier/brokers from a number of local black-owned construction firms. According to Davis, many black contractors feel that the city shouldn't give minority-owned supply outfits equal status with construction companies when trying to meet MBE goals. "They have some real concerns about the same amount of weight being given" to both types of work, Davis says.
Davis voices strong support for the MBE/WBE program overall, saying "government rightly has a responsiblity to try to shape economic equity." He agrees that this year has been "particularly tough" for the program's reputation. But he says he doesn't think the MBE program is in any mortal danger. The city ordinance authorizing the program expires next August, but Davis says he expects a majority of his fellow councilmembers to support its renewal.
However, at least one member of the council says that unless the problems can be corrected, the council's only alternative may be to kill the program. "We've got to modify the ordinance to make sure we take care of the problem areas," says Councilman Ted Hackworth, a frequent critic of the mayor who is supporting Crider in his mayoral bid. "If we can't find a way to legitimize it, we may not have another option."
Councilwoman Mary DeGroot, herself a mayoral challenger to Webb, says Crider's audit suggests that the city hasn't installed proper checks in the affirmative action program. Minority brokers were a big problem when the council last revised the MBE ordinance in 1990, DeGroot says, and it doesn't seem as if the problem has gone away. "It looks to me like all of the safeguards that city council insisted be put in place never got implemented," DeGroot says.
Whatever the program's fate, Bonnie Riley says wholesale changes need to be made if the "rampant" abuses are to be stopped. "I don't know how to clean it up," says Riley. "But there's got to be some way, because the public's getting scammed.
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