Until just recently, the guys who sold fuel oil to the District government had a good thing going. Since they didn’t actually have their own oil well, Carter Fuel Oil and Green Fuel Oil basically bought their black gold from a larger supplier, tacked on extra charges, and delivered the stuff to the city. The fee for their brokerage services came to about a million dollars a year. As one former District official observes, “You could have done better just going to the gas pump.” Carter and Green weren’t especially outstanding companies, and their owners weren’t well-connected political types. What gave them a lock on the city’s fuel-oil contracts was the simple fact that they were black.

Carter and Green were only the latest minority middlemen who had profited from the District’s tortured history of fuel-oil contracts. In 1979, as part of an ambitious plan to redirect 35 percent of the city’s contracts to minority firms, the Barry administration switched the city’s fuel-oil contract from its old, reliable—but white—supplier to Tri-Continental Industries, a firm run by James Hillman, a black businessman and Barry campaign supporter.

The switch immediately cost the city a 25-percent increase in heating costs, and the service was so bad that Tri-Continental left schoolchildren shivering in cold schools during one particularly bad winter when it failed to deliver its overpriced heating oil, according to the book Dream City by reporters Tom Sherwood and Harry Jaffe. By 1990, the company had received more than $100 million in city contracts. The city, meanwhile, was losing $4 million a year in excessive costs.

Not only did Tri-Continental appear to be price-gouging, but in 1992 the D.C. inspector general reported that the company received at least $1 million in payments for oil it never delivered.The U.S. Attorney started an investigation, but by 1994 Tri-Continental had collapsed from bad management, Hillman had died, and very little had changed in the District except the names on the city’s oil delivery trucks.

Like Tri-Continental, Carter and Green charged the city high prices for oil it could get cheaper from a big supplier, but city officials didn’t seem to mind. In fact, the practice was not only legal but encouraged as a way of fostering small, local, minority business. The fuel-oil contract was in a “sheltered market,” part of a program that allows the city to reserve bids on certain contracts for minority-owned D.C. firms. For 20 years, the sheltered-market program had forced the city to buy fuel oil and gasoline only from minority-owned companies in the District. That company had been Tri-Continental. After it folded, the city had only two other D.C. companies to chose from, and those companies could almost name their price as a result.

In March 1996, the inflated fuel-oil contract landed on the desk of the D.C. financial control board, which recognized that the city would need to go outside the District to find cheaper suppliers. Eventually, the control board forced the Minority Business Opportunity Commission (MBOC), the gatekeeper for the sheltered-market program, to allow other firms to bid, and on May 12 this year the city awarded its first competitive fuel-oil contract since 1979. The move should save the District $820,000 a year.

Cronyism has long been blamed for the excessive prices and poor quality of the city’s contracts for goods and services. But as the control board discovered with fuel oil, inflated prices and bad service lived on even after the crony in question had died. The reason is that the city has demonstrated repeatedly that it would rather do business with any local minority-owned firm than any white one, even if the minority firm is completely unqualified to do the job or its prices are exorbitant.

Today, even with the advent of the control board, a 1992 D.C. law requires every city agency to spend 50 percent of all contract dollars with local and “disadvantaged” (i.e., minority) firms through sheltered markets. The law, known as the Small, Local and Disadvantaged Business Enterprise Act of 1992, instructs city officials to give local minority firms a preference on open-market contracts as well.

The belief that city money is almost always better spent with D.C. minority businesses is gospel from the civil rights era—and it’s not unique to Barry. The D.C. Council passed the first minority contracting act in 1976, three years before Barry became mayor. Mayor Sharon Pratt Kelly was a particularly fervent supporter of the policy. During her tenure, she upped the city’s set-aside program from 35 to 50 percent of all city contracts. And last year, when Ward 3 Councilmember Kathy Patterson attempted to kill the disadvantaged business program, the rest of the council not only rallied to save it but also voted unanimously to expand it.

“It’s part of the mind-set of the city, but it’s also part of the power base,” explains Tom Wells, a former D.C. government employee and head of the Consortium for Child Welfare.

Local entrepreneurs and city officials argue that not only do the preferences help minority businesses thrive in a hostile and racist environment, but they help the city generate employment and tax revenue and reduce reliance on government social programs. “The need is really overwhelming, and the advantages are great,” says Carroll Harvey, a former District government procurement chief and head of the Coalition to Protect Minority Business.

D.C. has a deservedly miserable reputation for following through on its promises, but if there’s one thing the District has done successfully over the past two decades, it’s dole out contracts to minority firms. Race and residency have completely trumped thrift and efficiency as imperatives in buying city goods and services. The result has been that a few black businessmen have gotten rich and moved to Potomac, the District has become one of the nation’s worst places to do business, the tax base has fled to the suburbs, and the city government has collapsed. Minority contracting set-asides may be terrific social engineering, but from an economic perspective they’re expensive gum in the machinery of government. A study by the Post in 1989 found that the city paid between 25 and 40 percent more for goods and services from minority contractors than it would have paid elsewhere.

Yet at a time when everyone from the control board to the council is talking about reforming city government, no one has taken on minority contracting preferences. The control board and the council have cut welfare, cut the city’s work force, and even cut the mayor’s security detail, but the contracting preferences are the city’s most sacred of all cows. “In all this talk about reform, nobody ever mentions this program. It’s like the elephant in the living room,” says Arnold O’Donnell, one of the program’s most vocal critics. “You can’t have part-time political hacks as the gatekeepers for your procurement system and expect it to reform.”

A sturdy, ruddy-cheeked man who occasionally sports plaid shirts, O’Donnell looks pretty much like your average American construction worker. Chatty and easygoing, O’Donnell has blue-collar moves, but his bright blue eyes betray a quick mind. Among the blueprints and architectural drawings neatly curled up around O’Donnell’s office are less technical reading materials, including books on District legend Edward Bennett Williams and tomes by Carl Rowan, Juan Williams, and Stephen Hawking.

O’Donnell’s comfortable office is on an industrial block of northeast Washington; it seems an unlikely place for a white graduate of the Massachusetts Institute of Technology to have set up shop. With open-air drug markets nearby and smash-and-grab artists lurking around every corner, O’Donnell Construction is constantly under siege by the neighborhood’s criminal element. But the rent is cheap, the landlord is friendly, and the location is convenient.

In a kind of one-man crusade, O’Donnell has been tilting at the District’s minority contracting program almost ever since he and his brother moved their small construction company to its current location in 1987. They had founded the company two years earlier in Northern Virginia, but later decided to return to Washington, where they were born and raised. Shortly after relocating to the District, O’Donnell discovered that as a white-owned company his firm was barred from bidding on nearly all District road construction and sewer contracts.

The city had set aside almost 100 percent of its local road construction contracts and 37 percent of federally funded road projects solely for minority firms under the sheltered-market program. The upshot of these policies was that only four companies were receiving 80 percent of all the city’s road construction contracts.

Seeing his business going nowhere, O’Donnell started a campaign to bring the program to the attention of people who could fix it. He wrote the council and the mayor. He lobbied MBOC, a small but powerful body that decides which contracts fall into the sheltered market and which companies are allowed to bid. O’Donnell also filed dozens of Freedom of Information Act requests seeking information about how contracts were awarded. But the District’s black power structure wasn’t particularly sympathetic to the plight of a white construction company that felt it had been locked out.

In 1989, O’Donnell’s campaign got a little help from the U.S. Supreme Court. In a case called City of Richmond v. J.A. Crosen, the court ruled that Richmond’s minority set-aside program was unconstitutional because the city had failed to specifically prove that there was past discrimination in city contracting. The court ruled that the city could not rely on general allegations of racism to justify minority set-asides; there had to be carefully documented statistical evidence to make the case.

The Crosen decision provided an opening for O’Donnell, and that year he sued the District, alleging that its minority contracting program was unconstitutional as well. In early 1991, a federal appeals court agreed with him and struck down the Department of Public Works’ road construction set-aside program; in 1992, U.S. District Judge John Garrett Penn struck down the District’s entire minority contracting act as invalid. Penn wrote, “[The city] has no way of measuring when the wrong will be righted because it has not identified the wrong with any degree of specificity.”

The decision in O’Donnell’s case came as a shock to District officials, who were so confident in the moral rightness of their position they had ignored warnings that the city’s contracting program was operating illegally. After the ruling in O’Donnell’s case, Mayor Kelly scrambled to find a way to preserve the status quo while attempting to comply with the Crosen decision.

The resulting 1992 law was supposed to be race-neutral. Instead of the old 35-percent minority set-aside, it required the city to reserve 50 percent of its construction spending and 50 percent of all other spending for “small, local and disadvantaged” businesses. In a city that’s almost 70 percent African-American, the law’s local requirement was a safe bet for ensuring that most companies that got preferences would be black. But just to be on the safe side, the law also included a chit for “disadvantaged business enterprises,” which it defines as businesses owned by someone who “has reason to believe that he or she has been subjected to prejudice or bias because of his or her identity as a member of a group without regard to his or her qualities as an individual.” Any way you slice that particular bit of rhetoric, it’s a euphemism for race.

A literal reading of the law would suggest that O’Donnell himself should qualify—that because he is white, he has been “subjected to prejudice or bias” given how his company has fared in competition for District contracts. MBOC doesn’t agree, though, and has twice turned down O’Donnell’s request to be certified as a disadvantaged firm. “He’s a graduate of MIT,” says Gerald Draper, head of the Office of Human Rights and Minority Business Development. “He doesn’t have a disadvantaged kind of background.”

While the set-asides for city contracts are supposed to be race-neutral, the law still allows the city to require organizations, like Georgetown University, that use the city’s industrial revenue bonds to subcontract 35 percent of construction work with minority firms. And any large-scale private development, such as the MCI arena, that requires the cooperation of the District must agree to the 35-percent minority subcontracting rule as well. Since the projects are private, the developers are “voluntarily” agreeing to the District’s race-specific terms. The reality is that there will be no cooperation from the city unless private companies are willing to play ball on the set-asides.

In addition to the sheltered market, where bidders are limited exclusively to small and local “disadvantaged” firms, the same firms enjoy substantial preferences on city contracts that aren’t part of the sheltered market. In practice, that means that if the city solicits bids for a road paving contract, a small black-owned D.C. firm gets a 10-percent head start. When it bids the job at $100,000, city officials evaluate the bid as if it were $90,000. If the firm happens to be headquartered in an enterprise zone, the bid is evaluated at $88,000. The result is that if a white company from Virginia offers to do the same job for $90,000, the District will pay $100,000 in order to give the contract to the local firm.

“Basically, this is a city that is telling the world that they’re willing to pay 12 percent more for everything they bid,” says O’Donnell.

The “race-neutral” law hasn’t had much of an impact on the way the District does business, except perhaps to make it even more parochial. The huge bias toward D.C. companies is the practical equivalent of a residency requirement for business—Maryland and Virginia firms are now barred from bidding on half of all city contracts.

Even now, some District agencies act as if the Supreme Court never ruled against race-based contracting. In February, O’Donnell received a packet of bid materials from the Water and Sewer Authority that included a letter saying the contract was open only to minority firms. O’Donnell challenged the authority and was told the letter was a mistake—that the water authority was still using five-year-old materials. But O’Donnell doubts that it was an isolated incident. D.C. Councilmember Harold Brazil’s task force on procurement reform confirms O’Donnell’s suspicions, reporting that “some D.C. agencies are still requiring contractors to achieve 35-percent minority participation.”

Five years later, after a big court decision in his favor, O’Donnell isn’t much better off than when he started. He says his firm would have folded if the federal government hadn’t let it into the Small Business Administration’s 8(a) program, on the grounds that it is, of all things, a disadvantaged firm because of the way it has been treated in the District. Still, after spending five years in court battling the District, O’Donnell is not anxious to challenge the current state of affairs in D.C. “We didn’t make out so well by taking the city to court,” he says. Aside from spending a lot of money on legal fees, he says it’s not really great for business to be suing the people you’re trying to get work from.

And even though the District’s current law would have a hard time passing legal muster, nobody else is lining up to challenge it, either. O’Donnell had hoped the control board might take a hard look at the practical problems the current system of preferences presents, but so far he says the board hasn’t shown much interest. O’Donnell suspects that criticizing affirmative action in contracting might be bad for business for control board chairman Andrew Brimmer. Brimmer’s consulting firm gets a lot of business from government agencies seeking to justify or create minority contracting programs. And as the proprietor of a minority-owned firm, Brimmer is a beneficiary of the same programs. (Control board spokesman Mark Goldstein did not return calls for comment.)

The control board’s failure to address minority contracting seems a glaring oversight given the mountains of studies it has released this year on procurement reform. Contracting preferences seem to underlie many of the problems highlighted by the board. The control board studies were preceded by studies done by the accounting firm Peat Marwick for the mayor, as well as studies by Brazil’s task force. All the studies came to essentially the same conclusions: that the District’s system of buying goods and services is not a competitive process and that the city loses big as a result. Even if it doesn’t seem inclined to do much about it, the control board certainly seems to have a handle on the problem.

“Competition, open and fair, is rarely used in District procurements,” the control board wrote. “This situation increases administrative burdens, raises the costs of goods and services, and, inexorably, summons forth the specter of favoritism with its perception of cronyism while discouraging deserving and qualified individuals and firms from even attempting to do business with the District.” The control board observed that the lack of competition in city contracting wastes billions of dollars. The board also noted that the city’s contract specialists were badly undertrained and largely unqualified to do their jobs.

Even so, contracting agents still seem to be quite proficient at ensuring that minority firms get plenty of business. Most of the specific companies cited as problem contracts in the control board reports are certified by MBOC as minority-owned. Those include Ikard Transportation, a company the child and family services administration complained delivered substandard services in transporting mentally and physically challenged District residents; VMT Long Term Care Management Inc., which took over the J.B. Johnson Nursing Center after Barry crony Roy Littlejohn went bankrupt (for the second time) and stopped paying the staff; and Trifax Corp., the company that supplied nurses to D.C. public schools.

As is the case with fuel oil, the roots of these problem contracts run deep in District history, and most can be traced back to the Small, Local and Disadvantaged Business Enterprise Act, which makes inefficient management laudable policy. The introduction to the law states, “It is the policy of the government of the District of Columbia to ensure full and equitable opportunities for small and disadvantaged business enterprises to participate as prime contractors, subcontractors, and joint venture partners in the award of contracts….The District’s public contracting process should be used to stimulate new employment opportunities for District residents, to assist in the development of existing District businesses, and to encourage business to locate and remain in the District.” There’s no mention in there of helping the city do business economically or efficiently.

The law gives MBOC great power to enforce these goals. It has the authority to basically get around most of the District’s procurement regulations in pursuit of the higher goal of nurturing small, local, and disadvantaged firms. A small entity with a $500,000 budget, MBOC has the authority to shelter specific contracts, to override decisions by various agency staffs on contracts to force them to meet the 50-percent set-aside goal, and to certify which firms qualify as small, local, and disadvantaged.

The law allows MBOC to recommend that an agency make advance payments to MBOC-certified contractors, and to subdivide contracts to achieve the 50-percent goal. The real clincher, though, is that the commission can advise the mayor on ways to ensure that agencies meet the 50-percent goal. In the past, this has meant that MBOC could decide whether competitive bidding should be required or whether the city should enter into sole-source negotiations with a specific contractor. It creates the kind of loophole in competitive contracting you could drive a truck—or a very pricey deal—through.

As former MBOC director Marjorie Utley once noted, in the District, quality and price aren’t the primary concerns of contracting officials. “We are going to pay no matter what, and the point is we are trying to develop business and sustain and support our business in the District of Columbia,” she told the Washington Post in 1992.

MBOC’s hand can be seen in several of the problem contracts described in the control board’s procurement report. For instance, the board pointed out that the water and sewer utility administration had awarded a $13-million sole-source contract to JMM Operational Services of D.C., a company whose bid was several million dollars in excess of what the city had estimated the project would cost. The board found that “subcontractors without defined functions or duties that were duplicative were added to JMM’s team during negotiations.” The report also states, “There was no price competition.”

Yet in District contracting, price is not the issue; race is, and the water and sewer scenario is exactly what is supposed to happen under the city’s Small, Local and Disadvantaged Business Enterprise Act. The law states that each District agency must set aside 5 percent of its contracts for major contractors that agree to farm out part of the work to small, local, or disadvantaged companies. In practice, this means that almost any contractor that expects to do business here must partner up with a local company, even if those local companies contribute little but expense to the entire enterprise.

The problems in procurement that come from the city’s minority contracting policies are mammoth, yet the control board has neatly avoided any discussion of the program. Surprisingly, the one person who has actually broached the subject is Brazil, whose task force on procurement reform actually devoted a whole committee to it. Its criticism was surprisingly blunt.

Task force members wrote, “[T]he Local, Small and Disadvantaged Business Enterprise Act may not be contributing to the economic betterment of the District. While the stated goals are laudable, the District has not identified a wrong, such as discrimination against small business, that requires a remedy of a 50-percent set-aside goal….The act may also create an economic disincentive for larger companies to maintain their operations in the city….Excluding vendors incorporated outside of the District of Columbia is poor economic policy and may be of dubious constitutionality under the Commerce Clause.”

The District’s minority contracting programs grew out of sincere intentions and very real needs. The white establishment that used to run D.C. had unfairly excluded black residents from the city’s economy for years. In 1967, the year before the riots, black firms made up only 7 percent of all city businesses. When Barry took office in 1979, only 5 percent of all city contracts went to minority firms. So, on its face, Barry’s plan to redirect 35 percent of city contracts to minority firms was a noble idea. In practice, though, the plan was completely unworkable: Barry was asking less than a 10th of the city’s business community to provide more than a quarter of all District goods and services, practically overnight. The disasters that resulted were predictable, and that legacy continues to the present day.

When the District’s money flow turned toward minority firms, opportunists without relevant experience jumped in to take advantage of it. Hotel owners got into homeless services, D.C. Council aides set up homes for the mentally retarded, a Barry financial consultant got into the school lunch business. And the city paid handsomely. For instance, Cornelius Pitts, owner of the Pitts Motor Hotel, in 1984 was getting more than $3,000 per family per month to house homeless families in his shabby hotel rooms. The city shelled out millions to black entrepreneurs like Pitts for services they were ill-equipped to provide. But in terms of shifting contracts toward the black business community, Barry’s plan worked. By 1990, the city was awarding fully 41 percent of its contracts—$237 million worth—to minority firms.

After 20 years, Barry’s legacy has become institutionalized, and at the same time, “minority” has become a District code word for “crony.” “A lot of the minority set-asides are really a way to channel money to Barry’s friends and cronies,” says D.C. activist Dorothy Brizill.

For instance, every time Barry supporter and lawyer Willie Leftwich’s law firm gets a city contract, some enterprising reporter cries foul and suggests that Leftwich got the business because of his campaign contributions. The fact is, though, Leftwich & Douglas is one of the few good-size minority-owned law firms in the city, so the city’s contracting requirements ensure that it will have a virtual monopoly on city legal work. If the city has to hire a large white firm to do some kind of specialized work, such as on the Washington Convention Center, part of the contract still has to go to a minority firm, and that firm is usually Leftwich & Douglas.

A quick peek at the firms certified by MBOC as small, local, disadvantaged, or minority shows that Leftwich & Douglas isn’t the only politically connected D.C. firm legally entitled to a break on city contracts. There’s also A.G. Hill & Associates, an accounting firm headed by Alphonse Hill, a former deputy mayor who spent 14 months in federal prison for defrauding the city by steering contracts to a friend’s auditing firm. D.C. lobbyist and Barry lawyer David Wilmot has a company certified as a parking-lot management firm.

Phinis Jones, head of the East of the River Development Corp. and a longtime political hack, is on the list twice, with two different companies. Jones is famous for getting paid $100,000 to help Yong Yun get a $17.5-million city lease for an unfinished building he owns in Southeast. He has also been the recipient of millions of dollars in contracts from the Department of Employment Services (DOES) over the years. Jones’ company is no small part of the recent Labor Department report that says DOES has wasted millions of dollars doling out job-training contracts to District residents, but has failed to actually train or find jobs for many unemployed people.

Former council chairman Arrington Dixon, the current nominee to replace At-Large Councilmember Linda Cropp, is certified as a disadvantaged consultant with a number of wide-ranging specialties: computer equipment, marketing, communications, financial planning, housing and urban development, public relations, and something called “social development,” whatever that means.

One of the controversial new Medicaid HMOs headed by D.C. Hotel Association president Emily Vetter and longtime politico Michelle Hagan got certified as a small, local minority firm before bidding on the Medicaid contracts. And an amazing number of former city employees are on the list as consultants. There’s Pat Wheeler, former flack for the corrections department and Kelly. Lucy Murray, the former spokesperson for the Department of Public and Assisted Housing, is in there. Louanner Peters, head of the convention center authority and former Barry campaign worker, has a firm called Heritage Telecommunications Corp. that is certified as well.

MBOC still certifies its share of companies that exist only on paper, too. These include D.C. Acute Care, a mental health concern headed by Joseph Johnson, a former council staffer and campaign manager for John Ray. One of Johnson’s associates is Dr. Vincent Roux, once Barry’s personal physician. They incorporated the company to bid on a contract to open a psychiatric ward at D.C. General Hospital. D.C. Acute Care won, naturally, despite competing against a couple of national firms that currently operate similar programs. (The project has been put on hold, however, by acting mental health commissioner Eileen Elias.)

The structure that Barry and others established to help minority firms has provided the legal justification for the favoritism and sole-source contracts that enrich Barry’s political supporters. The control board has taken a whack at some of the individual contracts, but it has done so piecemeal, without addressing the legal structure that emphasizes race before price, quality, or even the welfare of the majority of the District’s residents when it comes to city contracts.

Gerald Draper, head of the Office of Human Rights and Minority Business Development, acknowledges that the city’s small and disadvantaged business program has its flaws, but he says the benefits are worth it. He argues that contracting preferences for local businesses are designed to help offset the cost of doing business in the District, where taxes and insurance premiums are higher than in the suburbs.

“We want to make sure business stays in the District,” he says. Draper believes, too, that the preference program is cheaper than keeping people on welfare. He recognizes that the program has had some problems in the past, but that with new financial oversight in the District, MBOC is changing. “Heretofore, our main thrust was getting dollars out into the community. Now we have to be more cost-conscious,” he says. “This is not a welfare program anymore. The people who come down through here have to be ready to do business and be competitive.”

Draper says MBOC has instituted a policy that if any contract in a set-aside market costs more than 10 percent more than it would on the open market, the commission will take the contract out of the sheltered market. “If a company can’t come within 10 percent of what can be done on the open market, that person should get out of business,” says Draper.

Despite his tough talk, Draper is a staunch defender of using MBOC’s big stick to encourage the use of minority firms, both in city contracting and in government-assisted private development. “We’re in the business to help business, and if we can give you a preference, that’s what we’re here for. Do you think that the people building the MCI arena would use local business if someone didn’t tell them they had to?” he asks. “That’s how you build the community. That’s how you build the economy. If they’re getting District money, they’re giving something back.”

Draper’s theory about building the community is similar to the old requirement that District employees live in the city, another great-sounding idea that went to hell when it was implemented. Back in the mid-1980s, D.C. officials figured that good government jobs would keep people from moving to the suburbs, or bring suburban residents back across the District line. Instead, people continued to bolt, and the city was forced to abandon the residency requirement after the District hired a bunch of police officers with criminal records because of the dearth of qualified city residents. In the same way, limiting competition by preferences and set-asides affects the cost and quality of city services in ways budget hawks can’t see, creating a parochial universe of competitors and reducing pressure to come up with a good price for good service.

There’s no doubt that the District should do something to stimulate local businesses, and minority businesses even more. Black firms still make up only about 30 percent of District businesses, despite the fact that African-Americans constitute nearly 70 percent of the population. But the value of contracting programs to minority business development is questionable.

Knowledgeable D.C. businesspeople argue that the biggest problem these days for minority firms is not discrimination by government but by banks, which have a long history of redlining minority-owned enterprises. Yet the contracting preference program does nothing to address capitalization; nor does it provide technical assistance or management training to help fledgling businesses thrive. This is not a minor point. Countless minority businesses that were spawned by the city’s generous contracting policy have collapsed during the District’s fiscal crisis. Many of them were badly managed—some to the point of being fraudulent—but their quick demises indicate that even after two decades, they had never diversified or had enough success to expand beyond the District into Virginia and Maryland.

While the real benefits of the District’s set-aside program are hard to measure, its downsides are both obvious and numerous. For instance, in its February report on the District’s procurement system, the control board raised concerns that the majority of contracts awarded by the Department of Public Works went to Fort Myer Corp. and its affiliates, Prince Construction, District Paving, Granja Construction, C&F Construction, and Southern Maryland Restoration. Everyone in the District’s small construction industry knows that Fort Myer started out as a minority contractor bidding on sheltered-market contracts.

In 1992, Fort Myer was dropped from the program because it had gotten so big that it was competing in the open market and winning contracts from the federal government and other agencies. But Fort Myer owner Jose Rodriguez was able to maintain a hold on business by creating affiliates owned by his relatives and children, which then got certified as local disadvantaged businesses. The Rodriguezes’ claim to being disadvantaged is a bit of a stretch. While Rodriguez has a Spanish surname, he’s actually an immigrant from Portugal who has been in the U.S. for more than 20 years, and his construction company’s success has provided his children a cushy upbringing.

The bidding preferences that the Fort Myer affiliates get are enough to guarantee that they will win most contracts. When it comes to doing the work, O’Donnell notes (and even MBOC’s Draper concedes) that nearly every paving truck on the city’s streets is a Fort Myer truck. And Fort Myer recently bought the only asphalt plant in the District—not too shabby for a business that was defined as disadvantaged for many years—which means that any local firm that lands a paving contract will have to buy asphalt from its biggest competitor. Unfortunately, there aren’t too many competitors left in

the District. When the city suspended all its road construction two years ago, most of Fort Myer’s remaining competitors went out of business,

and since the District won’t use out-of-town firms, Fort Myer has a practical monopoly on the city’s road business.

In the old days, companies that lost out under the minority preference policy used to protest and file lawsuits. They almost always lost; now they don’t even bother bidding. Only one construction company bid on the multimillion-dollar contract to build the new Washington Convention Center. Without competitors biting its heels, is there any wonder the project has suffered huge cost overruns?

The goal of spending 50 percent of District contract dollars with local businesses has another unseen side effect that is especially pronounced in human services. Last year, Brazil’s task force found that the restriction has made finding quality human service providers difficult. The set-asides skew the system in favor of for-profit companies when nonprofits have traditionally provided better services at a lower cost to poor and disabled city residents. Because nonprofits can’t be owned, though, they don’t receive bidding preferences, even if they have all-minority boards.

Nonprofits generally have lower administrative expenses than for-profits, and they bring more resources to the table because they supplement their government contracts with donations of time and money from people in the community. But because the city is forced to choose for-profit companies over mission-driven charitable organizations, “The bottom line is that services to the most needy people are not getting delivered, and what is being delivered is at an extremely high cost by some of these minority contractors,” says Dorothy Brizill.

In D.C., the invisible hands of the marketplace have been handcuffed by a series of preferences so restrictive that there is virtually no competition for a huge portion of the city’s businesses. While there have been strides forward for minority-owned businesses, they have come at the expense of the District’s mostly black residents, who rely on efficient delivery of services—and pay the bills. The goals of helping minority businesses through government contracting and of reforming the District’s broken government have become mutually exclusive. In a city that doesn’t have the money to get its garbage trucks repaired, minority preferences are a luxury the taxpayers in the District can’t afford.CP

Art accompanying story in the printed newspaper is not available in this archive: Darrow Montgomery.