There are few ideas more sacred in District government than the notion that as much public spending as possible should wind up in the pockets of District contractors.
“I’d rather pay a little bit more for service from a D.C.-based company that’s hiring D.C. residents,” was Ward 8 Councilmember Marion Barry’s rather tidy summation of longstanding city policy last fall. Barry’s comments came during a several-hours-long D.C. Council handwringing session over the fact that a minor grass-cutting contract had been awarded to a company from—gasp!—Baltimore.
To make sure locals have an edge in winning city contracts, the District prioritizes businesses that can prove their main offices are here, their top bosses work here, and their essential business functions are done here. Businesses that meet those criteria and slog through the required paperwork become Certified Business Enterprises, earning them preference points added to their scores when they bid on city contracts. Those points often make the difference in determining who wins city contracts and who doesn’t.
With about $3 billion paid to contractors every year, you’d expect there to be hell to pay for any company caught gaming the system. But you’d be wrong, at least in the curious case of one major developer who got off virtually scot-free after being found in serious violation of the city’s rules. Critics have long maintained that the CBE program is rigged in favor of the powerful and the connected. This case probably won’t help dispel that notion.
In April 2010, the Department of Small and Local Business Development received a complaint alleging that GCS, Inc., was a phony CBE that was improperly receiving the maximum 12-point bonus allowed by law when it bid.
City records say GCS performs carpentry, clean-up and safety functions at construction sites. It provides those services “primarily” to Arlington-based Sigal Construction, a major player on the local development scene.
As it happens, construction honcho Gerry Sigal owns both GCS and Sigal Construction. The two companies formed a joint venture in 2009 called GCS-Sigal, which the District paid more than $115 million from 2009 to 2011, city records show. Most of that money came from the schools modernization office formerly run by City Administrator Allen Lew. GCS-Sigal won the contract to renovate Wilson High School and recently broke ground on renovations at Cardozo Senior High School.
At the time of the complaint, GCS’s president was Richard Goldberg, Sigal Construction’s current CFO. An investigation and subsequent hearings by the city found the following:
• Goldberg did not work out of the GCS’s office in the District and had no immediate plans to do so.
• Some of GCS’s administrative work, like printing checks, was done by Sigal at its offices in Virginia. GCS’s phone bill would be hand-delivered to Sigal’s offices to be paid. Its balance sheet was also prepared in Virginia.
• None of GCS’s employees could produce business cards from GCS. They could only produce business cards for the joint partnership with Sigal.
The DSLBD concluded that GCS didn’t meet the legal definition of a CBE and should be decertified. But the final say rested with the Small and Local Business Opportunity Commission, a committee made up of volunteers appointed by then-Mayor Adrian Fenty that during his term included a personal trainer, the owner of a hair salon, and a woman who on Friday pleaded guilty to federal charges related to helping disgraced former Ward 5 Councilmember Harry Thomas Jr. steal public money.
When the commission first heard details of the GCS case, it decided that the city attorney handling the case had not established that a “preponderance” of evidence showed that GCS should be decertified. In the waning days of the Fenty administration, the Office of Attorney General asked the commission to reconsider, pointing out that Goldberg admitted he did not work in the District, which was required for GCS to be considered a legitimate CBE.
So the commission reversed its initial decision and found last summer that GCS was, in fact, in violation of city law. “Notwithstanding the commission’s conclusions of law, however,” the commission took the odd step of not revoking GCS’ certification. Instead, it imposed four conditions on the company in order for it to keep its valuable CBE points. The conditions were essentially a repeat of the CBE rules already in place. (For example, condition 1: If Goldberg remained as president he “must…actually perform managerial functions as president in the District.”)
Former commissioner Kristen Barden, who heads the Adams Morgan business improvement district, says the GCS case stands out from other cases she saw on the commission because of how far members were willing to go to keep GCS certified.
“It wasn’t common,” says Barden, who served for two years. “We tended to either say yes or no.”
Barden doesn’t know why the commission voted the way it did, but says she never felt any political pressure from any city officials when it came to commission votes.
Gerry Sigal did not return requests for comment. Campaign finance records show he’s given somewhat consistently to D.C. politicians over the years, but certainly isn’t a major financier of local campaigns. He and his wife have given $15,000 to local pols in the last decade, records show, with another $5,500 coming from Sigal Construction. In the mid-1990s, Sigal settled a civil case with the Securities and Exchange Commission over insider trading, according to published accounts from that time. The Washington Post reported that Sigal allegedly gave cash-filled envelopes to a top executive at Gannett who had provided stock tips.
Sigal’s son, Michael Sigal, has since replaced Goldberg as GCS president. In an interview with LL, Michael Sigal insists that the commission had not found GCS to be in violation of any CBE rules, saying he was unaware of any conditions imposed on GCS.
“Everything was cleared,” he says.
When asked why GCS’s senior vice president, Kerric Baird, has the same exact job title with Sigal Construction, Sigal says that was an “internal set up” between two “completely…separate companies.”
Sigal also noted that GCS often hires CBE subcontractors and District residents.
It’s not clear if GCS’s CBE status was necessary for Sigal to win the school renovation contracts. Without being a CBE, Sigal won about $30 million worth of contracts from 2009 to 2011, records show. But the added preference points couldn’t have hurt. On its website, GCS touts the “unique advantage” it has as a CBE. City records show that GCS won more than $2 millions’ worth of city contracts between 2009 and 2011.
Keith Forney, the developer and competitor of Sigal’s who filed the initial complaint against GCS, says the commission’s ruling has disappointed local companies who rely on CBE points to win city contracts.
“They’ve completely taken the teeth out of the law,” he says.
Forney also points out that many small businesses don’t have the resources to hire top notch legal help like GCS does. In its case before the commission, GCS hired Holland and Knight’s Rod Woodson, a well-regarded lobbyist at the Wilson Building. Woodson did not respond to a request for comment.
The GCS ruling is hardly the only head-scratcher when it comes to CBE decisions that affect multi-million-dollar contracts. Take last fall’s inspector general report on the District’s lottery contract, which faulted the city’s CBE certification process. The IG found that the city improperly decertified one would-be lottery contractor, while wrongly certifying the firm of the eventual contract winner, a company whose chief financial officer worked out of an office in Burtonsville, Md. (The IG also reported that it “received information” about a possible conflict of interest involving one of the commissioners, but didn’t bother to investigate the matter because it had already determined that the commission had acted improperly.)
All this dysfunction has not gone completely unnoticed. Mayor Vince Gray’s administration has plans to disband the Small and Local Business Opportunity Commission (it currently only has one member, though it’s supposed to have nine) and have CBE cases heard by the “more professionalized” Office of Administrative Hearings, according to a senior Gray official who was not authorized to talk publicly about the plans.
“It’s obvious it’s not working,” the official says of the commission.
Not working, that is, unless it happens to be working for your firm.
Photo by Darrow Montgomery
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