Minority status 'sold' to firms, report reveals Kickbacks and collusion are common, grand jury says

March 24, 1992|By Michael James | Michael James,Staff Writer

A program that aims to promote minority businesses in Maryland is being abused by opportunists who have used various schemes to illegally obtain public works contracts, a Baltimore grand jury has revealed.

Several businesses have worked in collusion to get state-awarded contracts through the Maryland Minority Business Enterprise program, according to a special grand jury report released yesterday.

The law, passed in 1978, requires that the state strive to achieve a goal of 10 percent participation by minority subcontractors. Its aim is to give minority businesses a chance to gain access to construction work previously closed to them.

But numerous minority business people, some crooked and others simply naive, have abused the law by "selling" the names of businesses to non-minority companies, according to the grand jury.

"A great number of certified minority businesses have traded the opportunity to gain a foothold in the construction industry for the quick profit available from selling the use of their MBE name," the report said.

The report goes on to say that "these same participants, while hiding behind the excuse that the law is unclear, have blatantly sought to satisfy their own economic interests."

Several businesses have been indicted and convicted in the scheme, although the number and names of the businesses weren't available yesterday.

Typically, the minority business in question would sell its program status to a non-minority "shadow" contractor. The shadow contractor would in turn pay the minority business a commission of between 2 percent and 5 percent of the contract it was awarded, the grand jury said.

One non-minority business even went as far as to install a separate phone line in its office and take orders for a complying minority business. But the money for the job was actually being paid to the non-minority business.

The grand jury and the state attorney general's office have recommended changes in the program, including audits and on-site reviews of participating minority businesses.

In some cases, the non-minority business even referred to the minority partner as "our minority affiliate," and when the owners were questioned by grand jury officials, they seemed ignorant of their wrongdoing, the report said.

Many "openly admitted to parts of the arrangement, but insisted with apparent sincerity that they had done nothing wrong.

"No witness seemed the least bit disturbed" that minority contractors were being excluded from the work, the report said.

The state system is also partly to blame for some of the shortcomings of the program, the grand jury concluded. Some state officials have only given "lip service" to the program and did not closely monitor its operation, the report said.

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