Virginia program to assist business falls short

A Virginia program to help small, women and minority firms win state business is largely ineffective at awarding contracts to companies with minority owners.

A key reason: The small-business definition is so broad that 99 percent of businesses in the state qualify.

“When you’re looking at minority business and small business, that’s two different issues on two different fronts,” said Darryl Samuels, executive vice president of the National Association of Minority Contractors. “The minority issue gets diluted.”

In a 2006 executive order, then-Gov. Timothy M. Kaine set a goal that 40 percent of state contracts should go to small, women and minority businesses, known as SWaMs. So far this year, small businesses have gotten 28 percent of the state’s spending, minority businesses 6.25 percent and white women businesses 5 percent.

The intent of the goal was to foster diversity among suppliers. But not everyone thinks it does.

“It is a program from hell,” said A. Hugo Bowers,

president of the 48-member Black Business Alliance of Virginia, formed to press for public and private sector diversity. “(State agencies) can meet their SWaM goals and never hire a minority.”

To be considered small in Virginia, under a 2006 law, a business must be independently owned and operated with 250 or fewer employees, or have gross receipts of $10 million or less averaged over three years.

The “or” in the definition is a problem, said Stacy Burrs, former head of minority business enterprise offices for the city of Richmond and Virginia. “You could do $150 million in business as long as you don’t have 250 employees.”

An example: The top vendor awarded contracts under Kaine’s program in 2009 was Maryland-based Scheer Partners Management, which earned $37.02 million from Virginia while a year earlier it formed a $100 million equity investment group with another company. Scheer was classified as a small business and was still able to bid as a SWaM vendor through November.

Also, under reciprocal agreements, firms from other states are eligible to bid for state work, including one that was certified as small despite $9 billion in revenue. The state is barred from releasing the firm’s name because of privacy restrictions.

Of the top 10 SWaM vendors paid in 2009, one was minority — information technology firm KST Data Inc. in Ashburn, which has maintenance and hardware contracts with the Virginia Information Technologies Agency. KST received $15.76 million from the state last year.

The Virginia Department of Minority Business Enterprise certifies SWaM businesses. Of the 18,500 certified vendors, minority businesses make up 31 percent, according to director of operations Angela Chiang.

Why should the state encourage its agencies to do business with small, women and minority firms?

“A lot of times, government work is the first work that (a business can) get,” said attorney Albert W. Thweatt II, who counsels small-business owners and teaches entrepreneurship at Virginia State University.

“If you don’t have access to the government work, you don’t have those things to be more successful in the private sector.”

In his executive order, Kaine wrote: “For Virginia to remain competitive, we must assure that all businesses and owners have an equal opportunity to share in state procurement.”

Diversity programs force governments and corporations to branch out from their normal stable of vendors and can help newer firms get projects, which may lead to better pricing from suppliers. That translates into more money and projects to grow a business, Samuels said.

Once work is flowing, businesses have better chances of getting financing and earning money rather than merely surviving.