D.C. Attorney General Karl Racine has taken on fraud in the District’s government contracting process, submitting a bill to the city council to codify his actions.
Racine’s bill — The Small and Certified Business Enterprise Protection and Enforcement Amendment Act of 2019 — seeks to punish businesses that use the certified business enterprise (CBE) program fraudulently to gain city government contracts.
The attorney general said the legislation, submitted to Council Chairman Phil Mendelson (D) to be introduced to the council, would “increase penalties on non-District companies that cheat to gain preferential treatment in local government contracting and increase oversight of the CBE program.”
“When non-District businesses lie to get certified as CBEs, they rob District residents of jobs and opportunities that rightly belong to them,” Racine said. “The amendment will enhance the Office of the Attorney General’s ability to hold companies accountable when they cheat to win government contracts. I urge the council to pass this bill quickly for the benefit of the District’s businesses and economy.”
In the District, the law requires all city agencies to spend 50 percent of their contracting and procurement funds with CBEs. For a business to be certified as a CBE, it must be headquartered in the District and meet other requirements related to assets, sales, owners or employers.
When a business is certified, it can receive up to 12 preference points when bidding on District contracts, which could mean as much as a 12 percent price reduction when competing for bids with non-CBEs.
The District’s Department of Small, Local and Business Development (DSLBD) manages the certification process, as well as the investigation process when necessary. CBE certification lasts three years and, if in good standing, a business can seek recertification from DSLBD.
However, in the past few years, CBE advantages have led some companies to fraudulently seek certification to win contracts and Racine wants to stop that. Generally, a company involved in fraud has its headquarters outside the city, sets up a small office in the District as a front and lies about its status on DSLBD certification forms.
The Office of the Attorney General (OAG) defends a DSLBD’s certification or re-certification appeals before the Office of Administrative Hearings.
Racine’s legislation would increase oversight of CBE’s by stating that the OAG has full investigatory authority related to CBE fraud, including subpoena power and can probe and bring a case against a CBE at any stage. The legislation would add a requirement that fraudulent businesses that are prosecuted would be barred from competing for District contracts for five years in addition to the monetary penalties that are assessed for knowingly lying on CBE certification forms.
The measure would also allow anonymous reports to be made to the DSLBD’s CBE hotline and eliminate the stipulation that fraud allegations be notarized. Additional training for DSLBD staffers who maintain the hotline also would be mandated.
LaTasha Ward, co-founder of QED Inc., a College Park, Md.-based firm that focuses on a wide range of services from legislative lobbying to educational and family consultation, worries that Racine’s bill would send the wrong message to non-District entrepreneurs.
“I know what the attorney general is trying to do and that is to take care of his constituents,” said Ward, whose business has certifications from Prince George’s County and Maryland and has expressed interest in becoming a CBE in the District. “I think he needs to be careful that his bill doesn’t send the message that non-CBE businesses need not compete for business in the District because they don’t stand a chance. Some District businesses operate in Prince George’s County and get business here.
“I think competition should be fair across the board and contracts are given based on the ability to do the work and not where you are based,” she said.
Michael Smith, who operates Smith & Sons in the District, likes Racine’s bill.
“As a CBE trying to dot all of my i’s and cross all of my t’s to be compliant, I think it is great for Attorney General Racine to have authority for exacting penalties on those that don’t play by the rules,” Smith said. “His autonomy from the executive and legislative oversight branches of D.C. government gives CBEs an additional layer of protection against bad players that are already exacerbating the existing business disparities in my hometown.”
