‘Pop-up CBEs’: District firm blasts implementation of program meant to help local companies win contracts

The District’s Certified Business Enterprise program aims to boost “small and local” DC-based firms seeking government contracts, ensuring local dollars can flow to companies typically led by minorities or women. 

But Southeast DC construction firm Hayat Brown, which is appealing three losing bids to the DC Contract Appeals Board, is calling the program a “sham” in a rare public airing of critics’ long-standing grievances with the CBE law and its implementation. The company’s attorneys allege that the city’s practices favor “pop-up CBEs” backed by large firms over smaller local companies the program is designed to benefit. 

The contested contracts are one piece of a $500 million, seven-year project to place electrical wires underground in the District. Officials hailed the project for guaranteeing that 100% of its contracts go to local firms, but the complaint from Hayat Brown challenges the effectiveness of the CBE program.

The District rejects the firm’s allegations, part of a consolidated case that encompasses all three contracts. In legal filings, the city’s lawyers argue Hayat Brown has not proved that officials acted improperly in selecting the winning bid for the main contract in dispute. Hayat Brown doesn’t directly define what it means by “pop-up CBEs” but contends that many of them amount to offshoots of “larger firms whose investment and balance sheet impact in the District is minuscule on a corporate level.”

In seeking the case’s dismissal, Attorney General Karl Racine writes the company’s claims “amount to little more than a conspiracy theory.”

But the Contract Appeals Board has allowed the complaint to advance. An administrative law judge on the three-person panel has ordered the District to produce more documents detailing how procurement officials weighed bids for two contract solicitations where Hayat Brown did not make the shortlist. 

In their request for dismissal earlier this month, city lawyers had blasted Hayat Brown’s request for such contracting records as a “fishing expedition.”

The allegations come as the CBE program catches new scrutiny, stemming from the DC Council’s approval this month of a no-bid $215 million lottery contract for Greek-based company Intralot. As part of its deal to manage sports gambling in DC, Intralot subcontracted more than half of the lucrative contract to a handful of politically connected CBEs, The Washington Post reported in June.

For businesses that meet its eligibility requirements, the CBE program offers eight certifications that add valuable preference points for bids on contracts. A local firm that gains a small business enterprise (SBE) certificate, for example, gets three additional preference points when bidding on any contract; a business owned by a longtime DC resident can get five.

In its legal complaint, filed on May 15, Hayat Brown alleges the Office of Contracting and Procurement (OCP) disadvantaged the firm of 22 full-time engineers in favor of larger companies. Attorneys for the District, in their latest filing on July 1, said that OCP followed the law and that allegations procurement officials acted in bad faith are without proof. 

“If Protestor believes that there are systemic inequities in the current CBE certification process and the evaluation of CBE qualifications … then Protestor’s remedy is not in this forum, but at the D.C. Council,” Racine and other city lawyers wrote to the board.

Hayat Brown and OCP declined to comment, citing the pending litigation. A hearing is not yet scheduled in the case.

The disputed contracts are part of the first phase of the power-line-burial project, known as DC PLUG. The bids were for work on the undergrounding of an electrical feeder in the Friendship Heights and American University Park neighborhoods, the site of the project’s groundbreaking last month. Mayor Muriel Bowser and council members touted the project’s use of CBE firms at the event. 

Kumi Construction Management Corp. won the main contract being appealed, worth nearly $1.2 million. The company lists addresses in Tenleytown and Baltimore, and notes on its website it is a certified CBE in the District and has worked on projects throughout the region and beyond. It highlights certifications from four states, including Pennsylvania and New York. 

The DC Council approved the contract in early April after OCP recommended Kumi as “the most highly qualified firm.”

CBE certification requires the “principal office” of the company to be within the city, among other eligibility standards. Kumi did not respond to questions about which address it considered its principal office. The DC Council approved legislation this month to provide greater specificity by writing into the law that all of the DC PLUG contracts should go to CBEs or “certified joint ventures,” beyond simply just “local businesses,” as the original legislation stated. 

Hayat Brown did not make the shortlist for the two other contested contract bids, both of which remain active. The board’s order for more documents is tied to these two contracts. After successfully requesting an extension to respond until July 30, the city will have to file details about how procurement officials evaluated companies’ bids on the contracts, which cover program management and road paving services for DC PLUG.

Hayat Brown Construction, located at 3715 Martin Luther King Jr. Ave. SE, was founded in 2017 and worked on a road project on Minnesota Avenue NE, according to its website. DC Del. Eleanor Holmes Norton visited the company in May during Small Business Week, the Washington Informer reported.

In its appeal, Hayat Brown said that it believes the firm “is not competing against other CBEs, but rather with CBEs whose staffing and qualifications are provided by … larger, non-CBE [architecture-engineer] firms.” After making its original filing, the company brought on law firm Douglas & Boykin as counsel.

In addition to holding a certificate as a local business, Kumi Construction, the winning contractor, lists certificates as a disadvantaged and small business, according to records with the Department of Small and Local Business Development, which administers the CBE program. The three certificates add up to seven additional preference points on contract bids. 

In addition to holding the same three certificates, Hayat Brown gains two more points for being located in a “development enterprise zone.”

While the protest does not mention Kumi Construction by name, it alleges “pop-up CBEs” are gaming the CBE process.

Hayat Brown “competes head-to-head with large engineering firms, pop-up CBEs, and small businesses who routinely rely on key personnel provided by large firms to whom they subcontract large portions of work,” the firm’s CEO, Hayat Kelil-Brown, wrote to OCP last December. 

Dorothy Brizill, a veteran District watchdog, said Hayat Brown’s allegations echo common criticisms of the effectiveness of the CBE program. 

“The problem isn’t just this limited issue of big companies creating sham CBEs,” Brizill added. “The problem is across the board. … It’s a well-intentioned program that has never been properly managed [and] has never had proper oversight from the council.”

Hayat Brown’s grievance over losing the AU Park-Friendship Heights contract stems in part from the meaning of the job title “project engineer.” The complaint alleges the city docked significant points from the firm’s bid because it did not include a “resident engineer.” The firm writes that its proposed engineer had previously served as a “senior civil engineer” and “project engineer” for construction management work in DC and Maryland, and that job titles are fluid in the industry.

“You indicated that because we did not state in the proposal that Lou was a ‘resident engineer’ for these assignments, the evaluation committee could not ‘infer’ as such,” Kelil-Brown wrote to OCP. 

Hayat Brown also said OCP unfairly rated the firm’s past performance as just “acceptable” without consulting outside individuals the firm had listed as references. 

When OCP weighed proposals from companies for the AU Park-Friendship Heights DC PLUG contract, “it appears … past performance was based primarily on statements” from the bidders instead of outside references, the firm wrote to OCP on Dec. 10, 2018. “[This] approach lacks procurement integrity, objectivity, reliability, and is an ineffectual means of assessing an offeror’s past performance on comparable projects.” 

After losing its bid for the AU Park-Friendship Heights contract, Hayat Brown alleges its proposals for two subsequent related contracts were hampered due to OCP’s initial refusal to offer feedback to the firm on why its earlier bid was unsuccessful. While debriefing sessions between procurement officials and firms are common, OCP officials told Hayat Brown that they are not standard practice for contracts like this one that are classified as “task orders,” according to a November 2018 email in the case record. 

Such debriefing sessions, the firm responded last December, are “especially important for SBE/CBE firms to improve their win rates.”

This post has been updated to correct the deadline for the District to submit the requested documents to the DC Contract Appeals Board and to include the name of the law firm representing Hayat Brown.