RICHMOND (By Chris L. Jenkins) July 12, 2004 - The business of cleaning office buildings has always been good to William Grace, president and founder of a Newport News, Va., janitorial company. While contracting with the federal government, Hampton Roads businesses and several states, his company was able to bring in as much as $14 million during some of its better years.

But when it came to contracting with his home state of Virginia, Grace said, he understood a simple rule: No need in doing business where it seems you're not wanted.

"It made no sense to contract with this state," said Grace, who is black and has had his company for 32 years. He stopped seeking contracts from state officials 15 years ago.

"There was no support network, and the way they went about organizing their contracts was a disincentive to small firms," he said.

These have long been among the complaints of minorities and women who own businesses in the Old Dominion, according to interviews with business owners and state officials. Other states, they say, have more aggressive support programs. They say that with Virginia, they often find out about contracts late, making it harder to put together a winning bid. Sometimes, these smaller companies are awarded contracts but then are not called upon to do the work, so they don't get paid.

Such observations became part of a study by a research firm that also found that less than 0.5 percent of what Virginia spent on contracts for various services between 1998 and 2002 went to minority-owned businesses. The rate increased to 1.3 percent when firms owned by non-minority women were included.

The figures are based on an analysis of the commonwealth's $5 billion in annual contracting between those years for dozens of services, including fixing roads, building state offices and cleaning government buildings. Additional research found that many minorities and women felt that they had experienced discrimination and believed that the state procurement system was tilted toward using the same contractors.

The three-inch-thick report by MGT of America, a Tallahassee-based consulting firm, found that Virginia had some of the poorest results in the country in contracting with firms owned by women and minorities. MGT has done about 100 such studies.

Maryland spent 17 percent of its contract money with businesses owned by minorities and women in 2001, while North Carolina spent 7.4 percent between 1998 and 2002. The MGT report noted that Charlotte paid out $92 million to companies owned by women and minorities from 1998 to 2002, while for its entire state Virginia paid out $35 million. "We've been getting bamboozled for a long time now," said Al Bowers, an African American construction subcontractor in Richmond who no longer seeks state work. "There's no other way of saying it."

For business owners such as Grace and Bowers, the MGT report illustrates lost business opportunities over the years. But for some lawmakers and state officials, it highlights a continuing history of unfair practices in Virginia toward women and minorities.

"This is about fundamental fairness," said Del. Dwight Clinton Jones (D-Richmond), chairman of the General Assembly's Black Legislative Caucus. "What we have is a whole segment of our business community unfairly cut out of doing business with the state. … It's been going on for too long, and it has to end."

The state's Department of Minority Business Enterprise asked for the MGT study after an audit found that many contract-holding companies that were listed as owned by women or minorities in fact were not. They included now-defunct Arthur Andersen and Xerox.

The General Assembly approved the study in January 2004, and the results were released a year later.

The report found that in almost every category of state contracting analyzed -- including construction, engineering and architecture -- companies owned by women and minorities were underrepresented. For instance, women made up nearly 6 percent of all construction sub-contracting firms but received 1 percent of the contract money awarded. Blacks owned 5 percent of subcontracting firms and received 0.22 percent of the state's contract money.

Unlike some other states, including Maryland, Virginia does not have comprehensive programs that guarantee some contracts will go to firms owned by women or minorities.

Gov. Mark R. Warner (D) referred to the findings as "dismal" and "unacceptable" and created a task force to look for remedies. He called on each state agency to adopt goals for contracting with minority businesses while requiring several to include subcontracting companies that were owned by women and minorities in their contracts.

The task force released a preliminary report last month, calling for each state agency to increase its contracting with businesses owned by minorities or women. But the task force suggested that a "set-aside" program based on race and sex be used only if contracts for minorities and women do not increase over the next several years.

The Virginia results "are some of the worst I've seen," said Stephen Humphrey, the senior analyst for MGT who led the study. His firm concluded that Virginia's system of awarding contracts puts many small minority firms at a disadvantage: Often, small contracts are strung together into larger packages to save money. Such bundling keeps out many of the smaller businesses that are owned by minorities and women because they can't handle the large-scale work.

"It's almost as if you never really have a shot from the get-go," said Grace, who has done business in Michigan, Connecticut and Maryland, all of which he said have a much more supportive system for working with small businesses on government contracts.

MGT also found what many minorities and women have long complained about: that a "good old boy network" exists through which state agencies contract with a small cadre of businesses that know how to effectively negotiate the procurement system.

"There are personal biases you just can't get around in Virginia," said Ed Hamm, director of the Department of Minority Business Enterprise, the state agency responsible for helping minority businesses.

"A lot of it is business as usual. … People are used to dealing with the people they know," said Michael J. Schewel, Virginia's secretary of commerce and trade. "And there was very little impetus to change."

Others say the Department of Minority Business Enterprise was part of the problem because it was mismanaged and ineffective at supporting minority businesses.

Several lawmakers this General Assembly session sponsored legislation to fold the division into the larger Department of Business Assistance, citing its troubled past. Last month, Warner blocked attempts to alter the agency's functions, saying it would function better independently.

"It wasn't an attempt to abolish the service, just to better deal with an agency that has had its difficulties," said Del. R. Steven Landes (R-Augusta), who supported the change. Landes pointed out that the agency in 2001 had mismanaged money and had a number of complaints from business owners.

Warner issued an executive order in July 2002 mandating that state agencies include minority businesses when soliciting bids for state work and that officials submit annual reports on how these agencies are improving their strategies.

Schewel said that statewide goals for awarding contracts to minorities and women have been established and that they will tie employee performance evaluations to these efforts. And he said there will be more oversight of projects to ensure that such businesses are getting the work they have been assigned.

Over the past year, there have been some improvements, according to state statistics.

Minority contractors, who got 0.44 percent of contracts between 1998 and 2002, have seen results rise six of the past seven quarters and received 2.5 percent of state contracts the first three months of 2004. Businesses owned by women have had similar increases. But officials admit there is still much more work to do.

"It's going to take some time to make a real difference," Schewel said. He indicated that the state plans to get tough on each agency, as well. "Oversight is good, but a hammer is better."

Business owners across the state said they would wait and watch.

"We'll see if any of these changes help," Grace said. "But you can't legislate morality."