White Out

A local contractor gets called a fake as the dispute over minority set-aside contracts heats up. The city and some local contractors say he is; the state says he's not.

Jul 14, 1999 at 4:00 am

Local black contractors and the state transportation department have been on a collision course, culminating in Monday's blockade of Interstate 70 by protesters. Traffic was halted for about an hour and 125 people were taken to jail, but the only real casualty of the controversy may be a businessman named Sam Hutchinson.

The African-American founder and majority owner of Interface Materials Inc. won a bid to do work on the I-70 project. But as minority contractors turned up the heat on the state transportation department in recent weeks, Hutchinson saw his business trashed as a "minority front" — in other words, a white-controlled company set up to exploit set-aside programs.

In making the accusation, widely reported by local media outlets, Missouri Minority Contractors Association (MO-KAN) attorney Eric Vickers relied on a decision by the city of St. Louis that bars Interface Materials, which makes ready-mix concrete, from the city's minority set-aside programs.

But the city's action is being challenged in court; the Missouri Department of Transportation (MoDOT) rejects the city's finding; and Hutchinson finds himself in the untenable position of having to defend his blackness to a group that he concedes is fighting for "a just cause."

"I am not a front. I am not a fraud," Hutchinson tells The Riverfront Times.

"MO-KAN does not need to make allegations against my company to make its point with the state of Missouri that minority participation on state highway contracts should be increased and that more minorities should be employed on the job."

The question of whether Brentwood-based Interface Materials is truly a black-owned enterprise matters because Interface is the only minority firm participating in the latest I-70 expansion project, a $130 million reconstruction of a six-mile stretch of the roadway. If the company is a sham, as the city and MO-KAN allege, that means all the public money for the latest I-70 expansion is flowing only to white-owned firms.

That would make the state transportation department's arguably lackluster performance on minority contracting look even worse.

MO-KAN, which garnered support from the St. Louis Metropolitan Clergy Coalition, the local branch of the NAACP and other minority activists, including the Rev. Al Sharpton of New York City, contends that the state highway department should be farming out at least 25 percent of its project work to minority contractors and subcontractors, especially on projects that run through minority neighborhoods.

Under state and local laws, construction projects funded by the city of St. Louis require at least 25 percent minority participation. The protesters targeted I-70 on Monday morning because even though it's funded in large part by federal funding, which only requires 10 percent minority participation, it runs through areas that are predominantly African-American.

"This is about economic equality," says Vickers, a University City attorney and longtime activist. "When you look at the early history of the civil-rights movement, including the Montgomery bus boycott, it centered on economic issues. Until economic disparities are cleared, we're never going to have any social equality.

"You have a project this size going through North St. Louis," Vickers adds, "and you have no African-American participation of any substance in it."

MoDOT spokeswoman Linda Wilson says her agency has met the 10 percent federal guidelines for minority participation and then some, pointing out that on the I-70 project, 14 percent of the contract work has been awarded to minority companies.

"We follow the federal regulations for disadvantaged business enterprises, which includes female- or minority-owned companies," Wilson says, adding that the personal net worth of the minority or female owner cannot exceed $750,000. "The idea is to help small companies boost themselves up.

"The federal goal Missouri has is 10 percent, and basically what we do is, when we announce a project, the contractors bid on it and we set a goal for that contract," Wilson says. "The whole state has to average out to 10 percent, but in places like St. Louis, we have a lot more disadvantaged business enterprises available to us, so in projects near St. Louis, we usually set the goal at about 14 percent."

For the I-70 project, choosing Interface Materials, owned by an African-American, allowed the state agency to meet its goal. Take Interface Materials out of the picture, and the color of the project is white as bleached cotton.

A different process

Sam Hutchinson, an engineer by trade, already owned Wood River, Ill.-based Interface Construction Corp. when he decided to launch Interface Materials in 1996. Hutchinson owns 51 percent of the company's stock; James Lohse, a white man who has been in the ready-mix-concrete business for about 20 years, owns 49 percent.

That same year, Hutchinson formed a potentially lucrative partnership with white-owned contractor McCarthy Bros. to bid on several large public contracts, including a $100 million-plus city contract for work on the East Terminal at Lambert St. Louis International Airport. McCarthy owns 85 percent of the joint venture, Interface Construction 15 percent.

The joint venture, common among contractors on public projects, is designed to help McCarthy win contracts with minority-participation requirements. And it gave a smaller firm, like Interface Construction, a chance to participate in larger, more profitable projects. But it would also raise questions when the city began its compliance review of minority contractors.

According to documents obtained by the RFT, city compliance investigator Todd Taylor saw at least two troubling issues in the financial records Interface Materials submitted to the city.

Those business records showed that Lohse, the white partner, received a salary in 1997 of $260,000, whereas Hutchinson, the black partner, did not. "He (Lohse) signs contracts, hires and fires employees, enters loan agreements, and estimates and bids projects for the business," Taylor summarized in a letter to the St. Louis Development Corp.'s Certification Review Board.

Taylor also found that Interface Materials owed money to two white-owned companies, McCarthy Bros. and Vee-Jay Cement Contracting Co.

In the case of Vee-Jay Cement, which lent Interface Materials $94,000 in 1996, Taylor stated that "it is not in VJs (sic) interest to fund the building of a competitor unless there is a financial gain or competitive disadvantage. VJ is not a financier, it is a cement contracting company."

The loans made by McCarthy to Interface Materials, of about $520,000 in 1997, were a little different, because McCarthy had the partnership/joint venture for many projects with Hutchinson's other company, Interface Construction.

"Through the relationships between the owners of these companies, it is understandable that IMI (Interface Materials Incorporation) would enjoy a working relationship on joint contracts; however, McCarthy is not a financier either and unless there were financial gains or competitive advantages it would have no interest in FUNDING another person's business," Taylor noted.

Although Interface Materials technically met the city's definition of a minority-owned business — "a sole proprietorship, partnership or corporation owned, operated and controlled by a minority group member or members who have at least 51 percent ownership" — the SLDC review board voted in June 1998 to decertify the company on the basis of its belief that Hutchinson did not really control the company and because the company was receiving money from "competitors."

Interface Materials appealed SLDC's decision, but in December, the appeal was denied. Interface Materials then threatened to take SLDC to court, and a second appeal was granted.

That sparked an internal protest from Percy Green, director of SLDC's Certification and Outreach section, who in a letter to the SLDC board complained that allowing a second appeal was highly unusual and hinted that politics were involved:

"The credibility of the City's (certification program) is doing business with legitimate, minority and women owned businesses, and not FRONT companies. The certification component works very hard to be fair to all its participants and those seeking certification. There were no exceptions made because Interface may be larger than most other firms. Neither did the certification process concern itself with whom Interface may know at City Hall."

Taylor quit in January 1999 after three-and-a-half years with the city. Green won't comment, because Interface Materials made good on its promise to sue. The case is before Circuit Court Judge Robert H. Dierker.

Hutchinson's lawyers also declined comment, but in court filings, they make these arguments:

On the salary issue, Hutchinson decided during the start-up of the company that he would forego a salary but pay Lohse, his president, instead. Hutchinson was already earning a salary from his principal business, Interface Construction.

The city misunderstood the $94,000 "loan" from Vee-Jay Cement. According to Interface Materials, Vee-Jay Cement was close to losing a concrete-mixing plant through foreclosure, and when Interface Materials made the only bid on the plant, Vee-Jay jumped at the offer. Vee-Jay accepted a promissory note from Interface Materials; court documents show that Interface Materials has made its payments on time.

The McCarthy loan is an arm's-length transaction. Although McCarthy did have a partnership with Interface Construction, it also bought supplies from Interface Materials. During one project in which all three were involved, Interface Materials was building several plants at which it would later make ready-mix concrete. McCarthy was scheduled to buy that concrete.

But because of cost overruns and a lack of capital on Interface Materials' part, it couldn't complete the plants on time, so McCarthy, dependent on getting the concrete, finished the plants instead. The notes it issued to Interface Materials were for the cost of finishing the job. Those payments, too, have been paid in a timely fashion, according to the company.

Though the St. Louis Development Corp. saw those loans as evidence that Vee-Jay and McCarthy controlled Interface Materials and the salary payments as evidence that Lohse was calling the shots, the fact that Sam Hutchinson owned the controlling interest in the company was never in dispute.

Interface Materials isn't the first minority-owned company to be decertified by the SLDC, then sue.

CCR Inc., a small painting business founded by Samuel Washington, lost its official minority status last year after city compliance officers concluded that Washington's white part-time office manager, who prepared paychecks and answered the telephone, might actually be calling the shots. The city's evidence? The manager also happened to be working for a large white-owned painting business that was renting CCR an office.

"The evidence," said Circuit Judge John Garvey in a ruling that rejected the city's position, showed that the part-time employee "had absolutely nothing to do with the larger management decisions of the company."

The CCR case suggests that the city's certification process could end up turning legitimate minority-owned companies into victims of the very system designed to help them.

State transportation officials won't go that far, but they're convinced that Interface Materials has been wrongly targeted.

"This company is being unfairly caught in the fire on this, just because the city's certification process is different from what we have to follow," MoDOT's Wilson says.