vs. ) CASE NO. 83-3498
Respondent. )
Pursuant to notice, the Division of Administrative Hearings, by its duly designated Hearing Officer, William B. Thomas, held a formal hearing in this case on May 21, 1984, in Tallahassee, Florida. Subsequent to the hearing, the parties submitted proposed findings of fact and conclusions of law. These have been considered. Where not adopted and incorporated herein, they were found to be irrelevant or immaterial, or not supported by the evidence, and have been rejected.
For Petitioner: Luther C. Smith, Esquire
For Respondent: Vernon L. Whittier, Jr., Esquire
Haydon Burns Building, M.S. 58 Tallahassee, Florida 32301-8064
By certified letter dated September 4, 1983, the Department of Transportation denied the application of Tholy Construction, Inc. for certification as a minority business enterprise for failure of the company to meet the requirements of Rule 14-78.05, Florida Administrative Code. Specifically, the Department found the company to lack the requisite independent minority business status, and the necessary experience and expertise in the fields of trucking, grassing, and MBE consultant. Thus, the issue presented is whether the Petitioner's application for certification as a minority business enterprise, under the requirements of Rule 14-78.05, Florida Administrative Code, should be granted or denied on the grounds that the firm is not an independent business entity, and that the minority owners lack
experience and expertise in the fields in which they are seeking certification, namely, in the fields of trucking, grassing, and MBE consultant.
Tholy Construction, Inc., applied for minority business enterprise status with the State of Florida in three basic areas, minority consulting, grassing and trucking.
Tholy Construction, Inc., was founded in May, 1983, by Thomas L. Hawthorne and his wife, Lynette Hawthorne. Mr. & Mrs. Hawthorne own 100 percent of the capital stock of Tholy Construction, Inc. Mr. Hawthorne serves as the President and Chief Operating Officer, and Mrs. Hawthorne serves as Vice- President and Office Manager. Both Mr. & Mrs. Hawthorne are Black.
Thomas L. Hawthorne is a graduate of Florida A & M University with a major in Business Administration and Accounting After graduation in 1972, Mr. Hawthorne went to work for the Department of Transportation as a Right-of-Way Agent. At the Department of Transportation, Mr. Hawthorne's basic assignment was the acquisition of property for road building projects. In 1973, Mr. Hawthorne moved to Dothan, Alabama, and became an employee of Pike Building Company. This was not an administrative position, but was a construction worker position. Mr. Hawthorne worked there for ten months and then took a position at Couch Construction Company in Dothan as a personal trainee in the area of equal employment opportunity. Couch Construction is a large construction company engaged in road building and airport construction. Mr. Hawthorne was employed at Couch Construction Company from 1974 to 1983, having responsibility for compliance with minority requirements of the Federal Government, setting up programs to attract and secure minorities, assisting minorities in proposing bids for subcontracts, and decision making relative to the cost of bidding projects.
Lynette Hawthorne has worked full time at Tholy Construction Company since December, 1983. Her major areas of responsibility are the financial and bookkeeping procedures of the company. Previously, she worked in banking for six years, and her education consists of two and a half years of business administration at Florida A & M University. Mrs. Hawthorne is being trained by her husband to prepare bids and bid proposals, and is in training to inspect job sites of projects to make sure that they are completed in accordance with specifications.
Tholy Construction, Inc., is incorporated under the laws of the State of Alabama. The offices are located at 1701 Reed Street, Suite 105, in Dothan. There are presently two full time persons working in the office. Thomas Hawthorne and his wife, Lynette Hawthorne. Tholy Construction, Inc., is certified as a minority business enterprise in both the States of Alabama and Georgia. Mr. & Mrs. Hawthorne give all the orders as far as work is concerned, they prepare their own income tax returns, file their quarterly statements with the Federal Government, and make out the payroll. They are the only ones authorized to sign checks and entered into lease agreements, and the business pays
100 percent of their salary. In the states where the company is certified under the minority enterprise program, bids are regularly submitted on behalf of the Tholy Construction, Inc. Through December, 1983, Tholy Construction, Inc. grossed
$200,320.39.
Mr. Hawthorne has been successful in gaining several contracts for minority consulting work, one with his former employer which includes monitoring of the ? ? programs. In addition, Tholy Construction ? ? ? ? contracts with at least one other small construction company to provides technical business assistance and payroll services. This is with Salter Construction Company which is a 100 percent minority-owned corporation, employing about 20 persons.
In the area of grassing, there are several projects that Tholy Construction Company has completed or is involved in, including Lowe Field in Alabama and the grassing project on Interstate 10. Mr. Hawthorne is familiar with grassing projects, including the need for flat bed trucks to pick up and haul the grass, mulching machines, the 888 fertilizers, and the different types of grass, Osora, Bermuda and Bahia. In each case, according to specifications of the grassing projects, Tholy Construction leases the area where the grass comes from, supplies the necessary fertilizer, and puts the grass in place on the particular project.
In the area of trucking services, Tholy Construction, Inc., regularly bids on trucking and hauling projects in the states where it is certified as a minority business enterprise. However, the company has not purchased any equipment, and its basic method of operation is to subcontract with companies in the area to do the work. The company has two full time employees, Thomas Hawthorne and Lynette Hawthorne. On work at the Army's Lowe Airfield, there was a contract requirement that a certified payroll be maintained so the Army could monitor the wages paid individuals doing the work. In leasing the earthmoving equipment for site preparation on this project, Tholy Construction agreed to carry the equipment operators on its payroll to satisfy the
contract requirement for a certified payroll. The company has subcontracted with other companies to perform different items of work on this project, and basically all other construction type work has been subcontracted by Tholy Construction.
During 1983, 70 percent of the contract income of
$181,310.39 shown by Tholy Construction was with Couch Construction Company, and 90 percent of the consulting income of
$19,200 was with Couch. Also, Tholy rents equipment and purchases material from Couch, which is the largest construction company in the Dothan area. The MBE Rule requires firms to have adequate resources such as equipment and personnel to do the work, and does not allow brokers to become part of the MBE program. A broker does not own equipment or have its own personnel, but subcontracts the work to another company. If a firm subcontracts, it must perform at least 51 percent of the work with its own personnel and equipment to meet the requirements for certification. The firm must have in-house resources, necessary personnel, expertise and experience to do the work.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to and subject matter of this proceeding. Section 120.57(1), Florida Statutes.
Rule 14-78.05, Florida Administrative Code, contains standards for granting or denying certification as a minority business enterprise.
In certifying a firm as an MBE, the Department shall consider but shall not be limited to the following standards:
(b) An eligible minority business enterprise under this rule shall be an independent business entity, the real, substantial, and continuing ownership and control of which shall be by minori-
ties or women and go beyond mere pro forma ownership of the firm as reflected in its ownership documents. The minority or women owners shall enjoy the custo- mary incidence of ownership and shall share in the interest, as demonstrated as an examination of the aerial arrangements. In assessing business indepen- dence, the Department shall consider all relevant factors, including but not limited to the date the MBE applicant was established, the adequacy of its resources, and the degree to which financial rela- tionships, equipment leasing, and other business relationships with nonminority firms vary from
industry practice.
(d) An eligible minority business enterprise under this rule shall one in which the minority or women owners shall also possess the power to direct or cause the direction of the management and policies of the MBE and to make day-to-day as well as major business decisions concerning the MBEs management, policy, and operation. The dis- cretion of the minority or woman owners shall not be subject to any formal or informal restrictions (including but not limited to bylaw provisions, partnership agreements, or character requirements for cumulative voting rights or otherwise) which would vary managerial discretion customary in the industry.
In determining whether the minority or women owners also possess the power to direct or cause the direction of the management and policies of the MBE and have the requisite decision-making authority, the Department may look to the control lodged in the owners who are not minorities or women. If the owners who are not minorities or women are disproportionately responsible for the operation of the enterprise or if there exists any requirement which prevents the minority or women owners from making business decisions with- out concurrence of any owner or employee who is not a minority or a woman, then the enterprise is not controlled by minorities or women and shall not be considered an MBE within the meaning of this rule. Where the actual management of the enterprise is contracted out to individuals other than the owner(s), those persons who have the ultimate power to hire and fire the managers can, for the purposes of this rule be considered as controlling the enterprise.
Further, Rule 14-78-03(1)(d), Florida Administrative Code, provides in part:
Only expenditures to MBEs that perform a commercially useful function in the work of a contract may be counted toward the MBE goal. An MBE is considered ? ? commercially useful function when it is responsible for execution
of a distinct element of the work of a contract and carrying out is responsibilities
by actually performing managing, and supervising
the work involved. To determine whether an MBE is performed a commercial useful function, the Department shall evaluate all relevant factors as for example the amount of word subcontracted and industry practices.
Consistent with normal industry practices, an MBE may enter into subcontracts. If an MBE contractor subcontracts 50 percent or more of the work of the contract the MBE shall be pre- sumed not to be performing a commercially useful function.
The petitioner, Tholy Construction, is clearly a minority enterprise, being 100 percent owned by Mr. & Mrs. Hawthorne, both of whom are Black. The uncontradicted testimony indicates that the Hawthornes control all financial arrangements, all day to day business arrangements, and all management decisions, and neither is subject to the control of any outside non-minority firm.
The evidence also shows that Tholy Construction Company, through its president, Thomas Hawthorne, ha considerable experience in equal opportunity employment and personnel work, and is well qualified to consult in these areas.
Further, the evidence shows that Tholy Construction Company has successfully bid on and completed several projects involving the area of grassing. The company has thus demonstrated the necessary expertise in this area, and from the evidence it is concluded that the company has the resources, experience and expertise to enable it to function independently in the area of grassing.
However, the evidence does not show any real experience in the area of trucking. Tholy Construction is basically brokering construction contracts by subletting the work to other firms who have the equipment, employees, and expertise to complete the projects. The subcontractors are independent contractors and have their own superintendents to supervise and run the jobs. Tholy Construction does not actually manage, or supervise, or perform the work done in the trucking area. The Minority Business Enterprise Program contemplates that minorities will perform, manage and supervise the actual work on projects under contract with their firm. When a company subcontracts out more than 50 percent of its work, it is not functioning as an MBE, and should not be certified. Tholy Construction Inc., subcontracts out the majority of its construction were in the area of trucking.
RECOMMENDED that Tholy Construction, Inc., be DENIED certification as a Minority Business Enterprise in the area of trucking, and GRANTED certification as a Minority Business Enterprise in the area of minority consulting and grassing.
THIS RECOMMENDED ORDER entered this 9th day of August, 1984, in Tallahassee, Florida.
WILLIAM B. THOMAS
Filed with the Clerk of the Division of Administrative Hearings this 9th day of August 1984.
Luther C. Smith, Esquire
219 E. Virginia Street Tallahassee, Florida 32301
Vernon L. Whittier, Jr. Esquire Haydon Burns Building, MS 58 Tallahassee, FL 32301
