C. CONSTRUCTION, INC., )
)
Petitioner, )
)
vs. ) CASE NO. 90-5217
) STATE OF FLORIDA, DEPARTMENT OF ) GENERAL SERVICES, )
)
Respondent. )
)
RECOMMENDED ORDER
A hearing was held in this case in Sarasota, Florida on December 14, 1990, before Arnold H. Pollock, a Hearing Officer with the Division of Administrative Hearings.
RECOMMENDED ORDER
For Petitioner: Guy Brisson, Personal Representative
c/o E.C. Construction, Inc.
105 Island Circle
Sarasota, Florida 34232-1933
For Respondent: Dannie L. Hart, Esquire
Joan V. Whelan, Esquire Department Of General Services Koger Executive Center
Suite 309, Knight Building 2737 Centerview Drive
Tallahassee, Florida 32399-0950 STATEMENT OF THE ISSUES
The issue for consideration herein is whether the Petitioner, E.C. Construction, Inc., (E.C.), should be granted Minority Business Enterprise, (MBE), status for the purpose of contracting with the Respondent, Department of General Services, (Department).
PRELIMINARY STATEMENT
By letter dated July 20, 1990, Carolyn Wilson-Newton, Minority Business Assistance Coordinator with the Department, advised Ms. Elinor J. Hogan, President of E.C., that her request for certification as an MBE had been denied. In a Petition for Formal Administrative Hearing, filed with the Department on August 13, 1990, Petitioner contested that ruling and on August 16, 1990, the file was forwarded to the Division of Administrative Hearings for appointment of a Hearing Officer. After a response to the Initial Orders herein was received
from Petitioner on September 4, 1990, the undersigned, by Notice of Hearing dated September 5, 1990, set the case for hearing in Sarasota on December 14, 1990, at which time it was held as scheduled.
When the hearing was convened, the Department filed an Amendment to its letter of denial adding an additional basis for its action. The Department also moved the Hearing Officer to take notice of the Petitioner's noncompliance with the statute requiring fictitious name registration, but indicated it did not intend to invoke the sanctions provided for in the statute. These requests were granted without objection.
At the hearing, the Department presented the testimony of Patricia Ann Freeman, a certification officer with the Department's Tallahassee MBE assistance office; and Carmen M. Perretta, qualifying agent for the Petitioner. It also introduced Respondent's Exhibits A through Q. Ms. Hogan testified for the Petitioner and introduced Petitioner's Exhibits 1 through 10. The Hearing Officer also officially recognized Chapters 13-8 and 21E-15, F.A.C. and Section 489.119, Florida Statutes.
A transcript was provided and the Department submitted Proposed Findings of Fact which have been ruled upon in the Appendix to this Recommended Order.
Petitioner's written post- hearing comments do not qualify as Proposed Findings of fact and need not be ruled upon.
FINDINGS OF FACT
At all times pertinent to the issues herein, the Department had the authority to certify those firms who qualified as MBE's for the purpose of contracting with it under the provisions of Chapter 13-8, F.A.C.
When an application for MBE status is received at the Department's certification office in Tallahassee, it is assigned to one of five certifying officers who reviews it and determines whether it is complete as submitted or requires additional documentation. This is called a desk audit review.
In the event all required documents have not been submitted with the application, they are requested in writing and the applicant has thirty days to provide them. Failure to do so results in denial of the application. If, on the other hand, all the required documentation is present, a decision is then made as to whether an on-site visit of the applicant's operation is necessary. If so, Department personnel go to the site and look to see if the business can qualify as an MBE. If an on-site visit is appropriate, but for some reason cannot be made, Department personnel try to get the required information by phone.
The decision to approve or deny certification is made, based on the reviewing certifying officer's recommendation, by the certification manager who, before making a decision, personally reviews the file and, if appropriate, sends it to the Department's legal staff for additional review. Once the legal staff has made its recommendation, if the decision is made to deny the application, a letter of denial is sent to the applicant who may then appeal that decision.
An application must meet all criteria set out in Rule 13-8, F.A.C. to be certified as an MBE. Each application is looked at on a case by case basis to see if those criteria are met. In the instant case, the denial was based on the Department's concern over several factors. These are related to Rule 13- 8.005(3), F.A.C. and included
A question as to whether the business was actually controlled by Ms. Hogan.
The nature of the corporate structure.
The application of Chapter 47, F.A.C., dealing with the construction industry.
The ability of both Hogan and Perretta to sign business checks.
Whether Ms. Hogan had the technical and mechanical capability, skills and training to run a construction company, and
Whether Ms. Hogan could effectively control such areas as financing, purchasing, hiring and firing, and the like.
In arriving at its decision to deny Petitioner's application, the Department relied only on those matter submitted with the application. It did not ask for or seek any information about the company and its operation beyond that initially provided. Notwithstanding her recommendation in this case, Ms. Freeman has previously recommended the certification of numerous woman owned businesses as MBEs.
On April 6, 1990, Ms. Hogan, as owner of E.C. Construction, Inc., a licensed general contractor qualified under the license of Carmen M. Perretta, applied to the Department for certification as a woman owned MBE. The application form reflected Ms. Hogan as the sole owner of the business, a corporation created under the laws of Florida. Ms. Hogan was listed on both the Articles of Incorporation, (1989), and the application form in issue here as the sole officer and director of the corporation, as well. Mr. Perretta was to be merely an employee of the firm, E.C. Construction, Inc.. In that regard Ms. Hogan claims, and it is so found, that the letters, "E. C." in the corporate name do not stand for Elinor and Carmen. Instead, they stand for Elite and Creative.
Ms. Hogan is a 63 year old widow who professes a long-standing interest in building, design and decorating. In 1950, she and her husband started a floor covering business in another state which they operated for nineteen years. In 1969 they moved to Florida where her husband started a lawn maintenance business in Sarasota. She worked full time as a nurse at a local hospital and still found time to assist her husband in every aspect of their business including marketing, bookkeeping, public relations, etc. Her husband took ill in early 1986 and from that time on and after his death in May, 1988, until the business was sold almost a year later, she exercised complete control. She still runs a wedding supply and stationery business from her home.
She sold the lawn business because she wanted to break the emotional links with the past and since she had some experience in construction, design and remodeling of her own home, went into the construction business establishing the Petitioner firm. In the few preceding years, she had designed and supervised several construction projects in the area in which she attended to financing, hiring the1 subcontractors, and supervision of the work. She also took some courses in design and has taken other courses and seminars in financing, accounting, marketing, advertising and operating a small business.
Ms. Hogan and her husband met Mr. Perretta in 1987 when they put an addition on their house and she was impressed by his talents. When she decided to look into going into the construction business, she turned to him for advice and ultimately recruited him as the corporation's qualifying agent. Notwithstanding the fact that neither the corporate documents nor the application for MBE status so reflect, Ms. Hogan's lawyer now indicates that Perretta was also made a Vice-President of the firm, but his authority was limited to those actions necessary to meet the minimum compliance requirements of Florida law. When confronted with this discrepancy, Ms. Hagan claimed that the corporate papers and the application were in error and that she didn't know what they meant when she signed them.
Ms. Hogan claims to be in full and complete control of all corporate activities, and to delegate to Mr. Perretta those responsibilities and functions, relating to the actual construction, that he is best qualified to carry out. She claims she does not share dominant control of the daily business activities of the firm though the evidence indicates both she and Mr. Perretta can individually sign corporate checks. In that regard, she claims he has signed only 19 of more than 500 checks issued by the firm since its inception. They have an understanding he will sign checks only for the purchase of materials, and then only in an emergency situation. He claims to no longer use that authority. The Department introduced no evidence to the contrary.
Ms. Hogan admits to not having formal construction training or experience but, based on her other experience, believes she is qualified to run a business. Under her leadership the company has reportedly secured over one million dollars in contracts and for the most part, has performed them successfully. Under oath she claims to negotiate the contracts, prepare the estimates and deal with contracting customers in all the projects in which the company is engaged. She claims to have made those contractual decisions independent of Mr. Perretta to whom she is not accountable. Yet, as was seen, the Articles of Incorporation wrongfully indicate her as the only officer when Mr. Perretta was actually a Vice-President, and she claims not to have known that. This gives rise to some doubt as to her business credentials.
In reality, Mr. Perretta actually directs and supervises the actual construction work at all job sites and schedules the subcontractors and materials to insure their presence at the job when needed. When changes are required, Mr. Perretta gives the necessary information to Ms. Hogan who prepares the change orders, including the typing, and forwards them as appropriate.
Ms. Hogan has also entered into an agreement, dated June 25, 1989, with Mr. Perretta whereby, in lieu of salary as qualifying agent and field superintendent for the company, he is to receive 40% of the gross profits of each construction project. He gets a periodic draw against that percentage. In addition, in May, 1989, Ms. Hogan, as President, and Mr. Perretta, as Vice- President, entered into an agreement with Raymond Meltzer to retain him as general manager of E.C.'s Designer Structures division. Under the terms of the agreement, Mr. Meltzer was to have "absolute, unlimited and exclusive authority" to conduct all affairs of the division, except to incur debt other than short term debt to subcontractors. Mr. Meltzer was to have the right to draw checks on a separate E.C. account in a bank of his choosing, and was to receive 95% of all monies received as a result of the activities of that division. E.C. was to obtain the required permits or licenses for projects and to provide such supervision as is required by law. Though Petitioner did not incorporate under the name Designer Structures, nor did it register that name under the fictitious
name statue, it continues to do business under that name. When it does, business is not conducted out of E.C.'s office, but from Meltzer's office instead. This is not consistent with Petitioner's MBE application which reflects only one office.
Petitioner submitted at the hearing a notarized statement dated December 8, 1990, from Mr. Meltzer in which he admits to seeking to originally use Mr. Perretta and E.C. primarily as a qualifying agent for his own construction activities. The terms of the agreement referenced above tend to confirm that arrangement. Nonetheless, he is of the opinion that Ms. Hogan possess excellent business acumen and administrative abilities, and, he claims that, based on his initial meeting with her, he abandoned his plans to set up his own business and went into a business relationship with her. The evidence indicates he develops the work for the division and gets 95% of the fee. Ms. Hogan claims to be considering terminating the arrangement since it has not proven to be a lucrative one. She is apparently not aware the agreement specifically states it is for a three year term and carries options to renew.
Though both Petitioner's application for MBE status and its bonding application indicate E.C. has no employees, Ms. Hogan testified that both Mr. Perretta and Mr. Meltzer are employees. She claims to use only subcontractors in the accomplishment of company projects and this appears to be so. She claims to have the strength of character and the will. to manage, hire and fire subcontractors as required. There is other evidence in the record, however, to indicate that Mr. Perretta actually schedules the subcontractors and materials to insure their presence at the job site when needed. It is found that there are no other employees who do direct, hands on contracting work, but while there may be a question of word meaning, it is clear that both Perretta and Meltzer qualify as employees.
E.C.'s application for MBE status also indicates that it had not executed any promissory notes, yet there is a note for $3,500.00 from E.C. to Mr. Perretta, dated May 10, 1989, on which no payments have been made.
Though Ms. Hogan claims to be fully in charge of running the business side of the operation, she is apparently also unaware of certain basic facts other than those previously mentioned. In addition to the inconsistencies regarding the office structure and her mistake concerning the employee status of Mr. Perretta and Mr. Meltzer, as well as her error regarding the loan, she was also in error as to the company's net worth. Whereas she indicated it was set at about $30,000.00, the company's most current financial statement reflects net worth at just above, $6,000.00, revealing her estimate to be 80% off. She also did not know the character of Mr. Perretta's license, (Class
E.C. owns very little construction equipment and Ms. Hogan rents all needed equipment as indicated to her by Mr. Perretta. The lack of ownership is not significant, however. The one piece of equipment the company owns is a transit level which was purchased at Mr. Perretta's insistence. He has also donated to the company some used office equipment from his prior business as a contractor. He was not paid for it. Other equipment, in addition to office space, was furnished by Mr. Meltzer.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties and the subject matter in this case. Section 120.57(1), Florida Statutes.
The Department has relied upon the provisions of Rule 13-8.005(3), F.A.C., dealing with Minority Business Enterprise, to deny the Petitioner's application for MBE status. A Minority Business Enterprise is defined is Section 288.703(2), Florida Statutes, as:
... any small business concern as defined in subsection (1) which is organized to engage in commercial transactions, which is domiciled in Florida, and which is at least 51% owned by minority persons and whose management and daily operations are controlled by such persons.
Review of Petitioner's application reveals that it is a small business concern; it is organized to engage in commercial transactions; it is domiciled in Florida; and it is at least 51% owned by a minority person. For these purposes, a woman qualifies as a minority person. However, there is substantial question as to whether that minority person actually controls the management and daily operation of the business concern.
The test of minority control is defined in Rule 13-8.005(3), F.A.C., adopted by Respondent, which provides:
(3) An applicant must establish that the minority owners possess the authority to control and exercise dominant control over the management and daily operations of the business.
Subparagraph (c) of the above paragraph provides that the minority owner must exercise sufficient management and technical responsibilities to maintain control of the business, and, at subparagraph (d), that the minority owner's control must be real, substantial and continuing and be more than mere pro forma control. The criteria for fulfilling that requirement are found in the subparagraphs to Rule 13-8.0005(3)(d), which, at 1. through 5. provide:
The minority owner shall control the purchase of goods, equipment, business inventory and services needed in the day- to-day operations of the business.
The minority owner shall control the hiring, firing and supervision of all employees, and the setting of employment policies, wages, benefits and other employment conditions. [If the employment procurement function has been delegated, the minority owner must demonstrate he has sufficient knowledge to effectively evaluate any employee's performance.]
The minority owner shall have knowledge and control of all financial affairs of the business.
The minority owner shall have managerial and technical capability, knowledge, training, education and
experience required to make decisions regarding that particular type of work.
The minority owner shall display independence and initiative in seeking, and negotiating contracts, accepting and rejecting bids and in conducting all major aspects of the business.
It is clear from the above that the operative consideration as to whether the minority owner qualifies for MBE status is the degree of control and management which he/she exercises over the business operated. The Department, in a Final Order in the case of Barton S. Amey Company, Inc. v. Department of General Services, DOAH Case No. 86-3954, dated April 21, 1987 simplified those areas in which the minority owner must clearly exercise control over the operation.
These include control over purchases of goods, equipment, business inventory and services; control over all financial affairs; and authority to hire and fire.
In the instant case, the Petitioner, as applicant, has the burden to establish she meets the Department's criteria for MBE status by a preponderance of the evidence. In that regard, as to the Rule criteria, it has not established that Ms. Hogan controls the purchase of goods, equipment, or services needed on her own. Mr. Perretta has the authority to purchase supplies and even sign checks to pay for them when required. Though Ms. Hogan may hire the subcontractors and rent the necessary equipment, she does so on the representation of Mr. Perretta, not on the basis of her own evaluation of the need or the circumstances.
While she no doubt can discharge Mr. Perretta in her capacity as President and the sole member of the Board of Directors of the corporation, she cannot fire Mr. Meltzer because of the contract arrangement the corporation has with him, and it is doubtful she could discharge a subcontractor without the coordination of Mr. Perretta. Her knowledge of the financial affairs of the corporation are less than complete. Among other things, she was not aware of the information contained regarding Mr. Perretta in the application or in the Articles of Incorporation; she was not aware of the actual net worth of the corporation; she has no say over what checks are signed by Mr. Meltzer on the Designer Structures division account; and she was not aware that the application failed to reflect the $3,500.00 loan from Mr. Perretta.
Her training and managerial skills may be sufficient to run a small business, but it is not at all clear she has that sufficient training and experience in the contracting field that her judgement and decisions regarding contracting can be relied upon. Her experience in contracting has been limited, and her training and education leans more to design and decorating that to construction.
Admittedly she claims some independence in seeking out and negotiating contracts, but it is not clear that she conducts all major aspects of the business, nor is it clear she has the requisite knowledge and expertise to do so. To the contrary, the evidence, documentary as well as testimonial, tends to indicate she is quite reliant on Mr. Perretta as to E.C.'s contracts, and has little, if any, say regarding Design Structures' contracts. Ms. Hogan indicated Mr. Perretta's license could easily be replaced, and this may well be true. To do so, however, she would have to replace him with an individual possessing the same qualifications for licensure and a holder of the appropriate license, neither aspect of which is she now qualified to fill.
Taken together, the evidence does not satisfy Petitioner's burden to establish that Ms. Hogan, as the minority owner, exercises that degree of control over the routine daily operations of E.C. Construction, Inc., as to qualify it as a Minority Business Enterprise.
RECOMMENDATION
Based on the foregoing Findings of Fact and Conclusions of Law, it is, therefore:
RECOMMENDED that a Final Order be issued in this case denying E.C. Construction, Inc.'s application for certification as a Minority Business Enterprise.
RECOMMENDED this 22nd day of January, 1991, in Tallahassee, Florida.
ARNOLD H. POLLOCK
Hearing Officer
Division of Administrative Hearings The DeSoto Building
1230 Apalachee Parkway
Tallahassee, Florida 32399-1550
(904) 488-9675
Filed with the Clerk of the Division of Administrative Hearings this 22nd day of January, 1991.
APPENDIX TO RECOMMENDED ORDER IN CASE NO. 90-5217
The following constituted my specific rulings pursuant to Section 120.59(2), Florida Statutes, on all of the Proposed Findings of fact submitted by the parties to this case.
FOR THE PETITIONER:
None submitted
FOR THE RESPONDENT:
& 2. Accepted and incorporated herein.
