05:59 PM PST on Friday, February 17, 2006

By LORI MATSUKAWA / KING 5 News

OLYMPIA - The "Smart Buying Initiative" is supposed to save the state $25 million dollars over the next two years, but some small and minority-owned businesses say they've been cut out by the policy.  And they say they may have to lay off employees as a result.

Dean Hartman and his brother Don run Capital Business Machines in Olympia.  They employ 40 people, and they've supplied the state with copiers and related services for years.  But this year, they say they were disqualified even before they had a chance to negotiate the price.

"It's wrong, and I think it's illegal," Dean Hartman said. "It's 25 percent of my business, and I'll probably have to fire three people."

Frank and Penny Fukui run an award-winning small business employing 10 people in Everett.  They were also cut out, and they say it impacted 30 percent of their potential business.

"We would have had the opportunity to do business with our own city, our own county, our own school districts," Frank Fukui said.

In fact, of the eight vendors who went after the state's $30-million dollar copier contract, only one passed the first stage and was allowed to negotiate with the state.   It was Ikon, the world's largest office distributor.

"Then we heard, wow, we're not in the race?" Fukui said. "There's only one provider for the whole state? I mean that was devastating!"

Under the Smart Buying Initiative, the bidding process was changed to maximize the state's buying power.

"We are interested in your dollar and my dollar and how to make the best of that state dollar," said Linda Villegas Bremer, Director of General Administration.

But that bottom line appears to conflict with other goals.

Last month on its Web site, the state described the goal of the initiative is to save money and improve the bidding process without hurting small, women- and minority-owned businesses.

Since KING 5 News began researching this story, the Web site has been changed and those goals have disappeared.

Sharp Copiers filed a lawsuit.  Xerox, Ricoh and Konica filed protests claiming the initiative unfairly prevented them from negotiating their best deal with the state.  On Friday, a Thurston County Superior judge granted an injunction preventing the state from signing a contract with Ikon until Sharp's lawsuit gets a hearing.

Dean Hartman said he didn't have the same opportunity as Ikon to negotiate with the state. 

"They didn't want us to get to that point.  They wanted one vendor," he said.

Because of the litigation, General Administration wouldn't discuss the single vendor issue beyond a simple statement.

"The goal is clearly stated up front that we would prefer to have multiple vendors," Bremer said.

Some lawmakers are concerned about designating a single vendor for all state copiers and service.

"First of all, I'm not sure negotiating with a single-source provider will get you the lowest contract," said Rep. Sam Hunt, D-Olympia.

Olympia City Councilman Jeff Kingsbury worries about the loss of local jobs.

"We can't lose those jobs," he said.  "(Small businesses are) getting squeezed out.  Unfairly."

Bremer says the state didn’t intend to close the door on other potential vendors.  "Our key goal is to make sure that there is access to small and minority-owned businesses," she said.

But the Fukuis argue that access isn't the same as negotiating a contract.

"We only want a fair opportunity to compete," Penny Fukui said.  "This has wiped us out of that."

And it'll be months before the state can even say for sure if it saved any money.

"It has not been finalized, so we are still wanting to ascertain what those exact savings will be," Bremer said.