The Business Council, New York’s leading business association representing over 2,400 private sector employers across the state, strongly recommends that reauthorization of the state’s minority and women owned business program should include meaningful reforms that makes the program more flexible and workable, while supporting the policy objective of supporting minority and women-owned firms. However, we do not support the Executive Budget proposal as it fails to address basic concerns raised by contractors, and instead makes the program even more difficult to manage.
The Business Council and other business organizations have raised concerns about the ongoing implementation of the state’s MWBE contracting program, and are calling for reforms as part of any extension of the program in 2019. The program, set forth in Article 15-A of the state’s Executive Law, was extended in 2018 and is set to expire on December 31, 2019. Governor Cuomo has proposed a five year extension in his Executive Budget, but instead of addressing serious concerns, it proposes new and unworkable requirements on state and local government contractors.
As The Business Council has consistently stated, we support New York State’s efforts to promote minority and women businesses’ participation in government contracting. However, we find that there are numerous problems in both the current system and the changes being proposed in the Executive Budget.
A key concern is the ability to obtain waivers from contract-specific MWBE participation targets, a process that our members say is slow and inconsistently applied. Likewise, many contractors have stated they were unable to obtain a rationale for the MWBE participation targets set for specific projects, despite repeated requests for such information. In response to these types of concerns, the Associated General Contractors of New York State filed a number of Freedom of Information requests with state agencies to obtain more information. When information was not forthcoming, the AGC filed Article 78 lawsuits to obtain documentation denied under FOIL requests; The Business Council joined these suits as an amicus. The results of this litigation has yielded little information on the rationale for the goals set on state-funded projects.
In addition to a lack of transparency in the setting of contract-specific participation targets, there are major concerns regarding the data used in the state’s 2016 Disparity Study (released to the public in June of 2017). Mandated by statute, that report determined that 53% of the state’s prime construction contractors and 53.48% of construction subcontractors are MWBE firms. Since these figures appears to be significantly inflated many have also asked for the data supporting this finding. To date, the data on which the disparity study findings are based have not been released to the public. This has led to significant concerns about the accuracy of the disparity study, as well as the methodology it employed.
These questions regarding the disparity study are troubling since the legislature’s review of proposed extension and amendments of the MWBE statute are already underway, and could be finalized as early as April 1.
Unfortunately, calls for a new disparity study have been ignored, and since the 2016 study was released, over two years has lapsed. This time could have been utilized to commission a new – and accurate – disparity study. With recommendations as to the form of the new law being based on recommendations of the 2016 study, we should expect the State-sponsored report to be as accurate as possible. Without a new study, however, this seems unlikely.
In regards to the proposals within the Executive Budget, S.1508 / A.2008, Part AA, that are based on recommendations of the 2016 Disparity Study, we see the following as among the most significant issues for our members engaged in public contracting:
- The amendments remove all reference to the 2010 disparity study and replace references to them with “most recent study commissioned by” Empire State Development (ESD). This creates a situation under which any study, at any time, could be commissioned by the Director of the program rather than a set-time document upon which authoritative study will be made.
- References to state agency goals have been omitted and instead replaced by availability of MWBEs as reflected in the MWBE directory (of ESD) and the most recent disparity study. This replaces current statutory provisions requiring contract-specific goals set by a defined study for each contract that reflect the MWBE capacity within the area in which the contract is being let.
- The new law would delete the listing of the rationale and basis for waivers from being posted on agency websites.
- The program would grant expanded powers to the Director of the Division of MWBE to conduct state agency audits and the commissioning of other studies. Additionally, the Director has great power to order reports from state-funded entities (at any government level) “as the director may require” on the status of the program.
- Diversity practices now include levels of minority groups and women as members of “management level bodies”, “boards of directors”, “senior executive officers.”
- The cap on personal net worth for MWBE owners is again set at $3.5 million, however, the Director of the Division of MWBE is authorized to modify this through “rules and regulations.”
- The MWBE program would be extended to apply to any “state-funded entity” which is party to a state contract. This, by definition, is any local government, including but not limited to county, city, town governments and school districts. As a result, the program will cover just about every level of government within the State.
- Discretionary spending limits have been increased to cover businesses compliant with Article 15-a in various select categories from $200,000 to $400,000.
- The new program would give a 10% bid preference for MWBE bidders, a change that is contrary to the state’s long accepted practice of awarding contracts to the lowest, responsible bidder.
- Creates new crimes (Article 181) of defrauding and/or providing misinformation in regards to MWBE for purpose of being awarded contract. Violations can be felonies, lead to debarment from state work. These new sections of law are added to create misdemeanors and felonies for utilizing firms that portray themselves as MWBEs but in reality are not, thus placing contracting entities at risk for the deceptive practices of others.
- Creates new “Workforce Diversity Program” (Article 28) to set “aspirational goals” for minorities and women in “each trade, profession, and occupation” for “each county of the state.”
- “Aspirational goals” as outlined in the bill require a breakdown of each trade, profession, occupation, and separate levels of participation by male and females in these categories within each minority group. The long and convoluted route that a contractor must follow to obtain workforce participation goals (WPG) within the above job classes and categories is all but unworkable.
- Prior to awarding a contract, the agency will require the contractor to commit to set levels of hires by gender and race/ethnicity, or obtain a waiver from certain parts of these aspirational goals, in each aspect of the project from his/her own company (as prime) down through subcontractors, materials providers, and supporting work forces. If any part of this process does not meet the WPG or if a waiver is denied, then the contractor is “noncompliant.” In a related vein, if a subcontractor fails to make WPG the contractor must “identify” the sub to the contracting agency who will likely deem that sub “noncompliant.” Noncompliance will lead to ineligibility to participate on future state contracts.
- “Aspirational goals for the expected participation of minority group members and women shall be established for each county” dictating a level of study and compliance that mandates local-state study that is not explicitly detailed as to how it is derived, yet is mandated.
Generally, the Executive Budget proposal for a new iterations of Executive Law Article 15-A will created new and significant issues for contractors. Rather than concentrating on improving the current system and insuring the timely designations and re-authorizations of state certified MWBE companies and their entry into the universe of state contracting, the law increases the arbitrary power of the director of the program while complicating the reporting systems required of contractors.
Further, the entire issue of increasing the levels of MWBE participation in the workforce through targeted workforce development and apprenticeship programs is ignored. In that vein, access to capital, bonding, and other business development tools needed by fledgling MWBEs are not addressed.
The importance of an accurate disparity study cannot be emphasized enough. Under the US Supreme Court Case City of Richmond v. J.A. Croson Co., the Court determined that a government must “demonstrate a compelling interest in apportioning public contracting opportunities on the basis of race” and other factors, such as sex (women-owned businesses). As such, a disparity study based on objective facts and in-depth study is required to justify preference to minority- and women-owned business enterprises (MWBE) in the awarding of government let contracts. The controversy swirling around the accuracy and contentions of the 2016 study lead us to believe it will not withstand judicial review. As such, we would encourage the State to undertake a new disparity study that accurately measures the relevant factors to determine new baseline levels for the awarding of MWBE contracts. Such a study would withstand scrutiny under legal challenge and thus preserve a vibrant MWBE program, something we believe is not the case under the current (2016) study. Therefore we urge an immediate commissioning of a new study. This is not only prudent at this time, but rather, necessary for the health and success of the MWBE program.
For the reason outlined above, The Business Council opposes the inclusion of these provisions in the State Budget and will advocate for meaningful reform rather than authorization of 15-A that will cripple the New York State bidding and contracting process.