Significant Proposed Changes to New York's M/WBE Program

By Henry L. Goldberg, Legal Counsel, Subcontractors Trade Association

Partner, Moritt Hock & Hamroff LLP

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In his recently released 2019 Executive Budget, Governor Cuomo proposed sweeping changes to New York State's M/WBE program. Every prime contractor and subcontractor needs to be aware of these proposed changes and the potentially significant expansion of the State’s M/WBE program that they might represent.  The following highlights the most significant proposed changes to New York’s M/WBE program:

  • The Proposed New M/WBE "Czar"

A “Director of the Minority and Women's Development” would be empowered with extraordinary new authority over New York State’s program. 
Without approval of the State Legislature, as is now the case, the Director will be able to commission new disparity studies unilaterally. The Director would also be able to set M/WBE participation goals on contracts in his or her discretion to ensure "maximum feasible participation." Thus, while New York's 2016 Disparity Study had recommended increased M/WBE participation goals of 30%, the Director would be able to set goals at any percentage he or she deems appropriate.  The Director would also be able to set different "personal net worth" caps for M/WBE certification, on an industry-by-industry basis, also in his or her discretion.  Currently, the personal net worth cap is $3.5 million. 

  • Expansion To All Local Government Contracts

The State's M/WBE program would apply to all public contracts, including contracts let by counties, cities, towns, villages and school districts.  Specifically, the definition of “contracting agency” is to be expanded to “any unit of local government, including, but not limited to, a county, city, town, village, or school district that is paid pursuant to an appropriation in any state fiscal year.”  This means that, as a condition to accepting stated aid, each of these municipalities would be required to comply with New York’s M/WBE program in its entirety.

  • 10% Bid Preference For M/WBEs On Prime Contracts

In the resurfacing of a bad idea not seen since the administration of former mayor David Dinkins, a 10% bid preference is being proposed for M/WBE prime contractors on every public contract with a value of less than $1.4 million.  By this proposed change, an M/WBE prime bidding on a public contract “shall be deemed the lowest bid unless it exceeds the bid of any other bidder by more than 10%.”  Thus, an M/WBE prime can bid 10% over other primes and still be awarded the contract.   

  • Good Faith Efforts

The manner by which a prime may demonstrate "good faith efforts" to satisfy M/WBE participation requirements would also be significantly modified.  For example, instead of advertising M/WBE opportunities in media and trade-specific publications, a prime will be required to attend a pre-bid conference set by the state agency.  An M/WBE's failure to timely respond to a prime's solicitation is also apparently now not a factor.  Finally, the prime's noticing of M/WBEs in the certified directory will be required to be "timely" – but there is no definition of timeliness.

  • Increased Exposure To Liquidated Damages

The standard for liquidated damages to be assessed against contractors who fail to comply with M/WBE participation requirements is also proposed to be changed from "willfully and intentionally failing to comply" to "fails to make a good faith effort to comply."  This would be a much lower and far more problematic enforcement standard.

  • New Crime – M/WBE "Fraud"

New fraud provisions are also proposed to be added to New York State’s Penal Law which prohibit any person from knowingly providing materially false information or omitting any material information concerning the use or identity of an M/WBE for the purpose of being awarded a contract or demonstrating M/WBE participation on a contract.  Three levels of fraud are proposed:  (a) in any State contract (fraud in the 3rd degree) – a class A misdemeanor; (b) in any State contract over $50,000 (fraud in the 2nd degree) – a class E felony; and (c) in any State contract over $1 million (fraud in the 1st degree) – a class D felony.

  • Workforce Diversity Program

            A new workforce diversity program would be added to the Executive Law.  Similar to M/WBE goals, public contracts are to set workforce participation goals based upon total hours worked within each trade, profession and occupation (plumbers, electricians, etc.), with separate goals being set for each of specifically defined minority groups and Caucasian women.  

  • New “Anti-Discrimination” Executive Order

On a related note, Governor Cuomo also signed an Executive Order banning all state agencies and public authorities from doing business with “entities” (including construction contractors) “that promote or tolerate discrimination or infringement on the civil rights and liberties of New Yorkers.” 
In light of the administration’s history in overseeing the M/WBE program, its view of what constitutes “discrimination” or “promoting and tolerating discrimination” may be very different from what a contractor would believe it to be.  It is also unclear as to how determinations may be made and what remedy may be imposed against a contractor or subcontractor charged with such conduct.  For example, will the make-up of a contractor or subcontractor’s reported workforce trigger such a charge?  Will a contractor or subcontractor be debarred if the administration is displeased with a contractor’s or subcontractor’s workforce utilization reports? 

HLG Commentary
The above are only some of the proposed changes to the M/WBE law.  It is startling to consider that they were actually proposed in the Governor’s Executive Budget. However, I’m pleased to report there was a reprieve. As I write this column, the State Senate has just rejected the Governor’s above-decribed M/WBE proposal. It was a close call!
However, there may be a silver lining. Because the Governor’s proposal was so over-the-top, and so alarming, it has triggered an industry response, including efforts to build a constitutionally sound M/WBE program in New York State. Race based criteria are inherently suspect constitutionally and require strict scrutiny under the law as a result. A new, proper, and constitutionally compliant disparity study must be underwritten. Project specific goals already required by law and regulation, but regularly not utilized by NYS agencies in deference to a legally questionable across-the-board 30% goals must be the rule, not the exception. Never again should public officials ever refer to such goals as a “mandate” or “directive” or “quota.”
Whatever may be your own opinion of the administration’s M/WBE program over recent years, it is clear changes are coming in a big way and the industry is readying itself for the battle.
Feel free to share your questions or thoughts.

1 The charges contained in the indictments are merely allegations, and the defendants are presumed innocent unless and until proven guilty. All factual recitations are derived from documents filed in court and statements made on the record in court.

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