1) The regulation adds four new definitions to Part 140, including the definitions of the terms “commercially useful,” “disparity study,” “master goal plan” and “update to master goal plan.” Importantly, the regulation amends the definition of “certified enterprise or certified business,” “contracting categories,” “minority-owned business enterprise,” “personal net worth,” “state agency,” “subcontract,” “substantially fails,” “value added,” and “woman-owned business enterprise.” The regulation deletes references to “The 2010 disparity study.”

2) The regulation replaces the existing requirement for agencies to adopt annual goal plans with a requirement to adopt a master goal plan at least once every four years. This master goal plan is to include specific goals for MWBE participation with respect to the four procurement categories covered under the program: construction, construction related services, services, and commodities. Furthermore, the regulation establishes criteria to be taken into account by agencies in establishing their master goal plans.

3) The regulation clarifies State agencies’ annual goal setting process by requiring each State agency to set agency-specific goals in accordance with Article 15-A of the Executive Law.

4) The regulation clarifies submission procedures for State agencies’ master goal plans and updates thereto. State agencies are required to submit master goal plans, or updates to master goal plans, to the Director of the DMWBD annually on or by January 15. Proposed master goal plans are to be reviewed by the Director to determine whether they are reasonable and appropriate in light of agency procurement circumstances. The Director is empowered to reject unreasonable submissions, and to require submitting agencies to amend their submission or, where appropriate, set goals on behalf of a State agency.

5) The regulation introduces additional factors to be considered by the Director when assessing a State agency’s “good faith efforts” including State agencies’ processes and procedures concerning goal-setting, utilization plans, utilization reports and waivers.

6) The regulation provides that a State agency may be found to have failed to meet its good faith standard if it refuses or fails to submit a master goal plan or update to the master goal plan to the DMWBD.

7) The regulation clarifies minimum standards for agencies’ submissions of remedial action plans to the Director after an agency substantially fails to meet its agency-specific goals.

8) The regulation requires agencies to set goals, where practical, feasible, and appropriate, for minority-owned, women-owned, and overall MWBE utilization on State agency contracts. The regulation further introduces additional factors to be considered by State agencies in determining whether goals are appropriate with respect to individual contracts, including: potential subcontracting opportunities available in the prime contract; MWBE availability as identified in the most recent disparity study with respect to the subcontracting opportunity; the number and types of MWBEs found in the state MWBE directory; the geographic location of contract performance; the extent to which geography is material to the performance of the contract; the ability of certified MWBEs located outside of the geographic location of contract performance to perform on the contract; and, the agency’s annual utilization goal.

9) The regulation clarifies that a contractor that is a certified MWBE may use the work it performs on a state contract to meet requirements for use of certified MWBEs as subcontractors.

10) The regulation makes technical amendments to language and clarifies standards for agencies’ evaluation of contractors’ diversity practices. Diversity Practices will only be assessed, where practical, feasible and appropriate, in best value contracts over $250,000. Where an agency determines that it is practical, feasible and appropriate to evaluate the diversity practices of a contractor, the agency is directed by the regulation to require such information to be included in the contractor’s bid or proposal, and to establish a quantitative factor for evaluating diversity practices. The regulation further clarifies that numerical guidelines will be provided to State agencies by the Director for the purpose of evaluating contractors’ diversity practices.

11) The regulation adds the requirement that certified MWBEs must be able to perform commercially useful functions in order to be listed on accepted utilization plans. The regulation further requires each utilization form to contain a statement acknowledging that use of certified MWBEs for non-commercially useful functions is strictly prohibited.

12) The regulation disallows the acceptance of alternative plans in lieu of acceptable utilization plans that identify the manner in which contractors plan to utilize certified MWBEs to achieve contract goals set forth in solicitations.

13) The regulation disallows contractors to take MWBE utilization credit for contract performance by any certified MWBE that has not performed a commercially useful function.

14) The regulation clarifies the ability of a State agency to disqualify a contractor as non-responsive for failure to remedy a deficient utilization plan.

15) The regulation provides that, in assessing whether a contractor made a good faith effort to satisfy utilization plan goals, an agency may consider whether a contractor knowingly utilized, or submitted compliance reports indicating the utilization of, MWBEs the contractor knew or reasonably should have known could not or did not perform a commercially useful function on a State contract.

16) The regulation permits agencies to consider, inter alia, the extent to which contractors’ own actions contributed to contractors’ inability to meet the maximum feasible portion of contract goals in assessing waiver requests.

17) The regulation allows agencies, in instances where agencies are not evaluating contractors’ diversity practices, to establish a quantitative scoring factor for bidders’ certified MWBE status.

18) The regulation adds work force utilization data collection requirements for contracts over $250,000 and removes work force collection requirements that were inconsistent with Article 15-A of the Executive Law.

19) The regulation requires the DMWBD to notify applicants of deficiencies in their applications to be certified as MWBEs within thirty days of the initial date stamped on their application.

20) The regulation requires the DMWBD to provide applicants with notice that their application is complete.

21) The regulation provides for the ability of the DMWBD to request and assess additional information, including tax and financial information, leases and business agreements, to ascertain applicants’ program eligibility.

22) The regulation provides for the ability of the DMWBD to request and assess additional information to ascertain and/or identify an applicant’s ability and/or capacity to perform a commercially useful function on certain State contracts.

23) The regulation prohibits the investigation of third-party allegations that an MWBE no longer meets program certification requirements except where the allegations are specific and supported by facts.

24) The regulation establishes that a presumption of eligibility shall remain in effect during the pendency of a challenge to the continued eligibility of a firm for certification as an MWBE.

Changes made to the last published rule do not necessitate revision to the previously published Regulatory Impact Statement. The changes made represent clarification of issues that do not impact the regulatory impact statement.

Changes made to the last published rule do not necessitate revision to the previously published Statement in Lieu of Regulatory Flexibility Analysis for small business and local governments. The changes made represent clarification of issues that do not impact the statement.

Changes made to the last published rule do not necessitate revision to the previously published Statement in Lieu of Rural Area Flexibility Analysis. The changes made represent clarification of issues that do not impact the statement.

Changes made to the last published rule do not necessitate revision to the previously published Statement in Lieu of Job Impact Survey. The changes made represent clarification of issues that do not impact the statement.

As a rule that does not require a RFA, RAFA or JIS, this rule will be initially reviewed in the calendar year 2019, which is no later than the 5th year after the year in which this rule is being adopted.

Pursuant to the State Administrative Procedure Act, this document provides an assessment of public comments received in response to the New York State Department of Economic Development’s (“DED”) proposed changes to 5 NYCRR Parts 140-145, which govern the statewide minority- and women-owned business enterprise (“MWBE”) program. This assessment responds solely to those comments that are significant, and does not respond to comments which failed to address the proposed rulemaking or that pertain to provisions of the regulations that are already in force.

Definition of Commercially Useful Function

Comment: The definition of commercially useful function is too limited, and certain firms engaged in reselling equipment or providing support services (e.g., printing) would be inappropriately excluded.

DED, in consultation with numerous law enforcement agencies, has adopted the commercially useful function standard to protect the program against fraud and ensure that program benefits are provided to the intended recipients. Commercially useful function will be determined on a case-by-case basis within the context of the relevant industry and particular contract scope. No specific areas of performance (e.g., printing) will be automatically excluded.

Comment: Contractors should not be responsible if MWBE firms with which they contract are not able to perform a commercially useful function, and the regulations should assign responsibility to either contracting agencies or the Division of Minority- and Women’s Business Development (“Division”) to determine whether an MWBE has performed a commercially useful function.

Ensuring that contractors perform commercially useful functions on the projects for which they are counted towards MWBE utilization is an integral component of the MWBE program. All relevant parties, including DED, State agencies, contractors and MWBEs, have responsibilities associated with the determination of commercially useful functions on State contracts. Contractors are crucial partners in commercially useful function assessments because of their expertise in their industry and proximity to contract performance.

Other Definitions

Comment: The definition of “Director” has been removed.

The definition of “Director” has not been removed, but was not listed in correct alphabetical order with the other definitions. The alphabetization of the definition of “Director” has been corrected.

Agency Master Goal Plans

Comment: The Director’s exercise of his or her power to adjust the Master Goal Plans of agencies failing to meet the good faith standard would result in unattainable agency goals.

These powers already exist in the Director under the current regulations, and have been circumscribed such that the Director may only adjust agencies’ Master Goal Plans upon a finding that the agencies did not act in good faith, which includes a failure to set their own agency-specific goals. In instances where the Director is required to exercise this power, he or she, like a State agency, is required to set appropriate goals in accordance with the requirements of the regulations pursuant to § 141.3(c).

Comment: The definition of Master Goal Plan implies that agency-specific goals must always increase, and should be reworded to reflect neutrality as to whether goals should increase.

In light of the program’s remedial nature, and the deficiencies in the utilization of MWBEs identified by the Disparity Study, the program tools, which include Master Goal Plans, are intended to increase participation by MWBEs to meet the identified availability. The definition as written is consistent with the program objectives.

Comment: Why was the word “professional” removed from § 141.3(c)(2)(ii)-(iii)?

The word “professional” is not necessary as it is included in the word “services.”

Agency Good Faith Efforts

Comment: Direct negotiations with MWBE firms should be reinstated as a factor to be taken into account by the Director in evaluating whether an agency has made a good faith effort to meet its agency-specific goal.

Removal of the consideration of agencies’ direct negotiations with MWBE firms was a technical error, and this factor will be restored in § 141.7(b).

Establishing Contract Goals

Comment: An agency’s annual agency-specific goal should not be taken into account when setting goals on specific contracts, and goals should be set based exclusively upon the firms certified in NYS Contract System.

Agencies are required to, on an annual basis, prospectively consider State contracting activities for the fiscal year, and, based on results of this deliberation, determine their ability to set agency-specific MWBE goals. The agency-specific goals that result from these deliberations are directly relevant to individual contract goal-setting, and should be taken into account when setting contract-specific goals, because they reflect a benchmark of practical, feasible and appropriate MWBE utilization on each agency’s contracts. Agency-specific goals are only one of a number of factors agencies are required to take into account, and should never be outcome determinative or dispositive for any particular contract.

Comment: In determining appropriate goals for State contracts, agencies should consider “the availability, capacity and willingness of certified. . . firms. . .” rather than the “ability” of certified firms.

The current language already provides for the “availability” and “capacity” elements of the comment. Agencies should not assess “willingness” of certified firms at the goal setting stage because it is impractical and could have the effect of agencies functionally choosing subcontractors for prime contractors, which would be inappropriate.

Quantitative Factor/Diversity Practices

Comment: Two pairs of factors, paragraphs (1) and (4) as well as paragraphs (6) and (7) of § 142.3(e), to be taken into account by agencies when deciding whether to assess the diversity practices of contractors proposing to perform on a state contract, are duplicative.

The identified factors are not duplicative. Paragraph (4) targets prime contractors’ indirect expenses for general corporate operations, such as facilities maintenance, general administration, etc., while paragraph (1) relates to all expenses, which includes both direct and indirect costs. Similarly, paragraph (7) targets goals for State certified firms, while paragraph (6) provides for diversity goals broadly, which would include goals for non-NYS certified firms.

Comment: The regulations should clarify whether State agencies or DED will develop a scoring tool to assess the diversity practices of contractors making submissions for the award of State contracts and should provide State agencies with objective guidance as to how to score best value. The regulations should also clarify whether scoring tools will be developed for each contract opportunity. More weight should be afforded to contractors’ utilization plans than to retrospective diversity practices in assessing best value, and prospective diversity practices should not be considered on the ground that prospective activities cannot be scored objectively.

Each agency is empowered to adopt its own quantitative factor, which should be ascertained on a contract-by-contract basis. Pursuant to § 142.3(f), DED will provide agencies with guidance concerning the implementation of this section.

Comment: Financial assistance by a contractor to certified MWBE firms should be reinstated as a factor to be considered in evaluating a contractor’s diversity practices.

The diversity practices program policy is intended to promote inclusion of MWBEs in state contracting. Financial assistance by prime contractors to certified MWBE firms has been removed because it does not directly relate to the inclusionary practices of prime contractors.

Comment: Expanding the types of contracts for which diversity practices will be considered would result in certified MWBE firms receiving additional contracts at the expense of non-certified small businesses, and would discourage prime contractors from doing business with non-certified small businesses that would not contribute towards the prime contractors’ diversity practices score when proposing to perform on State contracts.

The proposed regulation does not expand the types of contracts on which diversity practices are considered.

This policy is designed to provide a preference to MWBEs, which is consistent with the overarching purpose of the program. Furthermore, all certified MWBE firms are, by definition, small businesses. Accordingly, the proposed regulations will have a positive effect on both small businesses and MWBEs.

Comment: Record-keeping requirements associated with demonstrating adherence to diversity practices would lead to fewer potential vendors, particularly small businesses, because of the cost to businesses of maintaining additional records, and contractors should not have to submit company workforce diversity data on contracts over $250,000 prior to the execution of a State contract.

This requirement seeks the production of information that generally is already required by law, or maintained in the ordinary course of business, and therefore is not unduly burdensome for state contractors.

Comment: The regulations should clarify whether proposers to perform on State contracts should submit information on their use of MWBEs certified by any state or governmental entity.

The regulations are sufficient as written. State agencies will receive guidance as to diversity practices-related submissions.

Comment: § 142.14(a) should be deleted because it is not applicable to low bid contracts.

§ 142.14(a) is applicable to best value procurements.

Utilization Plans and Contractor Good Faith Efforts

Comment: Contractors should submit evidence of good faith efforts along with utilization plans. The regulations should also clarify that certified firms can report self-performed work towards a contract goal.

Contractors are already required to show good faith efforts when submitting a waiver request, either in lieu of or in conjunction with, a utilization plan. The regulations already provide that certified MWBEs may report self-performed work.

Comment: Agencies’ evaluations of whether contractors made good faith efforts towards utilizing certified MWBE firms should review contractors’ past efforts rather than promises to utilize certified MWBE firms on other State contracts, and not consider whether a contractor should reasonably have known whether an MWBE firm utilized by the contractor could not perform a commercially useful function when the MWBE firm was utilized for goods or services for which the MWBE firm was certified.

Agencies are permitted, as part of assessing a contractor’s good faith efforts, to consider whether the contractor can structure future procurements to increase the utilization of certified MWBEs. Considering whether contractors should have reasonably known that an MWBE could not perform a commercially useful function protects against fraud, and advances the policy that only firms appropriately certified for the work in question be counted towards utilization goals.

Comment: § 142.10(b)(1) applies to prime contractors and CM at risk contracts in alternative procurements only, and the regulations should allow agencies to find a contractor to be in compliance with a utilization plan when that contractor has demonstrated good faith efforts to achieve the contract goal.

The commenter was not clear as to what was intended by “alternative procurements,” but in no case should § 142.10(b)(1) be read to exclude any type of State contract.

Under the MWBE program, agencies consider a contractor’s good faith efforts as part of their review of a contractor’s request for a waiver of all or part of the MWBE utilization goals set under a utilization plan, not as part of their review of a contractor’s compliance with a utilization plan.

Certification

Comment: Change the word “may” to “shall” in § 144.2(c)(6).

The purpose of this provision is to allow the Director to require additional information that addresses instances where applicants for certification as MWBEs do not submit complete information with respect to their ability to perform a commercially useful function. To change “may” to “shall,” as proposed in the comment, incorrectly assumes that all MWBE certification applications are incomplete.