Reauthorization of Article 15-A of the Executive Law and Its Ramifications

On July 15, 2021, then New York Governor Andrew Cuomo reauthorized Article 15-A of the Executive Law which was originally signed into law in July of 1988. The intent of the legislation was and remains to help promote greater employment and business opportunities for minority and women-owned enterprises (i.e., MWBEs). Through the law, goals have been set for MWBEs’ participation in construction projects. In this latest reauthorization of 15-A, a goal of 30% of the budget comprised of MWBE participation for each year of a state project grant has been established. This goal applies to construction projects involving grant applications for over $25,000. This goal was determined based on a study conducted in 2016 to assess disparities in contract awards. For both contractors and MWBEs, it is important to understand the nine sections of Article 15-A in order to facilitate compliance and support the intention of the law.

Defining the Terms

Section 310 of Article 15-A defines what constitutes an MWBE under New York State’s definition. It is a business that is at least 51% owned and controlled by minority members and/or women. That ownership and control need to be “real, substantial, and continuing” to qualify. Minority members are those individuals, whether U.S. citizens or permanent resident aliens, who can demonstrate that they are a member of one of the following groups:

• Black individuals with origins in any of the Black African racial groups
• Hispanic individuals of Mexican, Puerto Rican, Dominican, Cuban, Central or South American origin
• Descendants of Indian or Hispanic origin (regardless of race)
• Native Americans and Alaska native individuals with origins from any of North America’s original people
• Asian and Pacific Islanders with origins from any Far Eastern country, South East Asia, the Indian subcontinent, or the Pacific Islands.

Also defined in this section is the term “contractor.” This law defines a contractor as an individual, business enterprise (i.e., sole proprietorship, partnership, corporation, not-for-profit corporation) or any other party to a state contract or a bidder associated with a state contract award or a proposed party to a state contract.

A Key Role and Resource

Under Section 311, there is an explanation of the State’s Division of Minority and Women’s Business Development and its role in administering, coordinating, and implementing a statewide program to help MWBEs secure state government contracting opportunities. Its primary goal is to make sure MWBEs gain their fair share of contracts. To support the intent of Article 15-A, the Division is charged with conducting educational programs, providing technical assistance to applicants, filing violation complaints, and keeping the Governor and Legislature informed on all progress through annual reporting. Additionally, Section 311-a establishes an office of an MWBE statewide advocate within the State’s Department of Economic Development.

A Focus on Equal Employment Opportunities

Ensuring that there is a focus on promoting equal employment opportunities (EEO) in state contract projects is covered in the law’s Section 312. It clearly states that agencies must include certain contract provisions in all state contracts. Specifically, they are:

• Prohibiting employment discrimination,
• Soliciting statements of nondiscrimination from unions and employment agencies,
• Including a nondiscrimination clause in employment recruitments and advertisements, and
• Including an application of similar clauses in all subcontracts with the exception of those unrelated to a state contract and those which duplicate or conflict with federal EEO law.

This section of Article 15-A also requires state agencies to provide ongoing monitoring of contractors for their compliance with the law.

Within Section 312-a, there is an additional requirement calling for the MWBE Director serving within the Department of Economic Development to commission a study of MWBE programs to assess whether a disparity exists between the number of qualified MWBEs that are ready and able to participate in state contracts and the number of contractors engaged to perform such contracts. Through the study, the State is hoping to determine if any policy changes are needed.

Rules and Regulations

Also covered in Article 15-A are requirements pertaining to rules and regulations designed to ensure that MWBEs are fairly considered in the award of state contracts. Specifically, under Section 313 of the law, the Director is required to issue rules that: require contractors to submit an MWBE utilization plan for each contract, require agencies to review the utilization plans and notify contractors of deficiencies, allow contractors time to correct contract deficiencies, and/or request a partial waiver of compliance, require agencies to evaluate “good faith” attempts by contractors to comply when determining a granting or denial of a waiver request, grant contractors the right to submit complaints against agencies that refused a requested waiver and permit agencies to submit complaints about contractor noncompliance.

MWBE Certification

Section 314 of Article 15-A requires the Division of Minority and Women’s Business Development to implement a certification program and, in conjunction with this program, develop a directory of all certified minority and women-owned firms. Within this directive, the Division will rely on rules and regulations it has developed specifying the criteria to meet in order to receive certification and/or have certification revoked. When necessary, appeals of certification-related decisions are heard by independent hearing officers who are charged with issuing a recommendation.

Contracting Agencies’ Responsibilities

Article 15-A also specifies the responsibilities of contracting agencies contained in Section 315. In it, agencies are noted to be responsible for monitoring contracts and recommending corrective actions as needed; complying with all rules set forth by the Director; making the directory of MWBEs (or copies of it) available to prospective bidders and contractors; reporting to the Director activities used to promote MWBEs’ participation in contracts, as well as their employment of minorities and women; and providing any assistance needed to support the objectives of the Article 15-A statute.

Where Article 15-A Supersedes Other State Law Provisions

Section 317 of Article 15-A specifies that this statute supersedes any other state law provisions mandating equal employment opportunity programs and/or MWBE participation in applicable actions by state contractors. A caveat that applies here is for provisions of state laws that are not superseded by Article 15-A, but which mandate such programs. They will remain unaffected except they will be considered in the context of various requirements put forth in Section 313 and Section 316 and applicable to violation complaints that occurred on or after September 1, 1988. This supersession clause also allows contracting agencies to make voluntary affirmative action efforts in order to secure MWBEs’ participation as it relates to banking relationships and the issuances of policies/contracts pertaining to the sale of such financial instruments as bonds, notes, or other securities.

Article 15-A can only be found invalid by the courts as noted in Section 318. This severability clause notes that any component of the statute can be considered invalid while the rest of the statute remains intact and enforceable.

Demonstrating Good Faith Efforts of Compliance with Article 15-A

Equally important to understanding what is contained in Article 15-A is how contractors can demonstrate their good faith efforts in complying with its requirements. Measures that should be taken include identifying areas of a state contract where MWBEs can participate and making full use of Certified MWBE lists. As part of the essential due diligence and to document their good faith efforts, contractors should:

• Maintain copies of solicitations to MWBEs such as advertisements in relevant MWBE media outlets, directories and, trade/labor associations publications and websites;
• Develop documentation indicating the steps taken to ensure MWBE project participation;
• Document all actions are taken to convey good faith efforts to secure MWBE project participation;
• Keep records citing reasons why an MWBE enterprise was not awarded a project; and
• Document dates of attendance at contract-related meetings.

Finally, under Article 15-A, compliance with Article 15-A’s MWBE policy can be full compliance, partial participation, or no participation. Under full compliance, the applying contractor demonstrates having met or exceeded the statute’s 30% participation goal. Partial participation is indicated when the contractor did make and document that good faith efforts were made to comply, but that the goal of 30% participation was not achieved. No participation is similar to partial participation except that in this case, no MWBEs could be secured for the project which again would need to be documented.

Violations of Article 15-A can be met with fines, sanctions, or penalties that could also result in a contractor being deemed ineligible to submit bids to any state contracting agency or to be awarded a contract for up to one year.

With the reauthorization of Article 15-A, there is also a requirement that contracting agencies establish four-year growth plans pertaining to the use of MWBEs. The goal of this enhanced transparency is to promote greater outreach supported by increased documentation of all activities. There also has been an expansion of the Statewide Advocate’s role which encompasses helping MWBEs gain business assistance and investigate certification delay-related complaints, auditing agencies, and investigating MWBEs’ complaints of Article 15-Avilations.

New Requirements for MWBEs

For their part, owners of MWBEs will need to meet an increased personal net worth cap of $15 million up from $3 million. This is expected to have a significant impact on the program’s capacity. Additionally, Article 15-A has extended the certification period from three to five years as a measure for reducing the existing certification backlog. There also has been the establishment of MWBE bidding credits of 10% up to $1.4 million for low-bid construction projects.

To ensure compliance with all aspects of Article 15-A, it is important to rely on a key advisor, such as your attorney or CPA.

Joseph Molloy, CPA, is a tax partner at Anchin and a key member of the Firm’s Architecture & Engineering and Construction Industry Groups.  Joseph has 20 years of experience in public accounting and has extensive experience preparing tax returns for a variety of entities, including C-Corps, S-Corps, partnerships, individuals, and trusts.