City Of New York Reintroduces Goals For Award Of Contracts To Minority- And Women-Owned Enterprises With Heavy Penalties For Breach

On December 29, 2005 the Mayor of New York City signed Local Law 129 of 2005 which re-invigorates City-wide goals for the awarding of City contracts relating to construction, professional services, standard services, goods contracts, construction subcontracts and professional services for contracts under $1 million to minority and women owned enterprises (M/WBEs). These modest goals seek to lift confirmed disparities that exist for both prime and subcontractors in the construction, architecture and engineering, professional services, standard services and goods industries in the City.

The Division of Economic and Financial Opportunity was previously created in 1991 under the auspices of the Department of Business Services to enhance the ability of minority and women owned business enterprises to compete for City contracts, to engage City agencies’ awareness of such business enterprises, and to ensure their meaningful participation in the City procurement process. This Division came into effect after a report had been published in the early 1990s first evidencing a disparity of minority and women owned enterprises in various industries. The report also instigated the first City M/WBE program that came into effect in September 1992. In 1994 the Mayor of New York City signed an executive order eliminating the 10 per cent price preference for qualified M/WBEs provided for under this program following a Supreme Court ruling on the matter.

The City received another disparity report in January 2005 which is the impetus behind this further attempt to lift disparities found within the construction, architecture and engineering, professional services, standard services and goods industries in the City.

Local Law 129 of 2005 has amended both the New York City Charter and the Administrative Code of New York. The following contracting "goals" or "numerical targets" for minority-owned and women-owned enterprises have been inserted into the Administrative Code and are effective immediately:

All City agencies, which have procurements in excess of five million dollars during the fiscal year,³ are to develop utilization plans to ensure substantial progress toward attainment of the above goals in as short a time as practical.⁴ If the procurement contract is valued at over ten million dollars, an agency shall submit the bid or proposal to the City Chief Procurement Officer for determination whether it is practicable to divide the proposed contract into smaller contracts and whether in doing so competition amongst minority-and women-owned business enterprises is enhanced.⁵

Each City agency may vary the applicable participation goals of M/WBEs for individual construction and professional services contracts.⁶ City agencies are also required to establish a target subcontracting percentage, which shall represent the percentage of the total contract which the agency anticipates a typical prime contractor in the relevant industry would in the normal course of business award to one or more subcontractors for amounts under one million dollars, for individual construction and professional services contracts prior to going out to bid.⁷

The bid documents for each City contract, which will contain subcontracts under one million dollars and for which an agency has established participation goals, shall state that bidders are required to agree, as a material term of the contract, that the contractor shall be subject to these participation goals.⁸

For each contract for which participation goals are established a contractor shall be required to submit with its bid or proposal, a utilization plan indicating the:

• Percentage of work it intends to subcontract;

• Percentage of work it intends to award to subcontractors for amounts under one million dollars.⁹

If the contractor intends to award subcontracts for amounts under one million dollars, then the contractor is required to submit with its bid or proposal, a description of the type and dollar value of work designated for participation by M/WBEs and the time frame for such work to take place.¹⁰

If the utilization plan submitted with the bid does not reflect a plan to award the target subcontracting percentage, the bid shall not be deemed responsive unless the agency has granted a pre-award waiver pursuant to § 6-129i.(11).¹¹

Full or partial pre-award waivers of the target subcontracting percentage may be allowed when a bidder demonstrates it has "legitimate business reasons for proposing the level of subcontracting in its utilization plan." Factors to be considered in evaluating such requests include (a) whether the bidder has the capacity and bona fide intention to perform the contract without subcontracting or without awarding subcontracts of under one million dollars at the target percentage, (b) whether the plan is consistent with past practices of the bidder, and (c) whether the bidder has made good faith efforts to identify portions of the contract that it intends to subcontract. Waivers must be approved by the City Chief Procurement Officer and notice of same must be provided to the Speaker of the City Council.¹²

Modifications of the utilization plan may be granted if the agency determines that the contractor establishes, with appropriate documentary and other evidence, that it made all reasonable, good faith efforts to meet the goals. The agency shall consider such factors as (a) contractor’s advertising efforts, (b) contractor’s notification efforts, (c) contractor’s efforts to identify other work that could be performed by M/WBEs, (d) contractor’s efforts to meet with M/WBEs prior to when bids were due or to negotiate with M/WBEs for subcontracts, (e) contractor’s timely requests for assistance to the agency, among others. ¹³ The modifications shall be approved by the City Chief Procurement Officer who shall notify the Speaker of the City Council. ¹⁴

A contractor shall submit statements that include the amounts paid to subcontractors (including subcontractors that are not M/WBEs) and the names, addresses and contact details of each M/WBE hired under the utilization plan, certified under perjury, with each voucher for payment and as each agency may require, for each contract for which a utilization plan has been submitted.¹⁵ If payments made to or work performed by M/WBEs are less than the amount specified in the contractor’s utilization plan, the agency is to take appropriate action under the enforcement provisions of the legislation (§6-129o.), unless a modification of the plan is approved.¹⁶

If payments made to, or work performed by, MBEs or WBEs are less than the amount specified in the contractor’s utilization plan or a contractor is found to be in violation of any other aspects of this section of the Code or rules promulgated pursuant to it, then an agency, after consulting the City Chief Procurement Officer, may take the following appropriate action, after conducting relevant investigations:

• Enter into an agreement with the contractor to cure the violation;

• Revoke the contractor’s pre-qualification to bid or make proposals for future contracts;

• Make a finding that the contractor is in default of the contract;

• Terminate the contract;

• Declare the contractor to be in breach of contract;

• Withhold payment or reimbursement;

• Determinate not to renew the contract;

• Assess actual, consequential or liquidated damages or reduction of fees;

• Exercise rights under the contract to procure goods, services or construction from another contractor and charge the cost of such contract to the contractor; and

• Take any other appropriate remedy.¹⁷

A contractor’s record in implementing its contractor utilization plan shall be a factor in evaluating its performance, such that if the contractor’s compliance with its utilization plan has been unsatisfactory, then the agency shall, after consultation with the City Chief Procurement Officer, file an advice of caution form for inclusion in VENDEX .¹⁸

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.