By Richard P. Dyer
Thelen Reid Brown Raysman & Steiner LLP

New York City is taking new steps to open smaller contracts and subcontracts for construction, professional services, standard services and goods to minority and woman-owned enterprises (M/WBEs). The new city goals seek to remove disparities in participation that exist for both prime and subcontractors in construction, architecture and engineering, professional services, standard services and goods.

In 1991, the Division of Economic and Financial Opportunity was created as part of the Department of Business Services to enhance the ability of minority and woman-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. The division was created after a report was published in the early 1990s describing the disparity of minority and woman-owned enterprises. The report also led to the first city M/WBE program, which took effect in September 1992.

In 1994, Mayor Rudolph Giuliani signed an executive order eliminating the program's 10 per cent price preference for qualified M/WBEs after 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. New York City Mayor Michael Bloomberg on December 29, 2005, signed Local Law 129, which seeks to remedy the disparities. The new law inserted the following contracting "goals" or "numerical targets" for spending by city agencies on minority and woman-owned enterprises into the Administrative Code:

Race/Gender Group	Participation Goal (% of annual agency spending on such contracts, subcontracts)
For construction contracts under $1 million ("Construction Contract" means any agreement with an agency for or in connection with the construction, reconstruction, demolition, excavation, renovation, alteration, improvement, rehabilitation or repair of any building, facility, physical structure of any kind. 6 Administrative Code of New York §6-129c.(10).)
Black Americans	12.63%
Hispanic Americans	9.06%
For construction subcontracts under $1 million ("Subcontractor" means a person who has entered into an agreement with a contractor to provide something that is required pursuant to a contract. Administrative Code §6-129c.(27).)
Black Americans	12.63%
Asian Americans	9.47%
Hispanic Americans	9.06%
For professional services contracts under $1 million
Black Americans	9%
Hispanic Americans	5%
Caucasian females	16.5%
For standard services contracts under $1 million
Black Americans	9.23%
Hispanic Americans	5.14%
Caucasian females	10.45%
For goods contracts under $1 million
Black Americans	7.47%
Asian Americans	5.19%
Hispanic Americans	4.99%
Caucasian females	17.87%
For professional services subcontracts under $1 million
Black Americans	9%
Hispanic Americans	5%
Caucasian females	16.5%

All city agencies with procurements of more than $5 million during a fiscal year are to develop utilization plans to ensure substantial progress toward attaining the goals in as short a time as practical. (Administrative Code §§6-129g.(1), 6-129d.(2).) If a procurement contract is valued at more than $10 million, an agency must submit the bid or proposal to the City Chief Procurement Officer for determination of whether it is practicable to divide the proposed contract into smaller contracts and whether in doing so competition among minority and women-owned business enterprises is enhanced (Administrative Code §6-129h.(2)(vi).)


Bidding and Contract Requirements

Each city agency may vary the applicable participation goals of M/WBEs for particular construction and professional services contracts. (Administrative Code §6-129i.(1).) Before going out to bid for particular construction and professional services contracts, city agencies also are required to establish a target subcontracting percentage, which must represent the percentage of the total contract that the agency anticipates a typical prime contractor in the relevant industry would in the normal course of business award in one or more subcontracts for under $1 million. (Administrative Code §6-129i.(1).)

The bid documents for each city contract that will contain subcontracts under $1 million and for which an agency has established participation goals must state that bidders are required to agree, as a material term of the contract, that the contractor is subject to these participation goals. (Administrative Code §6-129i.(3).)

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

		Percentage of work it intends to subcontract; and
		Percentage of work it intends to award to subcontractors for amounts under $1 million. (Administrative Code §6-129i.(5).)

If the contractor intends to award subcontracts for under $1 million, 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. (Id.)

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 Administrative Code §6-129i.(11). (Id.)

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 whether the bidder has the capacity and bona fide intention to perform the contract without subcontracting or without awarding subcontracts of under $1 million at the target percentage; whether the plan is consistent with past practices of the bidder; and 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 must be provided to the Speaker of the City Council. (Administrative Code §6-129i.(11).)

Modifications of the utilization plan may be granted if the agency determines that the contractor has established, 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: the contractor's advertising efforts; contractor's notification efforts; contractor's efforts to identify other work that could be performed by M/WBEs; contractor's efforts to meet with M/WBEs before when bids were due or to negotiate with M/WBEs for subcontracts; contractor's timely requests for assistance to the agency, among others. (Administrative Code §6-129i.(12).) The modifications must be approved by the City Chief Procurement Officer, who must notify the Speaker of the City Council. (Id.)

A contractor must 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. (Administrative Code §6-129i.(7).) 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. (Administrative Code §6-129i.(8).)


Enforcement and Penalties for Breach

If an investigation shows that 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 the program, then an agency, after consulting the City Chief Procurement Officer, may take the following appropriate action:

		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; or
		Take any other appropriate action. (Administrative Code §6-129o.(4)(ii).)

A contractor's record in implementing its contractor utilization plan shall be a factor in evaluating its performance so 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. (Administrative Code §6-129o.(8).)

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For more information about the issues covered in this report, please contact Richard P. Dyer in our New York office at 212-895-2117 or at rpdyer@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.





©2006 Thelen Reid Brown Raysman & Steiner LLP