Today, we’re continuing to look at a practical, do-able approach to gaining – or recertifying – your MWBE status in New York State. That’s minority and/or woman business enterprise status.
We’ve already talked about the first test – ownership.
In this post, we’ll be discussing the second requirement a company must meet to become a minority or women-owned business enterprise (MWBE). That criteria relates to the operation of the business.
As we shared last week, a New York regulation defines the criteria for qualifying for MWBE status. So that’s where we start. It requires that the owner must “possess adequate, industry-specific competence to make critical decisions without relying upon other persons” and “make operation decisions on a day-to-day basis with respect to the critical functions of the business enterprise.”
Further, the owner must “devote time on an ongoing basis to the daily operation of the business enterprise.”
So, what exactly does this mean? Let’s discuss.
Adequate, Industry-Specific Competence
The regulations don’t explicitly state what this term means, instead listing factors that the New York State Division of Minority and Women’s Business Development must consider in evaluating whether the owner truly has adequate, industry-specific competence.
The factors are:
- Whether the company’s employees are required to obtain licenses or certifications to provide services to clients;
- The extent to which academic credentials exist for people who work in the industry; and
- The extent to which any industry-specific expertise can be secured through on-the-job training.
These aren’t the only facts of importance. In fact, the Division can consider other facts when it decides whether a company can be certified.
The regulations also state that the operation requirement can’t be satisfied by expertise or experience in office management or general business administration. For sure, if people who do the company’s work are required to be licensed or certified or to have specific kinds of education, the Division will look closely at whether the owner has this, too. In other words, if the woman is an owner in a plumbing company, she better have training in plumbing or something similar.
Being able to do the books or schedule plumbing jobs alone likely isn’t enough to meet the operation prong of the MWBE test.
The Division commonly denies companies on this requirement if the business involves electrical contracting, HVAC systems, or construction, and the individual seeking the certification doesn’t have any licenses or certifications. This occurred in Matter of Green Mechanical Corp., when the Division denied the owner’s application because she didn’t possess any licenses, certifications, academic, or technical training related to HVAC systems, which was the core function of the business.
Operations Decisions
The owner also must be the person making important business decisions on a day-to-day basis. The Division doesn’t have a clear bright-line test to demonstrate how often or when the owner must be making critical decisions on a day-to-day basis, but the cases appealing denials clearly define where the woman or minority owner feell short.
For instance, in the construction industry, the Division typically denies applications for certification if the owner isn’t a foreman [we prefer team leader or foreperson] or the person who’s directly on the job site every day. Further, the Division takes issue with anyone claiming she makes operational decisions but who’s only involved in managerial and administrative operations and doesn’t go into the field. In those circumstances, where other employees are responsible for field operations, the application often is denied.
Another example is illustrated by Interior Installations, LLC, where the Division doubled-down on denying a WBE certification where the female owner didn’t supervise any field work related to the company’s work which was installing laboratory furniture and equipment. In denying certification, the Division pointed out that a male employee with 20+ years of experience was responsible for preparation, supervision, and review of the projects. He, the Division said, was in fact the person in control of the company’s important day-to-day decisions.
The woman’s certification was denied, and she lost on appeal, too. Don’t let this happen to you.
Time Devoted to the Business
Last, the regulations require the owner to devote time on an ongoing basis to the daily operation of the business. Essentially, the person seeking certification can’t work part-time while others work full-time and actually run the business. Further, the owner has to devote time to the daily operations every week; it can’t just be a once-a-month occurrence, and there can’t be a large period of time between her work at the company.
The Division dealt with this issue in Matter of G&E Officeworld Inc. d/b/a Fern Office Supplies, where it denied certification because the female owner worked only 22 hours a week. In contrast, there were two co-owners – both men – who each worked 40 hours per week. The fact that the woman owner worked part-time was enough evidence for the Division to conclude that she didn’t devote sufficient time on an ongoing basis to the daily operation of the business. Certification denied again.
So how can women and minority owners legitimately qualify for MWBE status under the operation standard?
How To Meet the Operation Requirement
While everyone’s circumstances are different, and this blog can’t be considered legal advice, here are some insights we’ve learned that you should consider too.
First, ensure that the woman or minority owner has the required experience to show competence or has the right licenses and certifications if that’s applicable.
Second, the woman or minority owner must be active in the business, and she’s got to be making daily decisions. For construction and other types of field-work-intensive industries, this has to include being out in the field supervising workers, jobsites, or entire projects.
Third, the woman or minority owner must devote sufficient time to the business. Part-time likely won’t be enough for the Division.
What’s Next?
The next criteria the Division looks at when deciding on MWBE certification is control of the company.
Stay tuned for our next installment, so you can be well on your way to assessing whether – and how – to qualify for MWBE status under New York law.
