New York’s Empire State Development (ESD) has proposed significant amendments to the State’s Minority- and Woman-Owned Business Enterprises (MWBE) regulations. The proposed MWBE regulations would affect how certified MWBEs are classified, how State agencies receive utilization credit, how industry and commodity codes are assigned, and how businesses may qualify for expedited MWBE certification through a Professional Declaration of Eligibility application.
ESD is accepting public comment on the proposed regulations until June 29, 2026.
Why This Matters for Certified MWBEs
These proposed changes matter because an MWBE’s classification may directly affect how much utilization credit a State agency or prime contractor receives for using that business. A company classified as a broker or distributor, for example, may generate significantly less MWBE utilization credit than a company classified as a manufacturer, supplier, or service provider. For certified MWBEs, this could affect competitiveness, contract opportunities, and recertification strategy.
How the Proposed MWBE Regulations Would Change Utilization Credit
The proposed regs detail how the State and State agencies can receive credit for working with MWBEs – and they’ll receive credit at different rates depending on the type of MWBE.
For example, when an MWBE is a prime contractor, the State or State agencies will receive utilization credit for the value of the work the MWBE self-performed. Any work completed by a non-MWBE under that contract would not count towards utilization.
When an MWBE is a subcontractor, however, utilization rates would differ based on the type of contract and the type of MWBE used.
For construction contracts, 100% of the money paid to subcontracted service providers and manufacturers count towards the utilization goal. But only 60% of the money paid to subcontracted suppliers counts towards this goal, and only 40% of the money paid to subcontracted distributors would count. Just 10% of the money paid to subcontracted brokers would count towards utilization.
For non-construction contracts, 100% of the money paid to subcontracted service providers, manufacturers, and suppliers would count towards the agency’s utilization goal. Only 40% of the money paid to subcontracted distributors and 10% of the money paid to subcontracted brokers would count towards utilization rates.
New MWBE Industry and Commodity Codes Could Affect Utilization Credit
A big proposed change in the regs is ESD’s introduction and planned use of industry and/or commodity codes. If this regulation is adopted, the MWBE Directory would be divided into categories of labor, services, supplies, equipment, materials, and recognized construction trades. These codes could be assigned or changed by the Division of Minority and Women’s Business Development’s director, but the MWBE must be given sufficient notice and the opportunity to challenge the designation.
Under the proposed rubric, ESD will use the North American Industry Classification System codes (NAICS), National Institute of Governmental Purchasing codes (NIGP), and/or the Construction Specific Institute codes (CSI) to assign the industry and/or commodity code. If an MWBE doesn’t neatly fit within any of these codes, ESD intends to use the closest match and will briefly describe the specific work the MWBE provides.
To be assigned a certain code, an MWBE would have to show that it independently performs the applicable type of work. ESD determines whether an MWBE is independently performing the work by looking at the following five factors:
- whether the business shares resources with another entity, including for storage or office space;
- whether the business primarily works with one other entity;
- whether the business receives tangible benefits as a result of a connection to another entity;
- whether the business does its own work or whether the work is subcontracted out; and
- whether the working relationships between the owner(s) compromises the independence of the business.
An MWBE company also would have to show that its owner relies on her knowledge of the specific industry and is involved in the day-to-day operations of the type of work described by the assigned code.
Notably, as set forth above, the State’s or a State agency’s utilization credit becomes dependent on which code the MWBE is assigned.
Under the new proposed regs, ESD would have complete and final authority to determine an MWBE’s assigned industry code, although the company may submit a so-called profile update application if it wishes to change its code.
ESD also is empowered to change an MWBE’s code at any time – simply at ESD’s discretion. According to the proposed regulations, however, ESD is required to provide sufficient notice to the company and give it an opportunity to challenge this change through an as-yet undefined administrative process. Obviously, this is little comfort to an MWBE company, as ESD will always have the final say on industry classification, subject to the arbitrary-and-capricious standard that’s applied to State agency determinations.
New Expedited MWBE Certification Process: Professional Declaration of Eligibility
Another new regulatory provision would create an expedited certification process through a Professional Declaration of Eligibility (PDE) application. This process would allow certain professionals to attest that the applicant meets the program’s requirements and that the application doesn’t contain any false information. The professionals at issue include
- licensed attorneys,
- certified public accountants (CPAs),
- licensed architects,
- licensed engineers, and
- licensed land surveyors
all of whom must be State-licensed for at least five years before using the PDE application.
Some MWBEs wouldn’t be eligible for the PDE application, though. These include companies seeking certification in construction or as a supplier or broker or companies that had a rejected application in the last year or had been denied certification in the last two years.
Proposed Changes to New York MWBE Certification Criteria
ESD’s proposed amendments also intend to update the certification process. Specifically, the new provisions create an exception to the proportionality requirement for investors. Under the current rules, minority or women owners must share in the profits and risks of the business to qualify as a certified MWBE. The proposed regs would permit investments in the business as long as the investment doesn’t create profits for the investor that are higher than its interest in the business.
The proposed regs also describe ownership requirements for certification. Ownership interests cannot be held by a minority or woman business owner solely to get certification, which long as been understood. The minority or woman business owner must show that ownership transfers are supported by reasonable consideration. They also have to show that sources of capital contributions to the business, including money, property, equipment, expertise, or acquisition through a court order or inheritance belonged to them. The existence of a passive investor doesn’t negate the capital contribution requirement, and the investment will not be included in the proportionality calculation to determine ownership.
Ways to Fix Eligibility Problems
The proposed regs also propose a way to remove, overcome, or correct documentation that prevents an MWBE from being eligible for certification. MWBEs could also create valid transactions, alter ownership terms, or make additional investments to become eligible, as long as these are good-faith efforts. ESD may notify the business of eligibility concerns and provide time and general assistance to remedy any defects, and the business could take steps to fix this and provide evidence of these steps.
Commercially Useful Function Requirements for New York MWBEs
Although the current regulations do include the notion of commercially useful functions, the proposed regulations would integrate this standard in new sections about the operation of MWBEs. The proposed regs would define performing a commercially useful function as being responsible for the execution of the work of a contract and actually performing, managing, and supervising the work involved. When applicable, MWBEs also must be responsible for ordering materials and supplies, negotiating price, determining quality and quantity, and installing the provided items as commercially useful functions.
Notably, the definition tells us that a commercially useful function doesn’t include actions where the company’s role doesn’t add any substantive value, and the company merely is an extra participant in a transaction or when funds merely pass through the MWBE company to make it look like the MWBE participated.
To determine whether an MWBE is performing a commercially useful function, the rules already outline the following factors to consider:
- the amount of work subcontracted out,
- industry practices,
- whether payment is proportionate to the work the MWBE will perform;
- the credit claimed for MWBE participation by the contracting agency; and
- any other relevant factors.
What’s different under the proposed regulations, though, is the commercially-useful function criteria’s inclusion in other procedures.
The State or a State agency – or presumably a prime contractor – could request to change its utilization plan if an MWBE is unable to provide a commercially useful function. Of course, as noted above, the MWBE must provide a commercially useful function for the State or a State agency even to receive credit for MWBE utilization. Further, a new proposed reg would allow ESD to conduct a review and assess penalties against a company for up to three years if it fails to perform a commercially-useful function. Failure to perform a commercially useful function also could result in revocation of MWBE status.
New Definitions for MWBE Brokers, Distributors, Suppliers, and Manufacturers
The proposed regs also explicitly define what it means to be a broker, distributor, or manufacturer.
A broker is defined as a company that fills orders by ordering, purchasing, or receiving supplies from third parties rather than from its own inventory and acts only as an intermediary between a supplier and a customer.
A distributor is defined as a company that regularly sells or leases specific items for a contract. The proposed definition provides that a distributor “assumes responsibility for the items it purchases once they leave the point of origin (e.g., a manufacturer’s facility), making it liable for any loss or damage not covered by the carrier’s insurance.”
A manufacturer is defined as a company that produces materials, supplies, articles, or equipment for a contract at its own premises. Under this definition, manufacturing includes blending or modifying raw materials or assembling components to create the product per the contract’s specifications. Minor modifications to materials, supplies, articles, or equipment would not be manufacturing.
The proposed new definitions are especially important in light of the proposed utilization credit decreases for MWBEs that would now be classified as suppliers, distributors, or brokers.
Public Comment is Open Only Until June 29, 2026
When a State agency like ESD proposes new regulations, the proposal is published in the New York State Register to notify the public of the agency’s intention to promulgate the new rules. The proposed rules remain in process until they’re adopted, rejected, or they simply expire. Proposals also have periods for public comment.
The proposed new and amended MWBE regulations were published on April 29 with a 60-day period for public comment. The 60-day period ends on June 29, 2026. If ESD adopts or changes the proposals, this also will be published in a later issue of the Register.
Certified MWBEs, especially companies currently classified as suppliers, wholesalers, distributors, brokers, manufacturers, or service providers, should review the proposed regulations carefully before the public comment deadline. The proposed rules could affect certification status, commodity-code classification, utilization credit, and future contracting opportunities with New York State agencies.
Public comments may be submitted to ESD’s Ericka Fang at Ericka.Fang@esd.ny.gov by the June 29, 2026 deadline.
For more information about New York MWBE certification, ownership requirements, commercially useful functions, and ESD classification issues, review our MWBE series or contact The Coppola Firm.
The Coppola Firm is a certified WBE through New York State, New York City, Erie County, and the City of Buffalo, and we help businesses understand and navigate MWBE certification and compliance issues.
Frequently Asked Questions About ESD’s Proposed MWBE Regulations
Below are a few common questions certified MWBEs, prime contractors, and New York State vendors may have about ESD’s proposed MWBE regulations.
What are ESD’s proposed MWBE regulations?
ESD’s proposed MWBE regulations are proposed amendments to New York’s Minority- and Women-Owned Business Enterprise program rules. They address MWBE certification, utilization credit, industry and commodity codes, commercially useful functions, and expedited certification through a Professional Declaration of Eligibility application.
Why do MWBE commodity codes matter?
MWBE commodity codes matter because they may affect how a certified business is classified and how much MWBE utilization credit a State agency or prime contractor receives for using that business.
What is a commercially useful function for an MWBE?
A commercially useful function generally means the MWBE is responsible for performing, managing, or supervising meaningful contract work, rather than merely acting as a pass-through.
When is the public comment deadline for ESD’s proposed MWBE regulations?
The public comment deadline is June 29, 2026.
