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OFF ICE OF THE NEW YORK STATE COMPTROLLER
DIV IS ION OF STATE GOVERNMENT ACCOUNTABIL ITY
Thomas P. DiNapoli State Comptroller
Taking Affirmative Action to Improve New York States MWBE Program
Summary
Procurementcanbeapotentiallypowerfultoolforgovernmentstopromoteequaleconomicopportunitiesandtocounteractdiscriminationinthemarketplace.Overthelastseveraldecades,federal,stateandlocalgovernmentsthroughoutthenationhavedevelopedprogramswiththeexpressintentofincreasingthenumberandvalueofgovernmentcontractsawardedtominority-ownedbusinessenterprises(MBEs)andwomen-ownedbusinessenterprises(WBEs).
Despitethecollectiveeffortsofminority-andwomen-ownedbusinessenterprise(MWBE)programsatthefederal,stateandlocallevels,minoritiesandwomenarestillsignificantlydisadvantagedinboththeworkplaceandthemarketplace.U.S.CensusBureaudatashowthatminoritiesandwomenearnsubstantiallylessfromtheirlaborbothasemployeesandasentrepreneursthantheirnon-minoritymalecounterparts.ThisistruebothinNewYorkandinthenationasawhole.
TheOfficeoftheStateComptroller(OSC)hasdemonstrateditscommitmenttoimprovingtheStatesMWBEprogramthroughvariousagencyactivitiesandhastakenaleadershiproleinpromotingMWBEbusinesses.In2009,OSCdevelopedanewapproachtoexaminingthestatewideprogramwhichconcentratedonpromotingcommunicationandprovidingagencieswithmoreinformationaboutperformance;conductingfocusedauditsofprogramactivitiesandresultsattheagencylevel;andidentifyingbestpracticesandcommonobstaclesthataffectprogramsuccess.
WhileNewYorksMWBEprogramhasgiventargetedbusinessesaccesstoopportunitiesthatmaynototherwisehavebeenavailabletothem,therearepersistentproblemswithvendorcertification,goalsetting,programresults,reporting,programoversightandoutreachefforts.
AgencyperformancedataoverthelastthreeyearsshowthatutilizationofMWBEfirmscontinuestoberelativelystagnant.ThecombinedpercentageofMWBEutilizationincreasedonly1.5percentagepointsfrom8.1percentofagencyexpendituresinStatefiscalyear2007-08to9.6percentin2009-10.
ResearchBrief
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Specificfindingsinrecentlycompletedauditsindicatethatagenciestendtosetlowgoalsononlyaportionoftheirexpenditures,failtomeeteventhoseminimumgoals,lackcoordinatedoutreacheffortstoidentifyandutilizecertifiedMWBEfirms,andpoorlymonitorcontractorcompliance.
NewYorkrecentlycompletedadisparitystudyastudytoexaminethedifferencebetweentheavailabilityofMWBEsandtheirutilizationingovernmentprocurementwhichconcludedthatMWBEsinNewYorkStatearepresentinsubstantiallylowernumbers,earnsubstantiallylessandaresubstantiallymorelikelytobedeniedaccesstocreditthanwouldbethecaseifthemarketoperatedinaneutralmannerwithrespecttoraceandgender.
Although29percentoffirmswereidentifiedasMWBEsinthedisparitystudy,only5percentofNewYorkscontractingandpurchasingdollarswerespentwithMWBEfirmsfromStatefiscalyears2004through2008.Thestudyconcludedthatthestatisticalandanecdotalevidencesupportstheconclusionthattheseoutcomesaretheresultofdiscrimination.
Recommendationsincludedinthisreportfocusonatwo-prongedapproachtoimprovingtheStatesMWBEprogram.ThisapproachfirstseekstostrengthentheStatesrace-andgender-neutralinitiativestoimproveeconomicopportunitiesforallsmallbusinesses,andthentotailorrace-andgender-basedinitiativesnarrowlytoremedyanyremainingimbalancesineconomicopportunitiesforminoritiesandwomen.WhilesomeoftheserecommendationswerepartiallyaddressedinStatelegislationenactedinJuly2010(Chapters173,174and175oftheLawsof2010),someotherscanbeimplementedadministrativelywithoutlegislativechange.
Introduction
Overthelastseveraldecades,affirmativeactionprogramsintheUnitedStateshavefocusedontherelativesuccessofminoritiesandwomeninthreemainareas:employment,educationandeconomicopportunity.Governmentprogramshaveattemptedtocreateandenhanceeconomicopportunitiesbyprovidinggeneralsupportforsmallbusinessesandtargetedsupportforminority-andwomen-ownedbusinessesthroughvariousmeans,includinggovernmentprocurement.Assuch,governmentprocurementisseenasapotentiallypowerfultoolforgovernmentstopromoteequaleconomicopportunitiesandtocounteractdiscriminationinthemarketplace.
Asaresult,thefederalgovernmentandstateandlocalgovernmentsthroughoutthenationhavedevelopedprogramswiththeexpressintentofincreasingthenumberandvalueofgovernmentcontractsawardedtominority-ownedbusinessenterprisesandwomen-ownedbusinessenterprises.TheseprogramsareintendedtoprovidedirecteconomicbenefittoMWBEfirms,aswellastoincreasethepresenceofthesefirmsinthegovernmentcontractingprocess,therebyreversingtheeffectsofdirectorpassivediscriminatorypracticespresentinmanyaspectsofgovernmentprocurement.
National Background
Nationally,itisestimatedthatgovernmentprocurementrepresentsabout10percentoftheGrossNationalProduct(GNP),withstateandlocalgovernmentspendingaccountingformorethanhalfofallpublicprocurement.InNewYork,annualStateandlocalgovernmentcontractualspendingtotalsabout$70billion,orabout6percentoftheGrossStateProduct,includingabout$7billionforStatecontractualspendingongoodsandservices.
However,despitethecollectiveeffortsofMWBEprogramsatthefederal,stateandlocallevels,minoritiesandwomenarestillsignificantlydisadvantagedinboththeworkplaceandthemarketplace.U.S.CensusBureaudatashowthatminoritiesandwomenearnsubstantiallylessfromtheirlaborbothasemployeesandasentrepreneursthantheirnon-minoritymalecounterparts.ThisistruebothinNewYorkandinthenationasawhole.
Nationwide,minorityfirmsaccountforabout17percentoftotalbusinessesinthecountry,butearnlessthan3percentoftotalsalesandreceipts.InNewYork,thepatternisevenmorepronounced,withthe25percentoffirmsownedbyminoritiesearninglessthan3percentofsalesandreceipts.
Thesituationisnobetterforwomen.Nationally,womenown28percentofthebusinessesintheUnitedStates,butgenerateonly4percentofthesalesandreceipts.InNewYork,thepatternissimilar,with30percentoffirmsownedbywomenearningabout4percentofsalesandreceipts.Incomparison,menown57percentofbusinessesandaccountfor31percentofsalesandreceiptsnationally,whileinNewYorkmenown60percentofbusinessesandearn31percentofrevenues.
Otheranalysesalsoindicatethatminority-andwomen-ownedbusinessesreceivelessthantheirfairshareinthepubliccontractingarena.Anoft-citedreportproducedbytheUrbanInstitutein1997examinedstateandlocalgovernmentexpendituresutilizingdozensofdisparitystudiesavailableatthetimeandfoundthatminorityfirmsreceivedfarfewergovernmentcontractdollarsthanwouldbeexpectedbasedontheiravailability.Infact,minoritybusinessesasagroupreceivedonly57centsofeverydollartheywouldhavebeenexpectedtoreceivefromgovernmentcontracting,basedontheirnumbersandavailability.Thistranslatedintoapotentialpoolofmorethan$20billioninadditionalcontractdollars.
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National Trends
Thefederalgovernment,moststatesandmanylargemunicipalitiesintheUnitedStateshaveprogramsdesignedtoencourageeconomicopportunitiesforminority-andwomen-ownedbusinessesthroughparticipationingovernmentprocurementofgoodsandservices.Althoughthestructuresofsuchprogramsvaryfromonestatetothenext,atleast30statescurrentlyhaveMWBEprograms.
SeveralstateshaveconducteddisparitystudiesstudieswhichexaminethedifferencebetweentheavailabilityofMWBEsandtheirutilizationingovernmentprocurementsimilartoonerecentlycompletedforNewYorkState(seebelow).Generally,thesestudieshavefoundevidenceofcontinuingdiscriminationofminority-andwomen-ownedfirmsinthemarketplaceaswellasunderutilizationofsuchfirmsinstateprocurementactivities.Statelegislationrequiringdisparitystudiesoftenprovidesthatsuchstudiesbeconductedperiodically(forexample,everyfiveyears)toensuretheavailabilityoftimelyinformationuponwhichtoevaluateprograms.
ProgramsdesignedtoencouragetheeconomicgrowthofMWBEsinvariousstatesusuallyhavesomecommonelements,including:
AdministrationMWBEprogramsareusuallyadministeredbyastatesdepartmentofadministrationorgeneralservices,wherecentralizedprocurementishandled.Occasionally,aprogramisadministeredbyastand-aloneagency(e.g.,VirginiaandSouthCarolina)orislocatedinthestatescommercedepartmentoreconomicdevelopmentagency,asitisinNewYorkState.
CertificationProcessProceduresusuallyrequirebusinessestofirstregisterwithastatessecretaryofstateordepartmentoftaxandfinancepriortoapplyingforMWBEcertification.Thecertificationprocessusuallyinvolvesalengthyapplicationform(oftensubmittedonline)tocollectinformationaboutafirmsowner,productsandservices,finances,equipment,facilitiesandcontroloffunctions;supplementaldocumentstosubstantiateinformationrepresentedintheapplication;andascheduledsitevisittoverifyinformationandtoascertainthatthebusinessisunderthedailycontrolofaminorityorwomanowner.ManystatesrequireMWBEfirmstoverifyannuallythattheycontinuetomeettheeligibilitycriteriaoftheprogram,withoutresubmittingfulldocumentation.
ReciprocityMoststateMWBEprogramsprovideforreciprocaland/oracceleratedcertificationwithotherprograms.DualcertificationisusuallyprovidedforfirmscertifiedunderthefederalDisadvantagedBusinessEnterprise(DBE)programfortransportationcontractsfundedbytheU.S.DepartmentofTransportation.Inaddition,severalstateshavereciprocalcertificationprogramswithmunicipalitiesintheirjurisdictions(NewYork,IndianaandNewJersey),otherstatesintheirregions(Delaware,MarylandandVirginia)and/orstatewideandnationalminority/womensprocurementorganizations.
DirectoryofCertifiedFirmsStates,includingNewYork,usuallymaintaindirectoriesofcertifiedMWBEfirmstofacilitateagencysearchesofavailablevendors.Thesedirectoriesvaryintheireaseofuse,withthosebeingmostusefulthatincludecontactinformationandaresearchablebytypesofproductsorservices.
DatabaseofContractOpportunitiesManystatesprovidecentralizeddatabasesofcontractopportunitieswhichincludespecificinformationaboutthegoodsandservicesthatagenciesareinterestedinprocuring.AlthoughNewYorkdoesnothaveacomprehensivecentralizeddatabase,theNewYorkStateContractReporterpublishesinformationonvariousprocurementopportunitieswithStateentities.Inaddition,theOfficeofGeneralServices(OGS)offersonlinevendorregistrationforbiddernotificationservicesregardingOGScontractopportunities.
OutreachStatesoftenprovideavarietyofoutreachservicestoencourageMWBEfirmstobecomecertified,includingworkshops,trainingeventsandtechnicalassistancewithcertificationapplications.
GoalsSomestateshaveestablishedoverallgoals,agency-specificgoalsorgoalsbyproduct/servicetype(Indiana)forprocurementfromcertainfirms.StatewideMWBEgoalsvaryfrom10percent(PennsylvaniaandRhodeIsland)to40percent(Virginia)ofprocurementexpenditures.Severalstateshavegoalsforsmallbusinessenterprises(SBEs),regardlessofraceorgenderownership,rangingfrom10percent(Iowa)to25percent(NewJersey).TheNorthCarolinaDepartmentofTransportationhasasmallcontractorgoalof$2millionforeachofits14regionaldivisions.
ComplianceMonitoringMoststatesmonitorcompliancewithMWBEgoalsbyagenciesandprimecontractors.Theseeffortsattempttoensurethatcontractorsdonotdiscriminateintheiremploymentandsubcontractingbusinesspractices.
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Federal Government Programs
Thefederalgovernmenthasanumberofprogramstoassistsmallanddisadvantagedbusinesses(manyofwhichareownedbyminoritiesandwomen),including:
8(a)BusinessDevelopmentProgramThisprogramisadministeredbytheSmallBusinessAdministration(SBA)andisintendedtohelpsmallbusinessesownedbysociallyoreconomicallydisadvantagedindividualstoaccessthefederalprocurementmarketandlearnskillsforcontinuedbusinesssuccess.Theprogramprovidestechnicalassistancetoeligiblefirmsinastructuredprocessoveranine-yeartimeframewhichresultsinthegraduationofsuccessfulfirms.Eligible8(a)participantbusinessescanreceivesole-sourcecontractsuptoaceilingof$3millionforgoodsandservices.Inaddition,federalprocurementpoliciesencouragefederalagenciestoawardapercentageoftheircontractsto8(a)businessesandrequirethatallfederalpurchasesabove$3,000butunder$100,000mustbereservedforsmallbusinesses.
DisadvantagedBusinessEnterprise(DBE)ProgramThefederalDBEprogramcertifiesbusinessesownedbysociallyoreconomicallydisadvantagedindividualsthatwishtocompeteforfederallyfundedcontractsadministeredbytheU.S.DepartmentofTransportation.Manystates,includingNewYork,providedualcertificationtobusinessescertifiedbytheDBEprogram.TheDBEprogramhaseligibilityrequirementstoensurethatfirmswhichbenefitfromtheprogramareownedandcontrolledbysociallydisadvantagedindividualswhoarealsoeconomicallydisadvantagedasevidencedbyhavingpersonalnetworthbelow$750,000andthatthebusinessissmallaccordingtoSBAstandards.
Until2009,thefederalgovernmentalsohadaprogramthatcertifiedsmalldisadvantagedbusinessesforDepartmentofDefense(DOD)contracts.TheSmallDisadvantagedBusiness(SDB)Programsetanoverallgoalof5percentforDODcontractswithSDBsandauthorizedvariousrace-consciousmeasurestomeetthatgoal,includingprovidingbidpreferencesofupto10percentintheevaluationofcontractbidsfromSDBs.TheprogramwasstruckdownbytheFederalCircuitCourtofAppealsandwasdiscontinued.Thiscourtcaseaswellasothercourtdecisionshaveforcedpreferentialprocurementprogramstobemorenarrowlytailored.
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New York State MWBE Program
NewYorkStatefirstauthorizeditsMinority-andWomen-OwnedBusinessEnterprisesprogram(Article15-AoftheExecutiveLaw)inJuly1988topromoteequalityofeconomicopportunitiesforminoritiesandwomenandtoeliminatebarrierstotheirparticipationinStateprocurementactivities.TheprogramisadministeredwithinEmpireStateDevelopment(ESD)bytheDivisionofMinorityandWomensBusinessDevelopment,whichperformsthreemajorfunctions:toencourageandassistStateagenciestoawardafairshareofcontractstoMWBEs,tocertifyMWBEbusinessesandtopromotethedevelopmentofMWBEsthroughcapacitybuildingandoutreachefforts.
StateFinanceLawSection163(6)providesathresholdbelowwhichStateagenciesmaypurchasegoodsandservicesfromcertifiedMWBEfirmswithoutformalcompetitivebids.Thisthresholdwasraisedfrom$100,000to$200,000bytherecentlyenactedChapter173oftheLawsof2010.
StateAgencies.Article15-ArequiresStateagenciesandpublicauthoritiestoactivelypromotetheparticipationofMWBEsinStatecontractsandprocurementactivities.Specifically,Stateagenciesandauthoritiesmustestablishannualgoalsforparticipation(expressedasapercentageoftheagencystotaldiscretionarycontractspendingfortheyear),makeagoodfaithefforttoachievethesegoals,andreporttoESDonactuallevelsofMWBEparticipationinagencycontractsandexpenditures.ESDapprovesagencygoalplans,monitorscomplianceandcompilesreportsonutilization.
MWBECertification.ESDreviewsapplicationsbybusinessesanddetermineswhetherapplicantsmeetthestatutoryqualificationsforcertification,namelythat:
Businessesmustbeatleast51percentownedandcontrolledbyminoritiesorwomen;
Minorityand/orwomenownershipmustbereal,substantialandcontinuing;
Minorityand/orwomenownershipmusthaveandexercisetheauthoritytoindependentlycontrolday-to-daybusinessdecisions;
Businessesmustbeindependentlyowned,operatedandauthorizedtodobusinessinNewYorkState;and
Businessesgenerallymustbeinoperationforatleastoneyear.
Inaddition,ESDmaintainsadatabaseofcertifiedMWBEfirmswhichincludesproductandserviceindustrycodestoassistStateagencies,privatesectorcontractorsandthegeneralpublicintheutilizationofMWBEs.
OutreachandBusinessDevelopment.ESDconductsworkshopsandtrainingsessionsfor:(1)Stateagencies,topromotetheutilizationofMWBEsinStatecontracts,and(2)MWBEs,toprovideassistancewithcertificationandcontractopportunities.ESDalsoadministersprogramsandservicesthatpromotebusinessopportunitiesforMWBEs,suchasconferencesandvendorfairs,andfacilitatescapacitybuildingthroughpartnershipswithorganizationsthatofferin-depthtechnicalassistancetoMWBEsonvariousaspectsofmanagementandbusiness.
New York State Disparity Study
AsrequiredbyArticle15-AoftheExecutiveLaw(Section312-a),ESDcommissionedastudyin2007toexaminetheparticipationofMWBEsinStatecontracts.ThepurposeofthestudywastodeterminewhetherthereisadisparitybetweenthenumberofqualifiedMWBEsready,willingandabletoperformStatecontractsandthenumberactuallyengagedtoperformsuchcontracts.RecentlyreleasedinApril2010,thestudy(knownasadisparitystudy)isintendedtoassisttheStateindeterminingwhetheritscurrentMWBEprogramisstillnecessarytoremedydiscriminationandtorefineexistingmeasuresandnarrowlytailoranynewinitiativestothatremedy.
VariousU.S.SupremeCourtcaseshavemadeitclearthatinordertoimplementarace-orgender-basedprogramthatiseffective,enforceableandlegallydefensible,agovernmentmustmeetthetestofstrictscrutiny.Strictscrutinyrequirescurrentstrongevidenceofthepersistenceofdiscriminationandanymeasuresadoptedtoremedythatdiscriminationmustbenarrowlytailoredtothatevidence.
NewYorksdisparitystudyconcludedthatMWBEsarepresentinsubstantiallylowernumbers,earnsubstantiallylessandaresubstantiallymorelikelytobedeniedaccesstocreditthanwouldbethecaseifthemarketoperatedinarace-andgender-neutralmanner.ThestudyfurtherfoundthatduringStatefiscalyears2004through2008,MWBEswereutilizedinStatecontractsatratesfarlowerthantheiravailabilitywouldindicate.Although29percentoffirmswereidentifiedasMWBEsinthestudy,only5percentofNewYorkscontractingandpurchasingdollarswerespentwithMWBEfirmsfrom2004through2008.Thestudyconcludedthatthestatisticalandanecdotalevidencesupportstheconclusionthattheseoutcomesaretheresultofdiscrimination.
New York State MWBE Performance Results and Audit Findings
SeveralpreviousauditsofNewYorksMWBEprogramhavenotedimplementationproblemsbothattheagencylevelandwithESDsadministrationoftheprogram.Between2001and2004,OSCundertookaseriesofauditswhichfoundthatwhiletheprogramhadgiventargetedbusinessesaccesstoopportunitiesthatmaynototherwisehavebeenavailabletothem,therewerepersistentproblemswithgoalsetting,programresults,reporting,programoversightandvendorcertification.
In2009,OSCtookaleadershiproleinaddressingtheseproblemsanddevelopedanewapproachtoexaminingtheStatesMWBEprogramtotrytohelpitsucceed.Thisapproachconcentratedonpromotingcommunicationandprovidingagencieswithmoreinformationaboutperformance;conductingfocusedauditsofprogramactivitiesandresultsattheagencylevel;andidentifyingbestpracticesandcommonobstaclesthataffectprogramsuccess.
Specifically,OSCgatheredinformationfromESDintheformofself-reportedagencydataonprogramgoalsandperformanceforthepastthreeyearsanddevelopedthisinformationintoanobjectively-orientedperformancemeasurementsystem.OSCsharedthisperformancedatawithagenciesandpromotedinteragencycomparisonsandcommunicationonagencyresults.
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OSC Best Practices
As a procurement agency itself, the Office of the State Comptroller fully supports the States MWBE program and has integrated its goals into the agencys procurement processes and practices. Specifically, OSC:
Places primary responsibility for MWBE participation in its Finance Office, where it has been incorporated into the procurement processes and culture of the agency;
Makes a concerted effort to raise agency goals and increase MWBE participation in discretionary purchases, particularly in the procurement of office furniture, software products and miscellaneous services;
Includes information on its website concerning policies and resources that can be used by MWBEs for opportunities in State procurement opportunities, including links to other State government websites;
Produces and distributes the annual Directory of Frequently Purchased Commodities and Services by New York State Agencies (the 20th edition of this publication was released in January 2010);
Supports and manages a telephone line for sharing information regarding technical support for MWBE best practices; and
Hosts and attends various vendor fairs and workshops to facilitate MWBE participation in procurement activities.
The Comptroller has also demonstrated his commitment to MWBEs as sole custodian of State pension fund assets in the Common Retirement Fund (CRF). In February 2008, the Comptroller launched the Emerging Manager Program for the purpose of investing some of the CRFs assets with small and upcoming firms, many of which are MWBEs, to support the development and expansion of such firms while earning attractive, risk-adjusted returns for the CRF. To date, OSC has committed to investing $1 billion in private equity and $600 million in domestic equities with emerging manager firms; in 2009-10 the Emerging Manager Program committed $160 million to MWBEs. The CRF also has a small business lending program which has provided loans of approximately $70 million (out of $200 million) to small MWBEs in the State.
The Comptroller has been at the forefront of advocating for improvements to the statewide MWBE program and has been recognized for his personal commitment and efforts to support MWBE firms. He has participated in various statewide activities, including the Governors MWBE Executive Leadership Council, and has provided constructive review and input, such as relevant comments on legislative proposals, to improve the statewide MWBE program.
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InAugust2009,OSCconductedanMWBEStateAuditReviewSession,incollaborationwithESD,forStateagencyfiscalofficersandpurchasingadministrators.Duringthissession,OSCreviewedagencyperformancedata,discussedmajorareasforauditreviewsandhighlightedtechnicalassistanceresourcesavailabletoagencies.Over100attendeesfrommorethan40differentagencieswererepresentedatthesessionandanadditional230peopleviewedarebroadcastofthesessionthefollowingday.
Sincethattime,OSChascontinuedtomonitoragencyperformancedataandhasconcludedthat,althoughtherehasbeenanincreaseinthedollaramountofMWBEcontractsoverthelastthreeyears,thepercentageutilizationofMWBEfirmshasbeenrelativelystagnant.FromStatefiscalyear2007-08to2009-10,utilizationofMWBEfirmsincreasedby$245millionfrom$560millionto$805million,anincreaseof44percent.
However,thisincreasemustbeviewedinlightoftotalagencyexpendituresduringthatperiod,whichincreasedby$1.5billionfrom$6.9billionto$8.4billion.Asaresult,thecombinedpercentageofMWBEutilizationincreasedonly1.5percentagepointsfrom8.1percentto9.6percentoftotalagencyexpenditures.
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
07/08 08/09 09/10
Minority Women
MWBE Percentage of Expenditures
$0$50
$100$150$200$250$300$350$400$450
07/08 08/09 09/10
Mill
ions
Minority Women
MWBE Expenditures
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Inaddition,OSCrecentlycompletedandreleasedfiveseparateauditreportsonthefollowingindividualagencies:theDivisionofStatePolice,theDepartmentofTaxandFinance,theOfficeofChildrenandFamilyServices(OCFS),theOfficeofTemporaryandDisabilityAssistance(OTDA)andtheOfficeforTechnology(OFT).AnauditoftheMetropolitanTransportationAuthority(MTA)isstillinprogress.
Asaresultoftheseefforts,continuingproblemshavebeenfoundwithESDsoversightoftheMWBEprogramandagencyresultsinthefollowingareas:
CertificationTheMWBEcertificationprocessinNewYorkiscumbersomeandlengthy,oftentaking6monthstoayeartocomplete.Althoughnotrequired,somefirmshireattorneystocompileinformationandsubmitapplicationsforcertificationduetoitscomplexity.Iffilledoutonline,theapplicationmustbecompletedinorderandallatonce;anymissinginformationresultsinrejectionoftheapplication.SupplementaldocumentationmustbesubmittedandESDstaffreviewsandonsitevisitsareconductedtoensuretheaccuracyandveracityofinformation.ESDindicatesthatthereisacurrentbacklogofinitialapplicationreviewsof3to6months.
EligibleMWBEfirmsoftenquestionwhetherthecertificationprocessisworththeeffort,giventhattheonlytangiblebenefitofcertificationisinclusioninESDsdirectoryofcertifiedMWBEfirmsandpotentialutilizationinState-fundedcontracts.
Asaresult,onlyafractionofeligibleMWBEfirmsinNewYorkareactuallycertifiedbyESD.TheNewYorkStatedisparitystudyexamined550,000businessesinNewYorkandidentified29percentabout160,000firmsasMWBEfirms.TheU.S.CensusBureausSurveyofBusinessOwnersindicatesthatmorethan420,000MBEsandmorethan500,000WBEswerecountedinNewYorkin2002.Incontrast,thedirectoryofMWBEfirmscertifiedbyESDcurrentlyincludesonly8,350firms.Furthermore,thenumberofcertifiedMWBEfirmshasnotincreasedsignificantlysince1989,when4,800MWBEswerecertifiedinNewYork.Thismeansthatanaverageofonly170firmsperyearhasbeenaddedtothelistofcertifiedMWBEsoverthelast21years.
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GoalSettingTargetgoalsforMWBEutilizationinStatecontractsandexpendituresareagency-specific,annuallydevelopedbyindividualagenciesandsubmittedtoESDforreviewandapproval.Thesegoalsarebasedondiscretionaryagencyexpenditures,thatis,expendituresforgoodsandservicesoverwhichtheagencyhassomecontrolandcanmakeprocurementdecisionswhichresultincontractswithMWBEfirms.Thereareseveralaspectsofthisprocessthatareproblematic:
Comparability.Althoughthereiscentralguidanceonwhichexpendituresareconsidereddiscretionary,agencieshavewidediscretiontointerpretthatguidance,resultingingoalsandutilizationpercentageswhicharenotgenerallycomparablebetweenagencies.Sometimesagencieschangetheirexpenditurebasesfromoneperiodtothenext,resultinginnon-comparableoutcomeswithinanindividualagency.Forexample,theOfficeforTechnologyreduceditsreporteddiscretionaryexpenditurebaseby95percentfrom$57.5millioninthethirdquarterof2009-10to$3.3millioninthefourthquarter.ThischangeresultedinanincreaseinOFTsreportedMWBEparticipationratefrom1.1percentto14.1percentwhileactualMWBEexpendituresdropped.
LowGoals.About60percentofStateagencies(51outof85agencies)settheirMBEgoalsat5percentorlessofdiscretionaryexpendituresin2009-10,withmorethanhalfofthoseagencies(26agencies)settinggoalsof1percentorless.Similarly,72percentofStateagencies(61outof85agencies)settheirWBEgoalsat5percentorlessin2009-10.Eventhehighergoalsestablishedbysomeagenciesmustbeviewedinlightofthefractionoftotalexpenditureswhichdiscretionaryexpendituresrepresent.Forexample,althoughOCFSsetacombinedMWBEgoalof12percentfor2009-10,thatgoalwasbasedonaverysmallpoolofeligiblediscretionarycoststotalingabout$11.9million,orlessthan1percentofOCFS$3.5billionannualnon-personalservicesexpenditures.
GoalPlans.SomeagenciesdonotregularlyfilegoalplanswithESD(OFT),whileothersdonothaveadequatebasestosupportthattheirgoalsarereasonableandattainable(OTDA).Furthermore,ESDdoesnothaveadequatemeanstoensurethatgoalplansarefiledandsupportablewithobjectivedata.
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PerformanceTrackingDuetotheissueswithgoalsetting,itisdifficulttodetermineifagenciesaresettingrealisticandattainablegoalsandmakinggoodfaitheffortstoreachthosegoals.Managementneedstohavedatasystemsthatprovidecomplete,accurateandreliableinformationtofacilitatemonitoringanddecisionmaking.Issuesandproblemswereidentifiedinthisaspectofprogramcomplianceasfollows:
Reporting.ReportinganddataaccuracyonMWBEutilizationvariesbyagency,withsomeagenciesadequatelytracking,verifyingandreportinginformation(StatePoliceandOTDA).However,otheragencieswereregularlydeficientinreportingordocumentingrequiredinformation;auditscitedagenciesfornotcollectingrequiredcontractorcompliancereports(OFT),notfilingrequiredutilizationreports(OCFS),andnotprovidingadequatesupportingdocumentationforreporteddiscretionaryexpenditures(TaxandFinance).Althoughawareofthesemissingreports,ESDdidnottakeactiontoenforcecompliance.
Furthermore,auditshaveshownthatMWBEsubcontractingexpenditureswereoftennotreportedbyeitherprimecontractorsornot-for-profitorganizationsthathiredthem.Althoughnot-for-profitsarenotrequiredtoreportthisinformation,agenciescanincludesuchexpendituresinmeasuringactualMWBEutilization.
Utilization.ActualutilizationofMWBEfirmsvariesbyagency,butmostagenciesfallshortofmeetingtheirestablishedgoals.Infact,morethantwo-thirds(60agencies,or70percent)ofStateagenciesmetlessthan70percentoftheirMBEgoalsin2009-10,whilemorethanhalf(49agencies,or58percent)metlessthan70percentoftheirWBEgoals.Theseoutcomesaretroubling,especiallygiventhatagencygoalsaresetlowandareoftenbasedononlyasmallportionofoverallexpenditures.
60
4
21
MBE Goal Attainment FY 09-10 Number of Agencies
49
7
29
WBE Goal Attainment FY 09-10 Number of Agencies
100% or More of Goal Achieved 70% - 99% of Goal Achieved Less than 70% of Goal Achieved
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CommunicationandOutreachAgenciesareexpectedtohelpexistingvendorswithMWBEprogramcertificationifeligible,toseekoutnewqualifyingvendorsforpotentialcertificationandtoencouragecertifiedvendorstocompeteforprocurementopportunities.Issuesidentifiedinthisaspectoftheprograminclude:
AgencyOutreachEfforts.Agencyeffortstoidentifypotentiallyeligiblevendorsarevaried,withsomeagenciesdoingabetterjobwithoutreachthanothers.Forexample,OFThasmadesignificanteffortstoincreaseawarenessandpromoteparticipationintheStatesMWBEprogram,includinghostingvariousMWBE-focusedevents,providingextensiveinformationforMWBEsonitswebsiteandmaintainingacomprehensivelistofMWBEvendorsthatitmakesavailabletoITcompanieslookingtoformpartnershipswithMWBEs.Otheragenciesneedtoimprovetheiroutreachefforts,havingfewifanysystemsinplacetoidentifynewlycertifiedvendorsorhelpqualifiedvendorswithcertification(OCFSandOTDA).
ProcurementOpportunities.OSCannuallypublishesaDirectoryofFrequentlyPurchasedCommoditiesandServicesbyNewYorkStateAgencieswhichprovidesrangesofagencyexpendituresforvarioustypesofexpenditureswithincategories,suchassupplies,equipmentandinformationtechnology.However,thereiscurrentlynocomprehensivestatewidedatabaseofprocurementopportunitiesthatMWBEfirmscanusetoidentifyspecificpurchasesofgoodsandservicesforwhichtheycancompete.
VendorAwareness.TheNewYorkStatedisparitystudyindicatedthatmanypotentialMWBEfirmsdonotknowhowtobecomecertifiedorwhattypesofopportunitiesexistfortheminthepublicsector.TheybelievethatbothESDandindividualagenciescandoabetteroutreachjobthroughvendorfairsandothermeanstoprovidethisinformationtopotentialfirms.
MWBEDirectory.ESDsdirectoryofcertifiedMWBEfirmsdoesnotcontainlinkstovendorwebsiteswhichagenciesandprivatesectorfirmscouldusewhenseekingqualifiedfirmsforspecificpurchasesofgoodsorservices.Inaddition,manyoftheemailaddressesincludedinthedirectoryarenon-functioning,makingitdifficulttocontactfirmsdirectly.
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Recommendations to Consider
BasedonvariousU.S.SupremeCourtdecisions,thestatisticalandanecdotalevidencepresentedintheNewYorkStatedisparitystudyandthebestpracticesidentifiedinnumerousgovernmentalMWBEprograms,thereareseveralrecommendationsthatshouldbeconsideredtoimproveNewYorksMWBEprogramandaddresstheshortcomingsfoundinitsperformancedataandOSCsrecentlycompletedaudits.WhilesomeoftheserecommendationswerepartiallyaddressedinStatelegislationenactedinJuly2010(Chapters173,174and175oftheLawsof2010),someotherscanbeimplementedadministrativelywithoutlegislativechange.
Theserecommendationsfocusonatwo-prongedapproachwhichseeksfirsttostrengthentheStatesrace-andgender-neutralinitiativestoimproveeconomicopportunitiesforallsmallbusinesses,andthentonarrowlytailorrace-andgender-basedinitiativestoremedyanyremainingimbalancesineconomicopportunities.AlloftheserecommendationsareconsistentwithrecommendationsadvancedintheNewYorkStatedisparitystudyandwithnationalbestpractices,andcanbesummarizedasfollows:
Race-andGender-NeutralInitiatives
AdoptaSmallBusinessTargetMarketProgram.TheStateshouldconsideradoptingaprogramtargetedtosmallbusinessfirmsseekingtoworkasprimecontractorsorconsultantsfortheState.Contractssubjecttothisprogramwouldbereservedforbiddingsolelybysuchfirms.Thisapproachwouldpermitsmallfirmstocompeteonamorelevelplayingfieldwithfirmsofcomparablesize,therebyequalizingsomeofthebarriersfacedbyMWBEssuchasobtainingbonding,financingandaccessingbusinessnetworks,withoutresortingtorace-andgender-basedpreferencesthatmightnotwithstandlegalchallenge.ThisshouldalsoreducetheStatesrelianceonrace-andgender-conscioussubcontractinggoalstomeetoverallannualMWBEgoals.
Programelementsshouldincludeeligibilitycriteriaforparticipation,includinglimitingthesizeofafirm(usuallybasedonthenumberofemployeesortheamountofannualrevenue),itslocation,thesizeofcontractstobeincludedandthetypeofworktobeperformed.
Manyothergovernmentscurrentlyhaveprogramswhichsetasidepercentagesorlevelsofcontractswhichareonlyavailabletocertainfirms,usuallysmallbusinesses.Forexample,thefederalgovernmentsetsasideallpurchasesabove$3,000butunder$100,000forsmallbusinesses.
16 Research Brief Office of the State Comptroller
ExpandProgramstoIncreaseAccesstoCapital.IncreasedaccesstocapitalisfundamentaltoensuringequalopportunitiesforbusinessestocompeteforStatecontracts.AllthestatisticalandanecdotalevidenceincludedintheNewYorkStatedisparitystudysupportedtheconclusionthatminoritiesandwomencontinuetofacebarrierstofinancingandgrowingtheirbusinessesinpartbecauseofraceorgenderdiscrimination.
ESDcurrentlyoperatesaCapitalAccessPilotProgram,incollaborationwiththeNewYorkBusinessDevelopmentCorporation,toprovidecapitalinconnectionwithspecificcontracts.Inaddition,theCommonRetirementFundhasasmallbusinesslendingprogram;todateapproximately$70millionofthe$200millioninloanscompletedhavebeenmadetoMWBEfirms.Theseprogramscouldbeexpandedtoprovidemorecapitaltosmallbusinessesthroughexistingavenues.
AnotherwayofexpandingaccesstocapitalwouldbetomakeloansavailabletoSBEsatfavorableinterestratesonlinesofcreditatparticipatinglendinginstitutions,usingtheirStatecontractsascollateral.
IncreaseContractUnbundling.ItisbelievedthatthesizeandcomplexityoftheStatescontractsaremajorimpedimentstosmallfirms(includingMWBEs)obtainingworkasprimecontractorsonStateprojects.Unbundlingcontractsbreakingthemintosmaller,moremanageablepiecesisviewedasonemethodtoincreaseaccesstoStateprojectsbysmallerbusinesses.Smallercontractsshouldpermitfirmstomovefromquotingsolelyassubcontractorstobiddingasprimecontractors.However,unbundlingmustbeconsideredcarefullyinlightofpotentiallyhigherStatecostswhichcanbeassociatedwithcoordinatingseveralsmallercontractsratherthanonecomprehensivecontract(e.g.,constructionprojects).
ImplementtheBusinessMentor-ProtgProgramStatute.TheStateLegislaturerecentlyamendedStateFinanceLaw(Section147)torequireeveryagencythatawardsmorethan$10millioninprojectsintheprioryeartoimplementabusinessmentor-protgprogram.Mentor-protgpartnershipsareusuallybasedonwrittendevelopmentplanswhichclearlysetforththeobjectivesandrolesforbothfirms.Generally,mentorsprovideprotgswithassistancewithfinancing,managementandtechnicaladvice.Protgsshouldbeviablefirmswhichareinalineofworkthatissimilartothementorfirmsbusinessoroneofitscomponents.Throughthesepartnerships,mentorsreceivecredittowardMWBEgoalsandprotgsgaingreateraccesstocontractsandincreasedopportunitiestogrowintoprimecontractors.
17 Division of State Government Accountability September 2010
IncreaseVendorCommunicationandOutreach.Ownersofalltypesoffirmshavereporteddifficultiesinaccessinginformationaboutparticularcontractopportunities,aswellasStatecontractingpoliciesandprocedures.TheStateshouldconsiderwaystomakeiteasierforbusinessestosearchforrelevantcontractingopportunitieswithouthavingtocontactindividualagencies.Manystatesprovidecentralizeddatabasesofcontractopportunitieswhichincludespecificinformationaboutthegoodsandservicesthatagenciesareinterestedinprocuring.NewYorkneedssimilarone-stopshoppingaccess.
Otherspecificsuggestionsincludeconductingregularvendorfairs,holdingbusinessseminarsfornewlycertifiedfirms,creatingadatabaseofbusinessprofilesthatdescribesthekeyproductsandservicesfromMWBEfirms,simplifyingandcoordinatinginformationonStatepoliciesandprocedures,andpostingpaymentstoprimecontractorsonagencywebsites.
Inaddition,communicationwithvendorscouldbeimprovedbyforminggroupsofStateagencieswithsimilarprocurementneedstoencourageinformationsharingandvendorcontacts.SuchasharedservicesapproachtoMWBEandsmallbusinessprocurementcouldhelpspreadbestpracticesandimprovevendoraccess.
AnalyzeSystemstoEnhancetheAvailabilityofRelevantData.NotallStatecontractrecordscontainalltheinformationnecessaryforefficientandcomprehensivemonitoringofMWBEactivity.Thissituationcouldbegreatlyimprovedthroughananalysisandreviewofdatasystems,andincreasedtrainingandguidanceforStateagencycontractingandpurchasingpersonnel.SucheffortswouldenhancethequalityofrelevantdataavailablefortheStatesnextdisparitystudy.
18 Research Brief Office of the State Comptroller
Race-andGender-ConsciousPoliciesandProcedures
AdoptNarrowlyTailoredProgramEligibilityStandards.Currentlytherearenosize,locationorwealthstandardsplacedonbusinessesandtheirownerswhichparticipateintheStatesMWBEprogram.Firmsmaybeofanysizeandlocatedanywhere,andownersarenotrequiredtobeeconomicallydisadvantaged.InordertoensurethatNewYorksprogramislegallydefensible,theStateshouldconsideradoptingnarrowlytailoredprogrameligibilitystandards,possiblylinkedtothefederalDBEprogramseligibilityrequirements,including:
Limitationonthesizeofabusiness,whichcanbebasedonthenumberofemployeesorannualrevenuesandcanvarybyindustrytype;
Limitationonthepersonalnetworthofbusinessowners;forexample,alimitof$750,000isusedbytheDBEprogram;and
RequirementthatbusinessesbelocatedwithinNewYork.
Chapter175oftheLawsof2010enactedinJuly2010amendedthedefinitionsofMBEandWBEincludedinArticle15-Atorestrictsuchenterprisestosmallbusinessesandtolimittheirownershiptoindividualswhosenetworthdoesnotexceed$3.5million,adjustedannuallyforinflation.Theseamendmentsbecomeeffective90daysafterenactmentinOctober2010.
AdoptOverallAnnualMWBEAgencyGoals.Agencygoal-settingshouldbestandardized,takingintoconsiderationthefollowing:
Clarificationofguidanceonagencyexpenditurebasestoensureconsistencybetweenandwithinagencies;
AvailabilityofMWBEfirmsbyindustryandgeographicmarketplaceasreflectedintheStatedisparitystudy;
DeterminationofpotentialMWBEavailabilitythatwouldbepresentinadiscrimination-freemarketplace;and
Developmentofmultiyearplanstomoveagenciestowardlong-termprocurementgoals.
Chapter175oftheLawsof2010establishesstatewidegoalsandrequiresagenciestoestablishagency-specificgoalsforcontractingwithcertifiedMWBEsbasedonthe2010disparitystudy.
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ExpandUseofContractGoals.TheStateshouldconsiderexpandingMWBEgoalstoallcontractswithsignificantsubcontractingopportunities,includingcentralizedStatecontractsadministeredbytheOfficeofGeneralServicesandcontractswithnot-for-profits.
AdoptUniformStandardsforDemonstratingGoodFaithEfforts.UniformstandardsfordemonstratinggoodfaitheffortsshouldbeappliedtoprimecontractorsseekingtoutilizeMWBEs,includingstandardproceduresforobtainingwaivers.Thecurrentlackofstandardizationcreatesconfusion,errorsandresentmentamonginterestedfirms.
EnhanceReportingbyStateAgenciesandESD.AgenciesshouldberequiredtoreportatleastannuallyregardingtheircompliancewiththeprovisionsofArticle15-A,andESDshouldannuallycompileareporttosummarizeandcompareagencyresults.Suchreportswouldincreasethetransparencyofagencyprocurementoperationsandpromotecompliance.
Chapter175addsrequirementsforannualagencyreportsandESDsummaryreports,aswellasnewrequirementsforagencieswhichfailtomeettheiragency-specificgoalstodevelopremedialactionplanstoaddresshowsuchgoalswouldbemetinthefuture.
StreamlinetheCertificationProcess.Manystates,includingNewYork,currentlyuselengthycertificationapplicationsandprocessestoensuretheeligibilityofMWBEfirms.However,NewYorksprocessinvolvesaparticularlylengthyapprovalprocessthatshouldbereviewedforpotentialstreamlining.Althoughitisimportanttoavoidcertificationofineligiblefirms,aprotractedandoverlycomplexapprovalprocessdoesnoteffectivelyservelegitimateMWBEfirmswhicharediscouragedfromparticipatingduetothecomplexityoftheprocess.
Specificsuggestionshavebeenmadeaboutwaystoimprovetheprocess,includingallowingforpartialonlinecompletionofapplicationswhichwouldpermitsavingenteredinformationandreturningatalatertimetocompletetheapplication.Considerationcouldalsobegiventoapost-auditapproachtocertification,whichwouldrelyontargetedreviewsofasamplingoffirmstoprovideassuranceofthevalidityofinformationprovidedoncertificationapplications.
20 Research Brief Office of the State Comptroller
EncourageExecutiveandAgencyCommitment.Experiencehasshownthataprogramssuccessishighlydependentonthecommitmentofitsleadership.Chapter175createsanewstatewidepositionofChiefDiversityOfficer,whowillbeappointedbytheGovernortoprovideadviceonpoliciesrelatingtoworkforcediversityandMWBEs,andwhowillserveontheNewYorkStateProcurementCouncil.
EachNewYorkStateagencyshouldbeencouragedtoplaceresponsibilityforitsMWBEprograminitsfinanceoffice,whereprogramprioritiescanbeintegratedintotheprocurementprocessesoftheagency,andrequireagencystafftoparticipateinannualtrainingonMWBEutilization.
Finally,theprogramwouldbenefitfromspecificconnectionstoOGSwherecentralprocurementishandledfortheState.
IncreaseMonitoringofContractPerformance.AftercontractswithMWBEcommitmentshavebeenawarded,itisessentialthatthosecommitmentsaremonitoredandthatsanctionsfornoncomplianceareavailable,includingprohibitionsonunauthorizedsubstitutionsofsubcontractors.ThiswouldstrengthencomplianceandhelperasetheperceptionamongMWBEfirmsthattheStatedoesnottakeitsprogramseriously.
Chapter175providesforenhancedpenaltiesforcontractorsthatwillfullyorintentionallydisregardtheirresponsibilitiestoutilizeMWBEfirms.
Conclusion
AsNewYorkStatestrugglestomeetthechallengesofitscurrentfiscalcrisis,StatepolicymakersmustfindwaystoencouragegrowthinvarioussectorsoftheStateseconomytoensurethelong-termfiscalhealthoftheState.Smallbusinessesincludingthoseownedbyminoritiesandwomenareavitalpartofthateconomy.Morethan400,000smallbusinessesintheStateemploynearly4millionNewYorkers,makeannualpayrollsinexcessof$130billionandgeneraterevenuesofnearly$700billioneachyear.SupportingsmallbusinessesinNewYorkisgoodeconomicpolicyaswellasgoodsocialpolicy.NewYorkcanhelpthesebusinessescontinuetogrowbyremovingimpedimentstotheirparticipationintheStateprocurementprocessandbycreatinganatmospherethatfostershealthycompetitionandefficiency.TherecommendationsincludedinthisreportcanhelpstrengthenandimprovetheStatescurrentMWBEprogramandultimatelyaccomplishboththesegoals.
21 Division of State Government Accountability September 2010
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Sources
Officeof theStateComptrollerDivisionof StateGovernmentAccountability
110StateStreet,11thFloorAlbany,NewYork12236