MWBE and DBE Laws, MWBE and DBE Laws,

Regulations and Regulations and Best Practices for Best Practices for

Utilization and Utilization and ComplianceCompliance

October 14, 2015

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• Dean Bennett, President, JK Bennett &

Associates, Inc.• Lorraine D’Angelo, President, LDA Compliance Consulting Inc.• John W. Dreste, Partner, Ernstrom & Dreste LLP• Elan D. Parra, Managing Director, Lemire LLC• Stephanie Pennington, Director of Compliance, LPCiminelli

Speakers

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• The Basics of the NYS M/WBE Law – Article15A of Executive Law• DBE Supplement• Good Faith Effort Practical Considerations • Ensuring Integrity in the Process • Practical Considerations from a General

Contractor/CM Perspective

Agenda

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• Loretta Lynch confirmed as Attorney General (EDNY DOJ)• “Aspiring to the minimum is not enough” Preet Bharara (SDNY DOJ)• Criminal prosecutions as enforcement technique• Manhattan DA Grand Jury Report; MTA OIG Audit Report 4/2015• Comptroller’s 9/2015 MTA Report• Goals increasing (MWBE in NYS is now 30%, NYC 38%)• Goals seemingly enforced as quotas, not aspirational; Contractual

Damages• Whistleblowers

Enforcement Environment

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• Federally Assisted: DBE Program, 49 CFR Part 26 (e.g., DOT, MTA, FAA,

FHWA, FTA)• State Funded: Executive Law Article 15-A, 5 NYCRR Parts 140-145 (e.g.,

NYCDOT, DDC, OGS)• City Funded: Local Law 1 (formerly Local Law 129) (34 City agencies)• Federally Funded: SBA 13 CFR 121• Funded through NYS Revolving Loan Fund Program: NYCDEP (33 CFR 103)• Agencies (SCA, DANY, Thruway)• Private Developers• Other groups LBE, EBE, SDVBE, etc.

Regulations

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• DBE/MBE/WBE programs originated as “affirmative action” or

“set-aside” programs, remedial in nature

• Growing out of 1960’s Civil Rights movement,1977 federal Public Works Act, with state statutes and regulations tracking federal

• Subsequent and expanded programs have survived Constitutional challenges, including in U.S. Supreme Court

How We Got Here (History)

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• U.S. Supreme Court:

• Richmond v. J.A. Croson (1989) and Adarand Constructors v. Pena (1995) decisions

• New York: • Rex Paving Corporation v. White (1988);

Selected Cases

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• Executive Law Article 15-A (1988): state agencies must set MWBE

participation goals for contracts over $100K - Present goal at 30%

• Division of Minority and Women’s Business Dev. (DMWBD): facilitate “fair share” of contracts to MWBEs, monitor compliance by agencies, certify MWBEs, maintain MWBE directory

• State agencies must set MWBE goals, report to State, face remedial measures

• Utilization plan required from contractor prior to contract, regular reports as to compliance

• Like Federal, MWBE must perform “commercially useful function”

Current New York Law

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• To get waiver, contractor must show “good faith effort” (NY

Exec. Law §313,5 NYCRR §142.8)• Documentation of adequate solicitation, bids by and negotiations

with MWBEs, efforts to subdivide work for MWBE participation, • partial waivers permitted

• New in 2015: expanded pool of MWBEs: Industry-specific provisional MWBE certification, permits one year MWBE status without regard to net worth and small business status

• New disparity study to be completed by August 2016

Current New York Law (cont.)

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• Each contractor, subcontractor and supplier working

on a contract financed in whole or in part with taxpayer dollars shall take all necessary and reasonable steps to ensure that MWDBEs have an opportunity to compete for, and participate in performance on project contracts and subcontracts

• Contractors will pay more money to use MWDBE firms to promote the social policy goal of eliminating discrimination

Government Expectations

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• Commercially Useful Function (5 NYCRR §140.1 (f); 49 CFR26.55) MWDBE responsible for execution of work (performing,

managing, supervising)• For materials: ordering, price negotiation, quantity, quality, installation.• Must “add substantive value” (not a pass-through)

• Good Faith Effort (5 NYCRR §142.8;49 CFR Appx. A): Burden on contractor to document proof of satisfactory efforts.• Agency may also consider availability of suitable MWDBEs for work, extent

to which contractor’s actions contributed to failure to meet goal.

2 Key Concepts

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• Cover Up Always Worse Than Crime• Provide early notification to agency of problems, don’t hide issues!

• Increase reliance on criminal justice system to police public policy agenda, response to poor administration of government programs.

• False Claims Act - federal and state• Specific intent to defraud not required! Any knowing submission of false

statement in support of payment sufficient. • Payment certifications likely enough!• Apply to submission of inaccurate utilization report, if know it is not

accurate? And to subsequent payment apps?

Don’t Ask Forgiveness, Ask Permission

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• Failure to comply with MWBE can mean disqualification for non-

responsibility, breach of contract

• If willful, intentional or fraudulent: liable for LDs, other damages, ineligible to bid for 1 year (2 findings in 5 years = 5 years ineligible!)

• Criminal Prosecution: Major areas of inquiry/abuse: MWDBE “fronts” for firm doing work, pass-through schemes

• Perini Corp. v. City of New York (2010)

• Criminal and personal liability of individuals, enforcement trend is up

Consequences of non-compliance

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• Most criminal prosecutions have involved the use of MWDBEs

as “fronts” or “pass throughs”

• Key Issues:• How much control does the prime exert over the MWDBE?• Is the MWDBE independent?• Is the MWDBE actually performing work (CUF) on the project

or simply receiving a percentage “fee”?• What is the added value of the MWDBEs participation?

(Cannot be a extra participant in the transaction)

Most Common MWDBE Fraud Schemes

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• Achieve the contract goal or establish/demonstrate that you made

real, aggressive efforts to achieve the goal but were unable to do so.

• Use bona fide firms

• Basic principle: Count work performed by the MWDBE with a MWDBEs own forces

• Certification and counting are 2 distinct concepts and counting depends on CUF (Perform, manage and supervise the work using its own workforce, material and equipment)

• ASK: What is the value being added by the MWDBE?

Contractor Responsibility

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• “Good Faith Effort”: A Black Hole? What passes

for GFE?• Submitting GFE with your bid?• Aspirational Goal or Quota? • How does a Contractor determine Regular

Dealer status?• Benefits/Risks of Teaming and Joint Venturing.

Current DBE Issues

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•Why? If you document every aspect of what you do your program will be verifiable and auditable

•Doing it is not enough•You MUST be able to prove what you did •Document all communications with MWDBEs & Agency•Determine MWDBE capability in advance•GFEs

•Appendix A to 49 CFR Part 26, Article 15A of Executive Law•Non-exhaustive List

Documentation

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• State & Municipal Public Works Project often require MWBE/DBE/SDVOB Certification

• Be familiar with the regulations• Start before project utilization plan is due – (Advertise

Strategically, Be Pro-active)• Seek guidance on Certified/Non-Certified firms in advance• Advocate for Certified Firms and Encourage Non-Certified

Firms to get Certified• Adhere to “Prompt Payment” contract language and identify

MWBE % Goals• Allow sufficient time and space for “Alternative Firms”• Documentation is Key

Recruiting – Certified/Non-Certified

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• Establish Pre-qualification form

• Be realistic and honest• Host Mini-Forums (Individually or through

Associations)• Seek guidance of a MWBE Diversity Consultant• Invest in Community & Government Relations• Leverage Workforce Diversity• Embrace “Diversity Practices”

Developing Relationships

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• New York State Article 15-A Rules & Regulations

Encourage Joint Ventures• Define the purpose of your JV - What is the clear

objective?• How will the MWBE % goals be achieved as a

result of a JV?• Are you compatible or is it convenient?• Seek guidance from Agency/Authority • Examine the End Game – Must be Win-Win

Joint Ventures

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• MWDBE / DBE (“MWDBE”) engaged as

subcontractor

• MWDBE acts as a front company for non-certified business

• MWDBE receives payment (kick-back)

Scenario: MWBE / DBE Fraud

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• MWDBE acts as a front company for non-certified

business

• Non-MWDBE actually performs work MWDBE represents

• MWDBE temporarily places non-MWDBE “workers” on payroll

• MWDBE bills for work• MWDBE receives fee from non-MWDBE for

acting as pass-through

How MWDBE Fraud Occurs on a Job

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• MWDBE has no actual office or “shares” space

with another firm• MWDBE Principals lack knowledge / expertise• MWDBE certification not up-to-date• Non-MWDBE employees performing work on job

site• Work previously “performed” by MWDBE

originates from one source

How to Detect MWDBE Fraud:Red Flags

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•Audits•Field Investigations•On-site Interviews

How to Detect MWDBE Fraud:Best Approach

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Good BetterGoogle Search Database Search (Lexis

News) including PrincipalsSelf Reporting Questionnaire

Judgments/Warrants/ Liens Search

Regulatory Databases

How to Detect MWDBE Fraud:Practical Approach

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Good BetterMWDBE Address Verified Office / Warehouse Visit

Interview PrincipalsVerify No Co-Location

Proof of MWBE Employee Payroll

Job Site InterviewsReview Books / Records

How to Detect MWDBE Fraud:Practical Approach

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• When going after a project early planning is essential• Understand the MWBE marketplace

• Create relationships with ESDC or the funding Agency• Involvement in Regional or Statewide MWBE forums• Know the MWBE communities’ needs & wants

• Ensure Utilization Plan due dates

Roles & expectations of Estimating & Project Managers

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• Understand the contracting structure of the project• Single-Prime GC, Four Prime/Wicks Law, CM at risk with many Prime contractors

• Lower tier sub expectations

• Know what your subcontract looks like• MWBE/EEO requirements• Ensure your subcontractors are aware of their obligation regarding

MWBE requirements - Monthly reporting; retention release - Risks of liquidated damages

Roles & expectations of Non-MWBE Subcontractors

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• Potential for MWBEs being prime contractor

• Capacity, capacity, capacity• Ensure the project & the company are a good fit• Set you & your MWBE setup for success• Meet & greet with the project team

Roles & expectations of MWBE Subcontractors

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• In your Region, who can you go to for MWBE assistance?• Matchmaking without the matchmaker• MWBE compliance

• Outside compliance monitor• Monitoring firms can assist you in meeting your goals• They know the lay of the land and can link you to

interested MWBEs

Roles & expectations of Consultants

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• Plan early and keep a record of your planning• Learn the NYS Contracts System & how to search for

MWBEs• Get trained & make connections with your Agency• If going after a CM role-remember many MWBEs can assist

you• Create relationships with MWBEs designed to grow• Know the rules & that you cannot change them

Takeaways

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Q & A(those typed in the online question box)

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Thank you

Please see our speakers bio’s after this slide.

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• Dean E. Bennett is the President/CEO of J.K. Bennett and Associates, Inc.

(JKB), a New York-based management consulting firm established in 2010. JKB specializes in business development, supplier diversity management, government relations and securing procurement opportunities in the public and private sector.

• After heading up his firm, Mr. Bennett was appointed in 2011 by Gov. Andrew M. Cuomo at Empire State Development (ESD) as Executive Director of the Division for Minority and Women Business Development (DMWBD.)

• In his role of executive director, Mr. Bennett was responsible for the development of the statewide MWBE procurement policy as requested by Article 15A of the executive law. He was selected to provide the leadership reflective of the MWBE economic development goals of the Cuomo Administration.

Dean Bennettdean@jkbennett.com

• Lorraine is the Founder and President of LDA Compliance Consulting Inc., a full

service legal and regulatory risk management compliance advisory firm specializing in solution-oriented, preventative corporate ethics and compliance program design, assessment, auditing, monitoring, investigations, education and training. She is a former C-Suite executive with proven success in leading regulatory compliance and risk management and is experienced in the function, design and implementation of “best practice” integrity programs.

• Lorraine was formerly the Senior Vice President, Ethics & Compliance for Dragados USA, Inc., and the Ethics and Corporate Compliance Officer/Counsel for Schiavone Construction Co. LLC, John P. Picone Incorporated and Pulice Construction; all subsidiaries of Madrid based Grupo ACS, a global construction contractor.

• She is an accredited ethics and compliance professional. Her 21 years as a commercial and construction law litigator left her uniquely positioned to make her companies leaders in the industry in establishing effective, comprehensive ethics and compliance programs. She was responsible for creating, designing, implementing and overseeing those “best practices” programs at her companies.

Lorraine D’Angelo, Esq., CCEP, LPECLorraine@ldacomplianceconsulting.com

• John W. Dreste, Partner, Ernstrom & Dreste, LLP, concentrates his practice it all

aspects of the construction industry, including complex commercial litigation, construction contract law, suretyship, fidelity, environmental law, insurance coverage, and other areas impacting the construction industries.

• Mr. Dreste has handled a number of high profile matters, including numerous multi-million dollar claims asserted by and against clients on major construction projects.

• Mr. Dreste regularly counsels clients and handles contractor workouts, insurance coverage, and otherwise "troubleshoots" potential defaults or claim situations. Notable efforts have included multi-million dollar financial work-outs involving troubled contractors, sureties, and banks. Also, ensuring that a large contractor was provided with coverage as an additional insured when faced with major claim.

John W. Drestejdreste@ed-llp.com

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• Elan D. Parra is a Managing Director at Lemire LLC. Mr. Parra, an attorney with

extensive investigation, litigation, construction-related experience, oversees the firm's construction integrity monitorship practice while also managing other prominent projects and investigations.

• Prior to joining Lemire LLC, Mr. Parra held several high-level positions at City Hall in New York City. As the Senior Advisor for Project Management of the Mayor’s Office of Criminal Justice, Mr. Parra managed a billion-dollar public works portfolio, overseeing major construction and development projects in New York City. As the Director of the Mayor’s Office of Special Enforcement, Mr. Parra and his staff were responsible for investigating and deploying resources to address quality of life issues throughout New York City. He also directed logistics, including deployment of private sector contractors and multi-agency inspection teams, on behalf of City Hall in the aftermath of Hurricane Sandy.

• Mr. Parra commenced his legal career as a prosecutor in New York City. He then served as an executive at the New York City Administration for Children's Services, where he oversaw several major programs and projects, including a $15 million data integration initiative.

Elan D. Parraeparra@lemirellc.com

• As the Director of Compliance at LPCiminelli, Stephanie Pennington champions

both company-wide workforce diversification initiatives and the participation of qualified minority and women subcontractors on LPCiminelli jobs. Drawing on her legal and public policy background, she has found them to be a great foundation of knowledge for compliance. She works with area businesses and community organizations to develop effective and sustainable programs for emerging businesses.

• Prior to joining LPCiminelli, Ms. Pennington served as Site Director BOND Project for Abt Associates, Inc. Additionally, she was Coordinator of Policy Services at Erie 1 BOCES where she developed, administered, fostered and maintained policy and administrative related items for over 40 client school districts throughout New York State. Ms. Pennington also worked to develop and expand Paralegal Studies program at Bryant & Stratton College where she was the Program Director for Paralegal Studies.

Stephanie PenningtonSPennington@lpciminelli.com