M/W/DBE CREDIT RECOGNITION FOR THE PURCHASE OF MATERIAL AND SUPPLIES

By Henry L. Goldberg

As pressure increases for ever higher participation goals, we are receiving an increase in inquiries regarding the utilization of M/W/DBE suppliers. A major goal in the development of any prime contractor's M/W/DBE "Utilization Plan" is to maximize "credit recognition" for dollars spent. This clearly requires up-to-date knowledge of the regulatory scheme.

Nowhere are the disparities between local (NYC), State (Empire State Development Corp.) and Federal requirements more apparent (and arbitrary), than in the area of the rules relating to M/W/DBE credits for dollars spent for the purchase of construction material and supplies. If all levels of government involved are ostensibly motivated by the same social goals, how can the requirements be so disparate? For example, if the federal government recognizes a credit of up to 100% of the amount spent on construction material and supplies purchased from a DBE, how (and why) would NYC give absolutely no credit for supply dollars?

It seems self-evident that something is amiss. There have been rumors for years in government circles of a move towards greater consistency and uniformity. This important reform is long overdue. For now, however, we would like to address the rules, as they now exist, at each level of government, regarding the recognition of M/W/DBE credits for the purchase of supplies and materials.

The following are the current rules that the federal, state and New York City levels for material and supply purchases:

Federal (for DBEs only)

DBE Manufacturers -- 100% of cost of materials and supplies purchased are credited towards DBE goals.

DBE Supplier/Regular Dealer -- 60% of the cost of materials and/or supplies are credited towards DBE goals.

DBE "Broker" - For a DBE who is not a manufacturer or not a regular dealer (i.e., is a "broker"), only count the fees or commissions charged by the DBE for assistance in the procurement of materials and supplies, or other related fees or transportation charges, for the delivery of the material or supplies to a job site. In other words, only what the DBE, itself, actually received. Do not count cost of actual materials and supplies themselves.

The changes made to the DBE Rules effective November 3, 2014 now require that the eligibility for credit for material and supplies (e.g., whether a DBE is a regular dealer or broker/transaction expediter) will be made on a contract-by-contract basis.

New York State (M/WBE)

Generally, NYS credits 100% of the dollar value of a supply contract provided by an MBE or WBE.

There is also a special rule, however, for State Revolving Fund financed projects (e.g., NYC DEP). There will be 100% credit for supplies, but only up to 25% of the total goal for the entire project.

With respect to how credit for brokers might be provided, you must consult the applicable bid documents and/or specifications, as certain agencies may address the subject differently.

New York City (M/WBE)

No credit is given for use of M/WBE suppliers. NYC is clearly wrong-headed in its approach. Selling material and supplies would be an excellent path for minorities or women to enter the industry and learn its complexities. The federal approach has been successful with few if any reported abuses. (Despite incessant increased demands by NYC and New York State authorities to increase goal percentages, and the admitted unavailability of adequate (not just "certified," but competent) MBEs to meet those goals, the very least NYC should do would be to revisit its arbitrary categorical refusal to recognize dollars expended for construction material and supplies.)

G&C COMMENTARY

For now, therefore, there is no opportunity to seek credit for the purchase of construction materials and supplies in your Utilization Plan for a New York City funded project. However, such opportunities do exist for federally funded and New York State funded projects, with certain limitations as cited above.

In addition, as with the use of any certified entity, it is important to perform due diligence in the selection of any certified manufacturer, dealer/supplier or broker (e.g., perform a site visit) and to have a substantiated basis for your understanding that such a business will be performing a commercially useful function on a project.

In the face of the ever-increasing goals being imposed upon contractors by governments at all levels, knowledge of every opportunity to facilitate compliance is essential.

Henry L. Goldberg is the Managing Partner of Goldberg & Connolly and may be reached at (516) 764-2800 or hlgoldberg@goldbergconnolly.com.

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