Laws, Regulations and Best Practices for MWBEs and DBEs.

1. MWBE and DBE Laws,MWBE and DBE Laws,
Regulations andRegulations and
Best Practices forBest Practices for
Utilization andUtilization and
ComplianceCompliance
October 14,
1

2. • 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
2

3. • 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
3

4. • 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
4

5. • 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
5

6. • 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)
6

7. • 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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8. • 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
8

9. • 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.)
9

10. • 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
10

11. • 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
11

12. • 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
12

13. • 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
13

14. • 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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15. • 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
15

16. • “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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17. •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
17

18. • 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
18

19. • 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
19

20. • 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
20

21. • 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
21

22. • 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
22

23. • 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
23

24. •Audits
•Field Investigations
•On-site Interviews
How to Detect MWDBE Fraud:
Best Approach
24

25. Good Better
Google Search Database Search (Lexis
News) including Principals
Self Reporting
Questionnaire
Judgments/Warrants/
Liens Search
Regulatory Databases
How to Detect MWDBE Fraud:
Practical Approach
25

26. Good Better
MWDBE Address Verified Office / Warehouse Visit
Interview Principals
Verify No Co-Location
Proof of MWBE
Employee Payroll
Job Site Interviews
Review Books / Records
How to Detect MWDBE Fraud:
Practical Approach
26

27. • 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
27

28. • 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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29. • 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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30. • 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
30

31. • 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
31

32. Q & A
(those typed in the online question box)
32

33. Thank you
Please see our speakers bio’s after this slide.
33

34. • 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 Bennett
dean@jkbennett.com

35. • 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, LPEC
Lorraine@ldacomplianceconsulting.com

36. • 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. Dreste
jdreste@ed-llp.com
36

37. • 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. Parra
eparra@lemirellc.com

38. • 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 Pennington
SPennington@lpciminelli.com