Sometimes there’s a major problem with the way government agencies decide which businesses can be certified as a WBE or DBE.
The rule of law in New York and elsewhere says that women who own businesses certified in a certain trade must have the technical expertise to perform the work of that trade. If a woman is the majority owner of a company that erects heavy steel, for example, then she must know how to do it in order to be certified as a WBE for work under that class code. But can she have the knowledge and experience, evidenced by an engineering degree, for example, to merely supervise the work? Or does she actually have to be able to operate a crane, weld and rivet. What if she is really good at business, and runs the company from top to bottom everyday, but wants to hire or partner with people who have the skills to perform fine carpentry work? Can she get the WBE certified for carpentry? Under the current law, or at least the way courts and certification officers are interpreting the law, the answer is, probably not.
Although it’s the law and must be followed, that doesn’t mean that we must follow it blindly. We must think critically about the law, and perhaps, if we think that the law is wrong in certain respects, if it produces injustice, we are obliged to try to change the law, for ourselves and for those affected who will come after us.
The interpretation of the regulations (which appear further below) prevent women, who happen to be entrepreneurs and good at business-related functions, like accounting, management and marketing, from hiring or partnering with those who have the specialized knowledge and skill sets necessary to provide the services or engineer the products sold by those companies. The regulations also prevent WBEs from operating in multiple and diverse industries unless the owner(s) had the technical ability to competently perform the services or make the products sold in each of those industries.
In short, the government’s reading of the regulation stifles innovation, restricts collaboration, and limits growth.
This must not have been the intended effect of these regulations. If it were, they would harm not help women and minority entrepreneurs seeking to do business in New York and other jurisdictions that have similar regulations.
We recognize and appreciate the countervailing rationale that supports the government’s more restrictive reading of the subject regulations. But the scenario in which a certification-eligible woman or minority acts merely as a front in order for de facto owners who are really in control to obtain a preference in the procurement of government contracts, is very different from the common scenario in which a woman owner with business acumen and management skills has partnered with someone who has technical knowledge and expertise, but perhaps little interest in running the business.
Under New York Executive Law §310(15), “a ‘women-owned business enterprise’ shall mean a business enterprise, including a sole proprietorship, partnership, limited liability company or corporation that is: (a) at least fifty-one percent owned by one or more United States citizens or permanent resident aliens who are women; (b) an enterprise in which the ownership interest of such women is real, substantial and continuing; (c) an enterprise in which such women ownership has and exercises the authority to control independently the day-to-day business decisions of the enterprise; (d) an enterprise authorized to do business in this state and independently owned and operated; (e) an enterprise owned by an individual or individuals, whose ownership, control and operation are relied upon for certification…” See, New York Executive Law § 310 (15).
In Northeastern Stud Welding Corp. v. Webster, a New York appeals court found that evidence was sufficient to support a determination that the corporation did not qualify as a woman-owned business enterprise. Although corporation’s sole shareholder and president was a woman, evidence indicated that control of corporation’s operations was shared between shareholder, her husband and a male employee, that shareholder had no training or expertise in corporation’s stud welding business, and that husband supervised all field operations and trained field workers. See, Northeastern Stud Welding Corp v Webster, 211 AD2d 889 (3rdDept 1995); citing, N.Y. Comp. Codes R. & Regs title 9, § 544.2(b)(1)(i, ii), (c)(3).
However, it could be argued that the statute in question, New York Executive Law §310(15), does not impose such an onerous requirement as the one that was upheld in the Stud Welding case. It could be argues that the standard is not that the woman-owned interest must have “training or expertise” in the business’s trade, in the above, a “stud welding business,” nor that the woman-owned interest must supervise field operations or train field workers.
The standard under the statute is that the enterprise be “(a) at least fifty-one percent owned by one or more United States citizens or permanent resident aliens who are women; (b) an enterprise in which the ownership interest of such women is real, substantial and continuing; (c) an enterprise in which such women ownership has and exercises the authority to control independently the day-to-day business decisions of the enterprise; (d) an enterprise authorized to do business in this state and independently owned and operated; (e) an enterprise owned by an individual or individuals, whose ownership, control and operation are relied upon for certification…” See, New York Executive Law §310(15).
The standard is further set out in the Department of Economic Development regulations as follows: “Determinations as to whether minority group members or women control the business enterprise will be made according to the following criteria:(1) Decisions pertaining to the operations of the business enterprise must be made by minority group members or women claiming ownership of that business enterprise. The following will be considered in this regard:(i) Minority group members or women must have adequate managerial experience or technical competence in the business enterprise seeking certification.(ii) Minority group members or women must demonstrate the working knowledge and ability needed to operate the business enterprise.(iii) Minority group members or women must show that they devote time on an ongoing basis to the daily operation of the business enterprise.(2) Articles of incorporation, corporate bylaws, partnership agreements and other agreements including, but not limited to, loan agreements, lease agreements, supply agreements, credit agreements or other agreements must permit minority group members or women who claim ownership of the business enterprise to make those decisions without restrictions.(3) Minority group members or women must demonstrate control of negotiations, signature authority for payroll, leases, letters of credit, insurance bonds, banking services and contracts, and other business transactions through production of relevant documents.” See, 5 NYCRR 144.2.
Even given the explanation of the rule set out in 5 NYCRR §144.2(b)(1) often offered by the government, that the woman owner seeking certification show “managerial experience or technical competence” and “demonstrate the working knowledge and ability needed to operate the business,” it could and should be argued, for the reasons discussed above, that a woman owner seeking certification need only show managerial experience and does not need to show technical expertise, although she must also demonstrate a working knowledge and ability needed to operate the business.