September 9, 2021

Opportunities for Diverse Organizations

Women Business Enterprise, Minority Business Enterprise, and Disadvantaged Business Enterprise-Certified Companies

By Lisa Ricciardi, Partner, Tax & Business Services & Ira Kantor, Partner, Tax & Business Services

Opportunities for Diverse Organizations Construction

With President Biden’s new plan to invest $4.5 trillion to rebuild the nation’s infrastructure, there will be plenty of opportunities for construction companies to thrive. These infrastructure projects will be funded by federal, state, and local governments, and many of the contracts require contractors to make a “good faith” effort to utilize certified contractors — so certified contractors should see a significant amount of work over the next few years. The process to apply for certification is very simple, but maintaining and complying with certification requirements can be complicated.

Certification brings many advantages for firms, such as increased access to government and private contracts, exclusive training, and educational programs.

Let’s start with some basic definitions and parameters:

  • Women Business Enterprise (WBE): A business enterprise that is at least 51 percent owned by one or more female United States citizens or permanent resident aliens. Their ownership interest must be real, substantial, and continuing.
  • Minority Business Enterprise (MBE): A business enterprise that is at least 51 percent owned by one or more United States citizens or permanent resident aliens who are minority group members. Their ownership interest must be real, substantial, and continuing.
  • Disadvantaged Business Enterprise (DBE): A for-profit small business concern that is at least 51 percent owned by one or more individuals who are both socially and economically disadvantaged. In the case of a corporation, 51 percent of the stock must be owned by one or more such individuals.

No matter which type of certified firm you are operating, the diverse owner(s) must maintain day to day control. They need to perform, manage, and supervise the work, and negotiate prices.

If you are considering becoming a certified firm, there are many things to consider since doing it incorrectly can cause problems or delays in the process:

  • How was the company acquired? Was it purchased for fair market value? What is the source of the funds used to acquire the company?
  • History of the business.
  • Source of capital for ongoing operations or equity investment.
  • Overview of management team, including the role/resume of the owners.
  • The owners’ role in the day-to-day decisions.
  • Type of entity: corporation, partnership, or sole proprietorship.

In order to qualify, NYS WBE/MBE organizations are subject to personal net worth limitations currently set at $15 million, excluding the qualifying business, the primary residence, and up to $750,000 in retirement savings. The Federal DBE personal net worth limitation is currently $1.32 million.

In addition to net worth limitations, the individual/individuals who own 51% or more of the business must have the skill, knowledge, and experience to understand accounting, the financial statements, tax returns, and how to run a business. A man who runs a construction company can no longer decide to designate his wife as 51% owner just to be eligible for WBE status and the benefits it provides — those days are over.

For those looking to get certified: Make sure your internal systems are in place and functioning properly and that your paperwork is organized, including everything required to expedite the process. Consider using a professional familiar with the certification process. Work with an accounting firm and attorneys who specialize in the construction industry.

For those working with certified firms: If you are a general contractor working with a WBE/MBE/DBE, verify that they are certified on the applicable government agency website. Ensure the firms are maintaining their certifications. You don’t want to fall short of your participation goals.

Certification opens doors to rewarding government contracts and the opportunities for diverse firms will only grow. Now is the time to get organized and stay focused on your future goals.

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