What Happens When You Miss Your MWBE Requirements?

January 6, 2022

Missed MWBE Metrics Open Doors for Discord:

Legal Sanctions, Lower Profitability, Lost Community Goodwill Top List of Concerns

The requirement to meet minority/women-owned business enterprises (MWBE) is certainly not new on construction projects that use federal, state or local funds. However, with an eye on greater diversity, the participation goals are increasing—as are the penalties for not meeting those metrics.

Financial Penalties & Legal Sanctions

As an example, the U.S. Department of Transportation clearly states in its 49 CFR Part 26 Final Rule that sanctions include withholding progress payments, liquidated damages, disqualifying the contractor from future bidding, and assessing monetary penalties.

At the state level, New Jersey just upped its set-aside for small businesses from a minimum of 15% to 25%, which matches California’s 25% goals.

Nearby New York, per Executive Law, Article 15-A, now stipulates that construction contracts in excess of $100,000 and consultant contracts in excess of $25,000 must meet or exceed a 30% MWBE participation goal. The new law adds that within five days after the bid opening, contractors must submit a utilization plan listing the certified MWBE firms that is fully documented in a good faith form. Further contractors working on public projects in the state must submit a monthly MWBE compliance report that documents progress made towards achievement of the contract MWBE goals. And if that’s not enough, contracting agencies are required to establish four-year growth plans regarding the utilization of MWBEs.

Lost Community Goodwill & Lower Profitability

MWBE requirements are not limited to just public projects. Private sector projects are also building participation goals to build good faith in local communities where work is to be done.

The advantage of meeting or exceeding MWBE goals go well beyond meeting government requirements—there are parallel community benefits. A 2017 study by The Hackett Group found that working with a certified minority/women business enterprise can increase profitability with as much as 130% return on investment, providing distinct competitive advantages. Those advantages include access to more channels for goods and services and new relationships with suppliers—an advantage that could be significant in today’s constrained supply chain. Additionally, the research concluded that procurement organizations who work with a diverse supplier base also had lower overall operating costs and spent 20% less on their buying operations.

And progressive construction companies like Gilbane, are listening. The company tracks diversity metrics across its entire portfolio, striving to reach a minimum of 20% MWBE—for both public and private sector projects.

As you’re building your MWBE partnerships, don’t forget to put in place a way to track MWBE spend. Diversity management systems, such as Constrafor, automatically link contract specifications and certifications with accounting to track payments from project start to end. The system is designed to automatically track payments to subcontractors and collect and verify subcontractor and supplier certifications (even second tier MWBE partners) with certifying authorities, thereby minimizing liability exposures.

To learn more about Constrafor’s Diversity Procurement Tool, schedule a demo today.