GNS-33-14-00004-A Service-Disabled Veteran-Owned Business Enterprises

1/28/15 N.Y. St. Reg. GNS-33-14-00004-A

NEW YORK STATE REGISTER

VOLUME XXXVII, ISSUE 4

January 28, 2015

RULE MAKING ACTIVITIES

OFFICE OF GENERAL SERVICES

NOTICE OF ADOPTION

 

I.D No. GNS-33-14-00004-A

Filing No. 39

Filing Date. Jan. 13, 2015

Effective Date. Jan. 28, 2015

Service-Disabled Veteran-Owned Business Enterprises

PURSUANT TO THE PROVISIONS OF THE State Administrative Procedure Act, NOTICE is hereby given of the following action:

Action taken:

Addition of Part 252 to Title 9 NYCRR.

Statutory authority:

Executive Law, section 369-i(5); and Executive Law, section 200

Subject:

Service-Disabled Veteran-Owned Business Enterprises.

Purpose:

To establish standards, procedures and criteria with respect to the Service-Disabled Veteran-Owned Business Enterprise program.

Substance of final rule:

The proposed regulation makes extensive changes to the existing regulations governing the award process of State procurement contracts by facilitating and promoting Service-Disabled Veteran-Owned Business Enterprise (“SDVOBE”) participation in State procurement. This process includes State certification of SDVOBEs, the promulgation of measures and procedures to ensure these certified businesses are afforded meaningful participation in State procurement, and the monitoring and reporting of State agency compliance with the statewide goal for participation on State contracts by SDVOBEs.

Sections 252.1-252.3 define terms unique to the scope and implementation of the SDVOBE program, outline State agency responsibilities in terms of program purpose, scope, and applicability, as well as provide for implementation of a statewide certification program.

(1) Section 252.1 defines the terms applicable to the program and makes clear that in order to benefit from this program, the SDVOBE must be certified by the OGS Division of Service-Disabled Veteran Owned Business Development (DSDVBD). This certification process is to ensure that the appropriate businesses, for which this regulation has been drafted, receive maximum benefits from the program. A certified SDVOBE means a business enterprise that is independently owned and operated and is authorized to do business in New York State. The business must be at least 51% owned by one or more service-disabled veterans in such a way that ownership is real, substantial, and continuous and the service-disabled veteran must exercise independent control over day-to-day business.

(2) As provided by Section 252.1(v), the SDVOBE must be a small business, meaning that the business has a significant business presence in the State, but is not dominant in its field and employs, based on industry, a certain number of persons as determined by the director, but not to exceed 300, taking into account various other factors.

(3) Pursuant to Section 252.1(s) and (z), to be considered a service-disabled veteran, one must have received an honorable or general discharge from the United States Army, Navy, Marines, Air Force, Coast Guard, and/or reserves thereof, and/or in the Army National Guard, Air National Guard, New York Guard and/or the New York Naval Militia. In addition, (a) in the case of the United States Army, Navy, Air Force, Marines, Coast Guard, Army National Guard or Air National Guard and/or reserves thereof, a veteran must have received a compensation reading of ten percent or greater from the United States Department of Veterans Affairs or from the United States Department of Defense because of a service-connected disability incurred in the line of duty and (b) in the case of the New York Guard or the New York Naval Militia and/or reserves thereof, a veteran must be certified by the New York State Division of Veterans’ Affairs pursuant to the appropriate provisions contained within the Code of Federal Regulations, as having an injury equivalent to a compensation rating of ten percent or greater from the United States department of veterans affairs or from the United States Department of Defense because of a service-connected disability incurred in the line of duty.

(4) Pursuant to Sections 252.1(f) and 252.2, in order for a certified SDVOBE to benefit from a State procurement contract governed by this regulation, the SDVOBE must perform a commercially useful function by actually performing, managing, and supervising the work for which it is responsible. Additionally, where applicable, the SDVOBE must also be responsible, with respect to materials and supplies used on the contract, for ordering and negotiating price, determining quality and quantity and installation. The SDVOBE must add substantive value to the contract to be considered a commercially useful function. Various other factors may be applied to make a final determination.

(5) Pursuant to Sections 252.1(t) and 252.2(j), this program may be implemented using a “set aside.” A set aside means the reservation in whole or in part of certain procurements by State agencies bidding where more than one certified SDVOBE can provide the services and/or commodities necessary to the State procurement contract. The Commissioner of General Services, in consultation with State agencies shall develop and provide written guidance on the appropriate use of set asides to State agencies.

(6) Pursuant to Section 252.2(a), in order to maximize the effectiveness of this program, where it is practical, feasible and appropriate, State agencies will seek to meet a six percent goal of participation by SDVOBEs on all State contracts. Where it is not practical, feasible or appropriate for a State agency to seek the statewide goal of six percent, the agency may request a waiver. Individual State agencies may adopt agency-specific goals as long as those goals are reflected in the State agency’s master goal plan submitted to the DSDVBD, and that the agency-specific goals are justified based on the following factors: (1) statewide availability of SDVOBEs for construction, construction services, non-construction services, technology, commodities, or products; (2) statewide availability of SDVOBEs for the State agency’s State contracts found in the Directory of Service-Disabled Veteran Owned Businesses maintained by OGS; (3) the geographic location of the performance of the State contract; (4) the extent to which the geographical location of performance of the State contract hinders the ability of SDVOBEs to perform; and (5) other relevant factors.

(7) Pursuant to Section 252.2(b)-(d), each State agency must have a master goal plan on file with the DSDVBD which must include any agency-specific goals, justifications thereof, descriptions of implementation strategies, practices, and procedures, as well as a list of personnel responsible for implementation. Each State agency’s master goal plan is subject to review by the Director of the DSDVBD to ensure reasonableness of goals, as well as to judge the prospective effectiveness of the plan with regards to the program’s overall goal of promoting SDVOBEs.

(8) Pursuant to Section 252.2(e), each State agency must submit a report to OGS annually, and the report must include the relevant information necessary to assess the success of implementation of the master goal plan, including, but not limited to, the number and average amount of contracts entered into pursuant to this program.

(9) Pursuant to Section 252.2(f), each State agency must demonstrate a good faith effort to meet the State agency’s goal adopted pursuant to this program. Whether or not a good faith effort has been made is determined by Director of the DSDVBD using the following factors: (1) the availability of SDVOBEs capable of participating in the relevant State contracts; (2) State agency strategy to unbundle State contracts and solicit bids from SDVOBEs; (3) whether there were available SDVOBEs outside the region that could have performed; (4) whether joint ventures or other similar arrangements in order to include SDVOBEs were encouraged; (5) the number of opportunities the State agency could have made discretionary purchases from SDVOBEs, versus the number of times the State agency actually did so; (6) the amount paid to certified SDVOBEs as a result of State agency’s discretionary purchasing; (7) whether the State agency utilized set asides; (8) whether the State agency had the appropriate processes and procedures in place to ensure compliance with the goals, utilization plans, utilization reports, and waivers of this program; (9) whether the State agency submitted the appropriate reports; (10) any other relevant information or factors; and (11) any other information submitted by the State agency or other criteria that the Director of the DSDVBD deems relevant.

(10) Pursuant to Section 252.2(g), any State agency that fails to meet its goals must review its master goal plan and identify the necessary steps to be taken in order to meet its goals. The State agency may confer with the Director of DSDVBD to discuss performance improvements.

(11) Pursuant to Section 252.2(h), contractors shall be notified of the goal in the appropriate bid documents, and will also be provided with the current electronic list of certified Service-Disabled Veteran-Owned Businesses. In accordance with Section 252.2(i), contractors will then be required by State agencies to submit utilization plans that identify how the contractor plans to meet the contract’s goals for SDVOBE participation. The contractor’s utilization plan is subject to approval based on the contract’s goals. If not approved, the contractor may attempt to remedy any deficiencies and re-submit within seven days. If the contractor fails to comply it may be disqualified. Pursuant to Section 252.2(k), once a State contract is executed, and the contractor’s utilization plan has been approved, or appropriately waived, the plan will be posted on the State agency’s website. Pursuant to Section 252.2(q), contractors must report directly to the State agency on utilization plan compliance. Pursuant to Section 252.2(r), subsequent to being awarded a State contract, the contractor may file a complaint with the State after becoming deficient with the implementation of the utilization plan in order to request a full or partial waiver.

(12) Similar to the scrutiny imposed on State agency compliance, pursuant to Section 252.2(s), contractors must be able to demonstrate a good faith effort to comply with their utilization plans by using certified SDVOBEs in a commercially useful function for the appropriate predetermined percentage value. Where the State has determined that a contractor has failed to comply and demonstrate a good faith effort to comply, after having given notice of deficiency, the State agency may proceed with the next ranked bidder if the State agency has not received a request to review its determination. Any contractor who willfully and intentionally fails to comply with the SDVOBE participation requirements shall be liable for damages, and shall provide for other appropriate remedies.

(13) Pursuant to Section 252.2(p), State agencies are responsible for determining contractor compliance with goals established in State contracts.

(14) Pursuant to Section 252.3, in order to effectively and efficiently implement the objectives of the program, the SDVOBEs must be properly certified. Applications can be obtained and returned to the DSDVBD. Applicants must be able to demonstrate that the SDVOBE meets the appropriate definitions of “small business,” “veteran,” and “service-disabled,” where the service-disabled veteran exercises the requisite control and ownership over the business. As part of the application process, the place of business may be subject to inspection. Applicants will receive a status notification of the application, including any deficiencies that must be addressed, within thirty days of the date stamped on the application. Any deficiency must be cured within twenty days of notification or else the applicant will receive notification that the application has been rejected. An application may be withdrawn by an applicant without prejudice. Upon rejection of an application, an applicant must wait ninety days before re-applying. A written determination approving or denying an application must be provided in writing within sixty days of mailing the notice of application completion. Certification may be held for five years, unless certification is revoked, under the appropriate revocation procedures, due to a change in circumstances resulting in an applicant no longer being entitled to certification. Applicants already holding federal certification do not have to submit a New York State application and may instead submit a supplemental application.

Final rule as compared with last published rule:

Nonsubstantive changes were made in Part 252.

Text of rule and any required statements and analyses may be obtained from:

Paula B. Hanlon, Esq., New York State Office of General Services, 41st Floor, Corning Tower, Empire State Plaza, Albany, New York 12242, [phone], email: [e-mail]

Revised Regulatory Impact Statement

1. Statutory authority: Chapter 22 of the Laws of 2014 amended the Executive Law by creating a new Article 17-B, which establishes a program to increase participation of “Service-Disabled Veteran-Owned Business Enterprises”, (“SDVOBE” as defined in the Text) in State contracting. Additionally, it required the Commissioner of the Office of General Services (“OGS”) to promulgate regulations, within 90 days of the effective date of the new Article (May 12, 2014) to implement the new program created by law.

2. Legislative objectives: By enacting Chapter 22 of the Laws of 2014, the Legislature sought to increase the participation in the economy. The Legislature sought to provide additional assistance and support to better equip disabled veterans to form and expand small businesses. Chapter 22 provides that the Director of the Division of Service-Disabled Veterans’ Business Development (“Director”) or Commissioner of General Services promulgate regulations that contain specific provisions that (a) provide measures and procedures to ensure that SDVOBEs are afforded the opportunity for meaningful participation in the performance of State contracts and to assist in State agencies' identification of those State contracts for which SDVOBEs may best perform; (b) provide for measures and procedures that assist State agencies in the identification of State contracts where service-disabled veteran contract goals are practical, feasible and appropriate for the purpose of increasing the utilization of SDVOBE participation on State contracts; (c) achieve a statewide goal for participation on State contracts by SDVOBEs of six percent; (d) provide for procedures relating to submission and receipt of applications by SDVOBEs for certification; (e) provide for the monitoring and compliance of State contracts by State agencies with respect to the provisions of Article 17-B of the Executive Law; (f) provide for the requirement that State agencies submit regular reports, as determined by the Director, with respect to their SDVOBE program activity, including but not limited to, utilization reporting and State contract monitoring and compliance; (g) notwithstanding any provision of the State Finance Law, the Public Buildings Law, the Highway law, the Transportation Law or the Public Authorities Law to the contrary, provide for the reservation or set-aside of certain procurements by State agencies in order to achieve the objectives of Article 17-B of the Executive Law; provided, however, that such procurements shall remain subject to (i) priority of preferred sources pursuant to Sections 162 and 163 of the State Finance Law; (ii) the approval of the Comptroller of the State of New York pursuant to Sections 112 and 163 of the State Finance Law and Section 2879-a of the Public Authorities Law; and (iii) the procurement record requirements pursuant to 163(9)(g) of the State Finance Law; and (h) provide for any other purposes to effectuate the new Article 17-B.

3. Needs and benefits: In order to enable SDVOBEs to grow and thrive by conducting business with the State of New York, Section 369-i(5) of the Executive Law specifically mandates that regulations be promulgated to effectuate the SDVOBE program. The addition of this new Part is necessary to comply with that mandate and will assist State agencies in maximizing their opportunities.

Among other things, the regulations establish a statewide certification program that provides standards and criteria for the DSDVBD to consider when determining whether to approve, deny or revoke an applicant’s SDVOBE certification. Having a set list of criteria and an established process to follow helps to ensure that all applications will be evaluated in a consistent manner. Without these regulations, there is a risk that applicants could be evaluated using different criteria, resulting in inconsistent determinations. Establishing the criteria in regulation creates transparency and ensures the integrity of the program.

These regulations will also assist service-disabled veterans by clarifying the criteria they need to meet in order to submit an application. Providing this information in regulation helps to ensure that any SDVOBE wishing to become certified will know what is expected of them during the application process. Without providing a detailed process to follow, applications could be incomplete upon submission or misdirected to an incorrect location. The regulations provide a clear and single resource for applicants to go to for direction.

Additionally, the new Part 252 establishes standards, criteria and procedures for state agencies to follow when setting annual goals for participation. It also establishes a process by which State agencies submit their master goal plans. The regulations are necessary to maintain consistency across the agencies and establish the information that needs to be reported, as well as the procedures that State agencies must follow when submitting their plans. Finally, the regulations provide consequences for those State agencies failing to meet their goals. In order for the program to be successful, there must be a documented process in place for state agencies that do not comply.

4. Costs:

a. Costs for the implementation of, and continuing compliance with, the rule to regulated parties. OGS expects that there would be minimal, if any costs associated with the proposed regulations. The transmittal of applications and supporting documentation (if mailed) would have minimal costs associated, but are not anticipated to be significant or greater than normal business opportunity costs.

b. Costs for the implementation of, and continued administration of, the rule to the agency and to the State and its local governments. OGS expects to incur only minimal, if any, additional costs associated with the proposed regulations. The creation of a Director position is directed by the legislation. Any costs related to the proposed regulations would be associated with the administrative processing of certification applications submitted by applicants and plans and reports submitted by State agencies and authorities. The regulations do not apply to local governments and therefore do not impose any costs on local governments.

c. The information, including the source or sources of such information, and methodology upon which the cost analysis is based. The cost estimates are based on OGS’s experience with the Minority and Women-Owned Business Enterprise program, which has goals similar to this program.

5. Paperwork: The regulations will have minimal paperwork implications. The DSDVBD will need to create an application form that SDVOBEs may use to apply for certification, but the application is expected to be available on-line as well as in paper form. Additionally, State agencies and authorities are required to prepare goal plans and the DSDVBD is required to submit annual reports, but those requirements are directed by the legislation rather than by the proposed regulations. It is expected that the overall addition of paperwork to comply with the proposed regulations will be minimal.

6. Local government mandates: The subject regulations do not impose any program, service duty or responsibility upon any local governments, school districts, fire districts, or other special districts.

7. Duplication: The subject regulations do not duplicate other existing federal or State requirements.

8. Alternatives: Although the option of taking no regulatory action was considered, this alternative was rejected since Section 369-i(5) of the Executive Law requires that Director or the Commissioner promulgate rules and regulations for the specific purposes provided above in the “legislative objectives” section of this statement.

OGS has drafted these regulations streamlining the certification process and operations of the SDVOBE program to ensure that the benefits of the program are quickly provided to these businesses and diversify State procurements.

9. Federal standards: The regulations do not exceed any federal standards for similar SDVOBE programs.

10. Compliance schedule: OGS expects that regulated parties will be able to comply with the regulations when adopted.

Revised Regulatory Flexibility Analysis, Revised Rural Area Flexibility Analysis and Revised Job Impact Statement

No changes were made to the Statement in Lieu of a Regulatory Flexibility Analysis, Rural Area Flexibility Analysis and Job Impact Statement previously filed for this rulemaking, on November 17, 2014.

Initial Review of Rule

As a rule that requires a RFA, RAFA or JIS, this rule will be initially reviewed in the calendar year 2018, which is no later than the 3rd year after the year in which this rule is being adopted.

Assessment of Public Comment

The only comments received were joint comments from New York State Assemblymembers Benedetto, Englebright, and Zebrowski.

Comment: A number of the comments made by the Assemblymembers suggest that the language of the Service-Disabled Veteran-Owned Business Enterprises (“SDVOBE”) regulations should mirror the text of the regulations for the Minority- and Women-Owned Business Enterprises (“MWBE”) program.

Response: OGS recognizes that the rules for the two programs are different. While there are similar purposes behind the two programs, there are unique aspects to both and those differences are reflected in the different rules. Unlike the MWBE program, a disparity study does not support the SDVOBE program. Data on the number and types of SDVOBEs, their operational issues, capacity, and ability to participate in public procurement is not readily available. OGS appreciates the comments made by the Assemblymembers and while no substantive changes to the rules are being made at this time, OGS recognizes that this is a new and innovative program and that, consequently, some change over time is inevitable. As OGS gains experience and data to enable OGS to enhance and improve the program, some changes may be necessary. Some of those may be addressed administratively and others may be handled through amendments to the rules.

Comment: The commenters express concern that Section 252.2(h)(1) permits State agencies to seek a “blanket waiver” of the SDVOBE goals and suggest that such provision be deleted from the rule.

Response: Section 252.2(h)(1) in referring to the “waiver” notes that the State agency must follow the process set forth in Section 252.2(m). In that subdivision, waivers are clearly associated with each proposed State contract award that includes the SDVOBE goals. Any waiver is attached to a specific State contract. In complying with the waiver requirements in Section 252.2(m), granting of a “blanket waiver” is not a possible outcome and is not part of the SDVOBE program.

Comment: The commenters note that Section 252.2(e), which sets forth the information that State agencies must report to OGS, includes the number of SDVOBEs certified, the number of applications for certification, the number of denials for certification, the number of appeals of such denials, the outcome of such appeals, and the average time required for the completion of the certification process. Because the certification process is under the control of OGS, this is information that OGS should already have, so it makes no sense for State agencies to report it to OGS. These items should be removed from the reporting requirements in Section 252.2(e).

Response: Section 252.2(e) has been revised to make the requested change.

Comment: Section 252.3(c)(3) states that if a SDVOBE that applies for certification is denied, a written notice will be provided stating the reasons for denial and the procedures for filing an appeal before a hearing officer. The commenters note, however, that there are no procedures outlined in the rules for the conduct of such an appeal. The hearing procedures set forth in Section 252.3(d) apply only to appeals of revocations, not denials of an application for certification.

Response: While procedures for the conduct of an appeal are not set forth in the rules, the intent is to provide information about the process and the associated procedures as part of the written notice. The process and associated procedures will provide due process to the applicant and will ensure that an appeal is fairly evaluated and an impartial decision rendered based on the facts, the law and these rules. As experience is gained in overseeing the SDVOBE program, a further review will be conducted to determine whether there is a benefit to outlining the process and procedures in these rules. In the interim, some latitude will provide opportunities to adjust practices based on the nature of the appeals that arise during implementation of the program.

Comment: The commenters note that the definition of “State agency” in Section 252.1(w) does not mirror the definition of such term in Executive Law § 369-h(6), as it should, which means that the rules do not bind the Dormitory Authority, the Facilities Development Corporation, NYSERDA, and the New York State Science and Technology Foundation when they enter into State contracts on behalf of a number of State authorities. The rule should be revised to match the statute.

Response: Section 252.1(w) has been revised to make the requested change.

Comment: The commenters note that Section 252.2(l)(9) states that a contractor changing its utilization plan after submission must notify the State agency and obtain approval “in accordance with this section and this subdivision.” The commenters correctly surmise that the confusing language is a result of an inartful translation of the MWBE rule in 5 NYCRR § 142.6.

Response: Section 252.2(l)(9) has been revised to read “in accordance with this subdivision and subdivision (n) of this section.”

Comment: The commenters state that Section 252.2(i) contains an erroneous reference to “certified minority- and women-owned business enterprises” rather than “certified service-disabled veteran-owned business enterprises.”

Response: It appears the commenters may be referring to an early non-final version of the emergency rules. Section 252.2(i) of the emergency rules posted on the OGS website properly refer to certified SDVOBEs.