The New York State Department of Economic Development’s Division of Minority and Women’s Business Development (the “Division”) has issued proposed regulatory amendments to the Minority- and Women-Owned Business Enterprise (“MWBE”) program. These revisions constitute the first substantive regulatory changes since 2020 and reflect an effort to formalize practices and interpretations that have evolved through administrative determinations and appeals over the past several years.

The proposed amendments address certification criteria, expand the role of the “commercially useful function” concept, codify long-standing approaches to commodity code assignment and utilization credit, and introduce a streamlined certification pathway for a limited category of applicants. While the changes largely reflect existing Division practice rather than a wholesale shift in policy, they provide additional clarity in certain areas and highlight persistent points of tension, particularly with respect to commodity code assignment and the role of technical expertise in certification eligibility.

The Division is accepting comments on these proposals through June 29, 2026. Directors for doing so are located on the Division’s website at https://esd.ny.gov/doing-business-ny/mwbe. A summary of the principal changes follows.

Amendments to Certification Criteria Ownership

The proposed amendments reflect a recognition of several practical realities affecting MWBE applicants. In particular, they clarify that passive investments held by non-active owners will not be considered when assessing whether the qualifying owner’s capital contribution is proportionate to their ownership interest. The revisions also explicitly account for ownership acquired through inheritance, divorce, gifts, or estate administration.

These changes are significant for family-owned businesses and second-generation enterprises, as well as for companies that have relied on passive investors to secure necessary capital. By removing certain rigid interpretations of capital contribution requirements, the Division appears to acknowledge the practical barriers faced by entrepreneurs who may lack access to traditional financing but nonetheless exercise genuine ownership and control.

Operation and Control

The proposed rulemaking provides additional detail regarding the operation and control requirements that must be satisfied for certification. These provisions address one of the most common grounds for denial; namely, whether the qualifying owner exercises sufficient authority over the business.

The revised regulations emphasize that the qualifying owner must be responsible for making critical business decisions, managing the day-to-day operations of the enterprise, and, importantly, possessing the ability to critically evaluate the work performed by the business. This requirement applies even where the actual work is carried out by employees. The amendments expressly require that the owner demonstrate technical competence in the relevant industry, as well as a working knowledge sufficient to operate the enterprise. Although these concepts are not new, their codification reinforces the Division’s long-standing emphasis on industry-specific expertise.

At the same time, the amendments acknowledge that delegation is both necessary and permissible. The qualifying owner may delegate aspects of management, policymaking, or operational responsibility, provided that such delegation is revocable and that the owner retains ultimate authority, including the power to hire and fire the individuals to whom responsibilities have been delegated.

Despite this clarification, the continued emphasis on the owner’s ability to evaluate technical work may perpetuate a restrictive approach to certification. In practice, the Division has often denied applications where it concludes that the owner provides only administrative or managerial expertise while relying on others for technical judgment. This approach has been the subject of extensive administrative appeals from denials, particularly in cases involving entrepreneurs entering new industries or acquiring existing businesses. Although courts and administrative decisions have rejected a rigid requirement of industry-specific technical expertise, the proposed amendments appear to reinforce that concept, suggesting that this issue will remain the subject of ongoing dispute.

Assignment of Industry Commodity Codes

A proposed addition to the regulations addresses the selection and assignment of industry and commodity codes, a process that has long been a source of uncertainty for applicants. Under the proposed framework, the Division will not assign codes for goods or services that are not directly performed by the business, nor will it assign codes for services that are not performed by the qualifying owner. The regulations further provide that codes will not be assigned for work performed by employees whose qualifications are not relied upon for certification.

These provisions formalize and, in some respects, expand the Division’s existing practices. Historically, the Division has exercised broad discretion in assigning codes, often without providing applicants with advance notice or an opportunity to respond. The proposed amendments would explicitly confirm that the Division retains final authority over code assignment decisions.

The practical implications of this approach are significant. Because code assignment is not treated as a denial of certification, applicants frequently have limited recourse to challenge assigned codes that do not accurately reflect their business operations. Instead, they must rely on an internal review process, which does not afford the same procedural protections as a formal appeal.

The substantive effect of these provisions may be to narrow the scope of certification for many businesses. For example, an individual with a background in a particular trade who seeks to expand into a new line of work may find that certification is limited to their prior area of experience. Similarly, an owner whose professional background differs from the business’s primary operations may face restrictions on the codes assigned or even denial of certification altogether. In this respect, the proposed amendments highlight an ongoing tension between entrepreneurial ownership and the Division’s emphasis on demonstrated technical expertise.

Codification of Broker/Supplier Utilization Credits

The proposed amendments also codify long-standing Division practices regarding MWBE utilization credit, an area that has historically been governed by informal guidance. The regulations clarify that utilization credit depends on the role performed by the MWBE firm and the nature of the contract.

In general, credit is limited to work that is actually performed by the certified firm. Where an MWBE serves as a prime contractor, credit is available only for the portion of the work that it self-performs. The same principle applies to subcontractors. The regulations also clarify how credit is allocated among different roles. For construction contracts:

• manufacturers and self-performing subcontractors receive full (100%) credit,
• suppliers receive 60% credit,
• distributors receive 40% credit, and
• brokers receive 10% credit.

For non-construction contracts, the same framework applies, except that suppliers are eligible for full (100%) credit.

Definitions of Manufacturer, Supplier, Distributor, and Broker

The amendments include formal definitions of the categories that determine utilization credit. These definitions largely align with federal standards and will continue to play an important role in determining how credit is calculated:

• A manufacturer produces goods or equipment at its own facility, although minor modifications to products alone are insufficient.
• A supplier maintains inventory and sells goods in the ordinary course of business.
• A distributor regularly sells or leases goods or materials and assumes responsibility and liability for them after acquisition.
• A broker functions primarily as an intermediary and does not maintain inventory or provide substantial services beyond facilitating a transaction.

Incorporation of the “Commercially Useful Function” Standard

The proposed amendments expand the concept of a “commercially useful function” (“CUF”), which has traditionally been applied in the context of utilization, into the certification and enforcement framework. Under the revised regulations, an applicant must demonstrate that its work constitutes a CUF in order to qualify for certification. This includes performing work independently and without undue reliance on another firm’s equipment, facilities, or resources. The Division will also consider whether the applicant is actually performing work or merely subcontracting its obligations to others.

The amendments further introduce enforcement mechanisms tied to CUF compliance. Where there is evidence that a certified firm has failed to perform a commercially useful function, the Division may impose penalties, including the disallowance of utilization credit, monetary penalties, and, in some cases, temporary removal from the MWBE directory. In addition, failure to satisfy CUF requirements may serve as a basis for revocation of certification or denial of an application.

Professional Declaration of Eligibility (PDE)

Finally, the proposed regulations introduce a Professional Declaration of Eligibility (“PDE”) process, which provides an expedited pathway to certification for certain licensed professionals, including attorneys, certified public accountants, architects, engineers, and land surveyors. The PDE process allows qualifying applicants to submit a certification application based in large part on an attestation of eligibility, subject to supporting documentation and potential further review.

However, the availability of the PDE process is limited. In particular, it does not apply to applicants seeking certification in construction-related fields, which significantly narrows its practical utility. For those who do qualify, however, the PDE may provide a more efficient route to certification while preserving the Division’s ability to conduct additional review as necessary.

Conclusion

Taken together, the proposed amendments reflect an effort to codify existing practices while refining certain aspects of the MWBE program. Although the changes provide useful clarification in areas such as ownership and utilization credit, they also reinforce the Division’s emphasis on technical expertise and expand the role of commercially useful function analysis in both certification and enforcement.

As a result, while the amendments may improve transparency, they are also likely to perpetuate or intensify existing areas of dispute, particularly in connection with commodity code assignment and the evaluation of operational control. Applicants and contractors should carefully consider these developments in evaluating certification strategy and compliance obligations moving forward.