These days, the tax code seems to be a method of choice to help people save energy, buy homes, and engage in many other socially productive activities. However, there don’t seem to be any tax incentives, as yet, for companies that hire women- or minority-owned suppliers or contractors.
The incentives that exist are somewhat different. Most state, county, and municipal procurement programs include goal-based incentives at the prime level and at the subcontract/supplier level. For example, Baltimore City officials who make purchasing decisions are expected to obtain a percentage of their business from Minority Business Enterprise (MBE) and Woman Business Enterprise (WBE) companies. They fulfill that requirement by direct purchases (in which the city enters into contracts with certified WBE or MBE suppliers) and by passing that requirement on to their prime contractors (giving the prime contracts a 10%, 20% or 30% participation goal of bringing in minority- or women-owned subcontractors). However, there are several twists and turns in the certification process. Among them:
1. You need to have the right kind of certification. The kind of certification that is required is usually determined by where the money to pay for goods/services is coming from. Many cities, counties and states have their own certification programs for projects that are funded with their own money, and you have to participate in those to be counted. For example, the Women’s Business Enterprise National Council (WBENC) certification, while accepted by many Fortune 500 companies, is probably not going to be accepted by a state, county or municipal procurement program. Baltimore City, for example, will not accept Maryland State, Baltimore County, or federal certifications. You have to be certified as a WBE by Baltimore City’s Minority and Women Business Opportunity Office.
2. You need to understand the rules in order to market your certification to potential buyers effectively. Some jurisdictions provide less credit for supplier participation than for subcontractor participation — and that can make WBE suppliers less attractive to the prime contractor than, for example, a WBE subcontractor who will also supply the goods. That means that a dollar spent on a subcontractor is counted 100%, but the same dollar, if spent on a supplier, may be counted only up to 60%. Also, the way that some jurisdictions “count” supplier participation may depend on whether the supplier has its own warehouse or distribution equipment (trucks, etc.).
3. You need to understand how to remain within the program(s), as well. How often do you have to renew your status? What happens if you want to bring new investors into your business? When do you have to notify the certifying authorities of changes to your business, your business’s location, or your business’s workforce? What if you want to move your headquarters? Do you need to get the certifying authority’s permission before putting certain changes into effect? Can you ever be too big for the program?
Companies that want to make sure that they qualify under what can be fairly byzantine requirements should consult legal counsel before they spend considerable time and money trying to be selected as a contractor or subcontractor under these programs.