According to the latest U.S. Census Bureau’s Annual Business Survey, there are now nearly six million employer companies across the country—and a significant number of them are minority and women-owned operations.
In the fiscal year of 2024-25, New York boasted a nation-leading 31.86% utilization rate of its MWBEs, which equated to a record-setting $3.3 billion in state support of these businesses. This makes the Empire State a great place to be an MWBE—as long as entrepreneurs can navigate the complications surrounding certification and the North American Industry Classification System (NAICS).
In recent years, changing requirements concerning NAICS codes— numeric codes that classify businesses by their primary activity and are used by businesses to be considered for government contracts, earn tax incentives, and contribute to economic data—have created unnecessary confusion for MWBEs, and have restricted some from taking full advantage of the many benefits of their certification designation.
This has made understanding the state’s evolving process on mitigating NAICS code concerns key for those either seeking MWBE certification or already operating under this designation. Simply put, code comprehension can be the difference between ongoing success or unanticipated underutilization.
Let’s explore these issues.
Understanding NAICS codes
As detailed by the U.S. Census Bureau, NAICS codes are the standard used by federal statistical agencies in classifying business establishments for the purpose of collecting, analyzing, and publishing statistical data related to the U.S. business economy. Developed to allow for a high level of comparability in business statistics among the three North American countries, NAICS is based on a production-oriented concept, meaning that it groups establishments into industries according to similarity in the processes used to produce goods or services.
The code system operates as a hierarchal structure of two to six-digit codes, identifying such groupings as sector (two digits), subsector (three), industry group (four), NAICS industry (five), and national industry (six). Three sectors—manufacturing, retail trade, and transportation and warehousing—are represented by a range of two-digit classifications, and specific sector definitions are identified by their own two-digit codes.
Considered in a straightforward way, these codes identify the work a business can do and in the sector they do it in.
But with sector crossover (for instance, in the case of a general contractor) and general lack of clarity on what codes should be utilized, identifying a business with the right codes can be arduous—and in the case of a certified MWBE, has resulted in many being misclassified or overlooked for lucrative state work.
What codes mean for MWBE businesses
For a New York-based MWBE, earning certification through Empire State Development is key to unlocking the many benefits of the designation—but it’s only one piece of the puzzle.
Over my time with Couch White, I have guided plenty of clients through the process of becoming a certified MWBE so they can take advantage of the many benefits—from increased visibility throughout their sector to access to beneficial state contract work—that come with the classification. Unfortunately, with the inherent complication of selected NAICS codes, many have received letters from ESD months after their certification, stating that a review of assigned codes determined lack of eligibility and a stripping of permission to receive MWBE utilization credit for certain stipulated code work.
In addition, an MWBE will only be certified under the NAICS codes where the owner(s) can show that they can control the firm. For instance, if the owner spent their entire career in transportation before purchasing a manufacturing company, that individual may have a difficult time showing that they have the experience and know-how necessary to run a manufacturer. The company will only be certified in the NAICS codes where it can demonstrate the owner has that control (through extra education, certification, etc.) and the company is qualified to perform that work. Once established, those NAICS codes will appear on the certification certificate.
This is significant—especially in New York State, where 30% of every state construction project (and many other public projects) needs to be performed by applicable MWBEs. These contracts are based upon approved NAICS codes, so if the wrong codes are assigned or selected—or of ESD erroneously overturns code designations for a business that has previously been approved for a specialty or sector—these companies can lose out on work that can either form the foundation of their business or push them into a greater stratosphere of operation.
It has been a frustrating ordeal for talented MWBEs. For those who have been negatively impacted by loss of NAICS codes, ESD has established an MWBE Certification Profile Update, in which impacted MWBEs may request a secondary review of a NAICS code determination made by the Division of Minority and Women’s Business Development. An applicant must request a secondary review within thirty (30) days of receipt of the NAICS Code Notification Letter by emailing the Division’s NAICS Code Unit at mwbenaicscodes@esd.ny.gov with a Secondary Review Request Form; a copy of your Code Notification Letter; and additional documentation to support your request.
In my experience in these matters, MWBE owners will appear for a virtual interview with a group of analysts from Empire State Development, their attorney, and an attorney from Empire State Development. In this interview, owners are questioned regarding his or her expertise with respect to the work that forms the basis of each of these codes, as well as the business’s ability to perform work in accordance with each of these codes. Interviewers also typically require items like copies of contracts or subcontracts that relate to the work signified by codes and want to see evidence that the business owners in question were paid for those contracts. They occasionally dig deep, and it can certainly be an arduous process, albeit one that our firm has become intimately familiar with.
How can we help?
Couch White has been a valuable partner for businesses seeking MWBE certification, appealing MWBE denials, and managing NAICS code complications. In all instances, knowledgeable legal representation is vital in managing these evolving processes for clients—and can be the difference between unnecessary steps backward or a successful outcome. If you are in need, please contact us today.
To connect with Brendan Wolf, click here. To learn more about our Commercial and Complex Litigation area, click here.