Lack Of Diversity In Government Contracts: A Way Forward

Written by Daniel Levy, a Forbes Councils Member:

According to the U.S. Census Bureau, non-white populations account for nearly 40% of the adult population in 2020, and are growing faster than the country’s non-Hispanic white population. The census predicts that the U.S. will become a “minority white” population by 2045. Much like our communities, the small business landscape is becoming increasingly diverse. Despite this phenomenon, few government contracts are awarded to minority and women-owned business enterprises (M/WBEs).

Small Businesses Locked Out

For instance, take New York City, one of the most diverse cities in the U.S. According to a report released by the city comptroller, the city awarded $30.4 billion in contracts in FY 2021, only 3.8% of which were awarded to M/WBEs. Another shocking statistic from the report shows that of more than 10,500 certified M/WBEs, 84% received no city spending in FY 2021; in fact, the share of certified M/WBEs receiving city dollars has never exceeded 22% since FY 2015. It’s a similar story at the national level. Less than 10% of federal agencies' contracting dollars go to small disadvantaged businesses (including minority-owned businesses), while less than 5% go to women-owned small businesses.

We’re also seeing fewer small businesses being awarded federal contracts. According to a report produced by Goldman Sachs 10,000 Small Businesses Voices (10KSBV) and the Bipartisan Policy Center, “The number of small businesses providing common products and services to the federal government shrank by 38% from 2010 to 2019. Even more dramatically, the number of small businesses entering the procurement marketplace as new entrants declined by 79% from 2005 to 2019.”

Senator Ben Cardin, ranking member of the small business and entrepreneurship committee, put it well in a recent Senate hearing: “[W]hile contracts are getting bigger and bigger, we are creating an insular club where fewer and fewer businesses successfully compete for government contracts, creating a less competitive marketplace and reducing opportunities in the process. Small businesses are bearing the brunt of this decline." With 99.9% of minority-owned businesses operating as small businesses, the effects on M/WBEs are clear.

As the founder of a small minority-owned office furniture company, I have witnessed this disparity firsthand and see how the odds are stacked against smaller companies. It is difficult for the “little guys” with fewer resources and connections to compete with big manufacturers and navigate the procurement process.

The Power Of Community Pressure

Thankfully, we are seeing positive procurement changes from the Biden administration after pressure from the small business community. Following months of advocacy from the Goldman Sachs 10SBV community, which involved countless meetings with officials in the White House and Small Business Administration, op-eds and 1,500+ emails sent to elected officials, the Biden Administration recently announced a set of reforms to the federal procurement process that will level the playing field for underserved small business owners. 

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Specifically, the White House pledges to increase the share of contracts going to small disadvantaged businesses by 50% by 2025. It is also asking agencies to increase their goals so governmentwide spending leads to 11% of contracting dollars going to small disadvantaged businesses, up from the current goal of 5%. Furthermore, it will ensure full transparency of federal contract spending by releasing data broken down by business owners race/ethnicity instead of relying on topline data to measure success. Finally, it is adopting new management practices that promote accountability and ensure small business contracting goals are met each year.

These changes are a boon for small, disadvantaged businesses. This goes to show that when small businesses unite, enormous change can happen. When we demand more from our elected officials, true progress can be made.