Report: Minority-Owned Firms Are Missing Out On Billions in Federal Dollars

Report: Minority-Owned Firms Are Missing Out On Billions in Federal Dollars

Businesses owned by people of color would have earned about $64 billion more if they received federal contracts in proportion to the share of businesses they represent in the economy, the report finds.

(Photo by Sharon McCutcheon.)

 

​Systemic bias in the federal contracting process means businesses owned by people of color lost out on $64 billion in federal contract dollars in Fiscal Year 2020, while women-owned businesses lost out on $77 billion in federal contract dollars, according to a new report.

Black-owned businesses alone would have received an additional $4 billion in contract awards and Hispanic-owned businesses almost $24 billion more, if they received contracts in proportion to the overall share of businesses they represent in the economy.

The report, “Shut Out: The Dearth of Opportunity for Minority Contracting,” came out Thursday from Third Way, which describes itself as a “center-left” think tank. Its board members include Wall Street investment managers, tech moguls, Democratic lobbyists and former policymakers.

The report points to confusing requirements, contract bundling and preferences for established businesses as some of the barriers to diverse firms competing for and receiving federal contracts.

As noted in the report, during its Fiscal Year 2020 the federal government spent over $650 billion on contracts for goods and services. Of that, nearly $560 billion was eligible to be done through small businesses.

Employer businesses owned by people of color represent 18.7% of all small businesses across the country, but received just 9.4% of these federal contract dollars for small businesses. Women-owned employer businesses, meanwhile, make up 21% of all small businesses, but received just 4.9% of federal contract dollars for small businesses.

Though it is by far the largest single spender in the economy, the federal government hardly stands alone when it comes to the deep and persistent over-representation of white, male-owned businesses on government contractor lists. As Next City has covered previously, civil rights advocates have spent decades pushing local, state and federal governments to make public contracting dollars more reflective of the public as a whole.

Early successes led to a backlash in the 1990s, with courts striking down programs across the country designed to correct for historic racial or gender discrimination in the awarding of public contract dollars. The judicial requirements imposed in the backlash require cities and states to conduct costly “disparity studies” on a regular basis to provide the legal justification for such programs.

Some states including California and Washington State still maintain bans on affirmative action programs, precluding any sort of program to explicitly allocate or set aside public contract dollars for women- or minority-owned firms. (Check out this Next City webinar for more on that.)

Rodney K. Strong has been through all the backlash, first as Atlanta’s director of contract compliance, and then as a principal at his law and consulting firm, Griffin & Strong.

“The person who put it best was James Brown,” Strong told Next City in 2019. “It’s just living in America.”

Even where cities have put up the resources for disparity studies and created “MWBE Procurement” programs (MWBE stands for minority- or women-owned business enterprise), pre-existing internal culture and inertia lead to persistent racial and gender disparities that can take years just to move the needle only slightly. (Check out this Next City Webinar to learn more about that).

The Third Way report comes at a time of heavy anticipation as federal contracting opportunities begin rolling out for projects funded by the Bipartisan Infrastructure Law, American Rescue Plan Act, and previous spending bills passed since the start of the COVID-19 pandemic.

There is some good news on this front. Workforce development and community advocates praised the Bipartisan Infrastructure Law for including language allowing for targeted local hiring and contracting on transportation projects, partially repealing a Reagan-era regulation restricting such hiring preferences for federally-funded projects. It’s expected that this change will make it more likely that infrastructure spending will more directly benefit the communities where the spending takes place.

But as the Third Way report outlines, there is still plenty of work left to make sure local women-owned or minority-owned firms can benefit from all that spending.

Oscar is Next City's senior economics correspondent. He previously served as Next City’s editor from 2018-2019, and was a Next City Equitable Cities Fellow from 2015-2016. Since 2011, Oscar has covered community development finance, community banking, impact investing, economic development, housing and more for media outlets such as Shelterforce, B Magazine, Impact Alpha, and Fast Company.

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