Equitable contracting and procurement
What is it?
Municipalities spend millions of dollars each year on goods and services, from major construction projects to food, supplies, consulting, and repairs. This public spending is a valuable lever for fostering more equitable economic development. Through equitable contracting and procurement policies, cities can ensure that underrepresented entrepreneurs have access to these business opportunities — those who are underrepresented include minority-owned business enterprises (MBEs; defined as at least 51 percent owned by people of color) and disadvantaged business enterprises (DBEs; owned by people of color, women, and other economically disadvantaged groups).
Equitable public spending is critical to the strength of cities, as businesses owned by people of color are more likely to hire people of color than other firms and generate increased economic activity in communities of color. Local governments often fail to provide fair contracting opportunities for MBEs and DBEs, who compete with larger companies that are politically connected, able to access financing, and more familiar with navigating the bureaucratic processes of working with governments. In Chicago, where Black residents make up nearly one-third of the population, Black-owned businesses were paid just 11 percent of city contracting dollars in 2016. Cities should develop comprehensive strategies to achieve equity in contracting and procurement, which could include setting equity targets for MBEs and DBEs, streamlining certification processes, breaking up large contracts into smaller subcontracts, helping subcontractors grown into prime contractors, and removing onerous financial burdens for small businesses.
For more resources on equitable contracting and procurement, see the Democracy Collaborative, the Emerald Cities Collaborative, Urban Institute, Government Alliance on Race & Equity, and the National Minority Supplier Development Council.
Who implements it?
- Elected and appointed city officials can create targets for contracting with businesses owned by people of color, require agencies to post contracting opportunities, provide resources to help MBEs and DBEs become certified, and decrease financial barriers for small businesses.
- Anchor institutions, such as hospitals and universities, can collaborate with city leaders to establish local procurement programs with robust equity targets.
The most successful strategies to diversify contracting and procurement provisions begin with studying the existing disparities in city contracting, setting clear and increasing targets for the share of contracts awarded to MBEs and DBEs, and providing resources to these businesses to navigate the bidding process. Cities seeking to implement or strengthen contracting and procurement efforts must consider a range of related legal and logistical questions.
- Business certification: Many businesses that could become certified never do so, either because they do not know about the certification process or because it is too onerous. Cities should conduct outreach and offer adequate resources to ensure more eligible businesses gain certification.
- Fraud prevention: Cities can proactively address the possibility of fraud — businesses that do not actually qualify as MBEs or DBEs becoming certified as such — by instituting oversight practices and pairing certification with mentorship programs.
- Access to capital: Procurement strategies that provide at least some up-front payment to small businesses, along with city programs to help construction contractors meet bonding and insurance requirements, can help increase access to contracting opportunities for under-capitalized businesses.
- Legal barriers: Some cities and states may be legally limited to using race-neutral programs to achieve racial and gender inclusion in contracting. Some targeted strategies are still possible in most cases, however, and disparity studies can demonstrate the need to increase equity in contracting and procurement.
- Engaging anchor institutions: In many cities, anchor institutions like hospitals and universities are among the largest employers, and wield major purchasing power. City leaders can collaborate with anchors to invest in their neighborhoods and promote inclusive growth.
Where is it working?
Equitable contracting and procurement programs require a strong commitment from city leaders to change “business as usual” throughout the government. Successful models have shown that cities can take practical steps to quickly yield results and meet or exceed outlined goals.
- In 2009, Philadelphia established the Office of Economic Opportunity, which promotes the economic development of minority, women, disabled and disadvantaged small businesses (M/W/DSBEs) through its registration program and contract review and monitoring activities. In 2010, the city released its Inclusion Works Strategic Plan, mapping out a strategy to help minority- and women‐owned businesses become prime contractors through reforming the city’s certification process, improving contracting data collection, and steps to specifically diversify construction contracting, among other recommendations In 2016, the city reached 32 percent utilization of M/W/DSBEs, and raised its target to 35 percent. Over the last seven years, the city has awarded $1.59 billion to M/W/DSBEs and increased the number of certified business to 2,272 — a 72 percent increase since 2010.
- The City of St. Paul, in an effort to advance more equitable procurement and contracting, rolled out a new online bidding platform that makes the process more transparent and accessible and allows any vendor to download bids free of charge. A vendor can become registered as an MBE, a woman-owned business enterprise (WBE), or a small business enterprise (SBE) through one-day community workshops that are hosted monthly. These certifications are recognized by Hennepin County, Ramsey County, Minneapolis, and St. Paul, making it easier for businesses to pursue public procurement and contracting work regionally. As a result, St. Paul has been meeting many of its equity goals. The city has also stepped in to remove some of the financial barriers: city projects up to $100,000 no longer require bonds, so they are now more accessible to small contractors.