Equitable Contracting and Procurement

Local governments spend billions of dollars annually on goods and services, from major construction projects to food, supplies, consulting, and repairs. Federal and state funding can add to this total: the 2021 Infrastructure and Jobs Investment Act, for example, will deliver $550 billion in new investment over five years. This public spending is a valuable lever for fostering more equitable economic development. Through equitable contracting and procurement policies, cities can ensure that historically underutilized businesses have access to these contracting opportunities. Underutilized businesses 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. However, 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. For example, in Chicago, where Black residents make up nearly one-third of the population, Black-owned businesses were paid just 7.7 percent of city construction contracting dollars, according to a 2021 Disparity Study. To increase equity in contracting and procurement, cities should develop comprehensive strategies such as setting equity targets for MBEs and DBEs, streamlining certification processes, breaking up large contracts into smaller subcontracts, helping subcontractors grow into prime contractors, and removing onerous financial burdens for small businesses.

In addition to the PolicyLink resources listed on the right, see the Democracy Collaborative, the Emerald Cities Collaborative, Urban Institute, Government Alliance on Race & Equity, the National League of Cities, and the National Minority Supplier Development Council for more resources on equitable contracting and procurement.

• 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.

• Disparity study: Municipalities should regularly conduct disparity studies, which assess whether there is a gap between the availability of businesses owned by underrepresented groups in the city and the use of these businesses on city contracts. By using the study as a baseline, local governments can work with business support organizations, workforce development agencies, and training providers, to set procurement targets for MBEs and WBEs.
   
• 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 qualify as MBEs or DBEs becoming certified — 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 and 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 significant purchasing power. City leaders can collaborate with anchors to invest in their neighborhoods and promote inclusive growth.

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 yield results quickly 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. The City maintains a goal of directing at least 35 percent of its annual spending on M/W/DSBEs, and executes strategies such as helping minority- and women-owned businesses become prime contractors through reforming the city’s certification process. In 2021, the city spent nearly $1.5 billion on private businesses and reached 32.5 percent utilization of M/W/DSBEs, up from 30.1 percent in 2020.
   
• 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. In addition, 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. The city also stepped in to remove some financial barriers: city projects up to $175,000 no longer require bonds, so they are now more accessible to small contractors.