New Challenges for Minority Businesses in Government Contracting

Government sector contracting is fundamentally important to the success of minority-owned businesses. Overall, the share of minority business revenue generated in the government sector is much greater than is the share among non-minorities.

Minority businesses are more dependent on government contracting because decades ago, racial discrimination in private sector contracting confined them mainly to personal service and retail establishments that largely served minority consumers.

Discrimination manifested itself in many ways including the following: exclusion from bank loans, red lining minority neighborhoods, restrictive and exclusionary licensing and distribution practices, mortgage lending and white consumer purchasing patterns.

As a result, minority entrepreneurs who sought to go beyond the traditional racial barriers pursued government contracting as solution.

Government procurement gave minorities the opportunity to enter faster growing, diverse and nontraditional industries such as professional services, technical and engineering services as well as specialized and heavy construction services.

The result transformed the character of the minority business sector and created employment opportunities for minority workers. These outcomes were important for minority communities that were historically under-served and burden with higher levels of unemployment and lower quality products sold at higher prices.

The government opportunities provided to minority-owned businesses prompted an increase in business startups and lead to more successful companies. Today, unlike in the past, the typical minority enterprise is not a marginal establishment engaged in mom and pop operations, i.e. personal service or small-scale retail activity.  In fact, personal service, maintenance, and repair services, no longer account for the largest share of minority-owned businesses.

African Americans are most heavily concentrated in health care industries. The largest percentage of Hispanic Latino businesses are engaged in construction and Asian businesses are most heavily concentrated in professional, scientific and technical service industries.

Although minority-owned businesses have grown rapidly over the last two decades, there is still a significant disparity in their capacity relative to the capacity of non-minority-owned businesses. The employment and revenue of minority establishments are about one-half that of comparable businesses owned by whites. A reflection of the employment disparity is revealed by the following fact. Minority businesses comprise 21% of all small businesses, but they employ only 5% of the US workforce.

Today a new challenge confronts the minority business sector. In the past, it was to increase the start-up rate of M/WBEs. The new challenge is to grow minority businesses to greater scale and capacity. The need for greater capacity is caused by global competition that has transformed corporate supply chain operations, government fiscal austerity measures resulting from the “great recession,” and the litigious environment surrounding minority business programs.

Because minority business mandates have been subjected to increase legal scrutiny, many local, state and federal programs have adopted race- and gender-neutral policies to achieve minority business opportunity. However, the effectiveness of those policies often assumes that an adequate level of minority business capacity exists in the marketplace.

In this new environment, global competition and consumer intelligence are forcing manufacturers to reduce supply costs.  Original Equipment Manufacturers (OEMs) have responded by using fewer suppliers, managing supply chain costs, requiring each supplier to have greater production and service capabilities, and selecting only suppliers who can respond efficiently and flexibly to changing demand conditions. Likewise, public sector procurement officers are adjusting to austerity budgets by bundling contracts, using design-build solicitations and awarding construction managers at risk contracts.

Unless aggressive steps are taken, these business practices threaten to slowdown minority business progress significantly.  If that happens, it will not only hurt minority entrepreneurs, but it will also make it more difficult for the country to recover from the second worst recession in its history. The success of minority businesses is one of the most important strategies the government can pursue. This is because they hire minority workers in much higher percentages than do non-minority owned businesses. Therefore, assisting minority business growth is not a social policy; instead, it is a very important economic policy.