Public procurement is big business: state and local governments spend $2 trillion taxpayer dollars. To promote equity using these dollars, we must consider the impact of procurement on delivering fast, high-quality public services and the distribution of government funds to businesses.
First, the quality of public services affects members of our society differently, so procurement must deliver government services that work well. When government services fail to work, or don’t work as well as they should, society’s most vulnerable residents are disproportionately affected. Our foremost goal in public procurement must be to deliver responsive, high quality public services using public funds.
Second, since government spending is big business, the distribution of public dollars to businesses should reflect our values. Public purchasing regulations seek to safeguard against corruption and efficiently utilize taxpayer dollars; only in more recent decades has inclusive contracting become a focus of public purchasing work. While outright discrimination based on gender, race, sexual orientation, or other factors is illegal, government purchasing is not equitably distributed. Inclusive contracting refers to promoting more equitable access to government procurement for businesses. Elected leaders and policymakers are increasingly focused on using public procurement as a mechanism for investing in the local economy and in businesses that have traditionally disadvantaged, like minority-owned, women-owned, or small businesses.
Here are (non mutually-exclusive) actions that public entities are taking to promote equity in contracting as they deliver high quality, responsive government to residents:
Set and measure towards equity in contracting goals
In management, there’s a saying: “you can't manage what you can't measure.” More and more, public entities are taking steps to establish benchmarks for contracting with traditionally underserved businesses. For example, the City of Boston has set a goal to utilize at least 25% minority- and women-owned businesses across all contracts awarded in any fiscal year. Portland, Oregon codified tangible goals for contracting and subcontracting with minority- and women-owned businesses. Similarly, Kansas City’s City Council recently passed changes that set annual goals for city contracts with minority and women business enterprises (MWBEs).
Shareable contracts can help public entities get closer to achieving these goals. With Pavilion, you can use diversity filters to identify businesses that meet your entity’s diversity qualifications.
1. Implement preferential policies
Some public entities have developed policies that provide a discount and/or tie-breaking advantage to diverse or local businesses during the evaluation phase of the competitive process, or adjust the threshold for purchasing from these types of businesses. For example, the State of South Carolina has a similar policy, deducting 7% from the bids of local suppliers registered in the state. New York City recently raised the non-competitive threshold for minority- and women-owned businesses from $500,000 to $1,000,000. These kinds of policies attempt to help disadvantaged businesses compete with larger or more incumbent suppliers.
2. Lower the cost of doing business with public entities
While the value of public entity business is high, the cost of doing business with public entities is also high. Participating in a competitive solicitation can take 4-24 months and cost a business up to $1.5M just to submit a response. If we reduce the complexity, shorten the timelines, and lower the costs of doing business with governments, all suppliers– especially diverse and non-incumbent suppliers– will benefit. Here are 5 ways we can reduce the costs of doing business with governments for suppliers:
3. Make contracts shareable by default
Taking steps to include shareable language in solicitations and contracts can drastically reduce the costs of selling to public entities for businesses, since it’s much less expensive to sell to a public entity customer using a contract your business has already won. Most of the businesses that leverage shareable contracts are established players in the public sector space. State and local entities can onboard new suppliers to the government market and help them sell at a lower cost by making contracts shareable by default. Increasing the number of shareable contracts available to public entities will also make working with diverse businesses easier and less expensive for public entities, too.
4. Pay suppliers on time
In conversations with businesses, one of the greatest hurdles isn’t just winning a contract; it’s getting paid on time. For disadvantaged businesses, including those awarded as subcontractors as well as prime vendors, unreliable or late payments can be especially damaging and even deter businesses from working in the public sector altogether.
In response, some government agencies have instituted prompt pay policies that prioritize payments to small and disadvantaged businesses in particular. For instance, L.A. County has a policy of processing payments to small businesses within fifteen days of receipt of the invoice. If your entity does not yet have a prompt payment policy, consider implementing one; even if you have one in place, continuing to improve the payments experience for suppliers will especially benefit small and disadvantaged businesses.
5. Make diversity-related certifications more interoperable
For disadvantaged businesses, the process of getting certified as a specific business type in order to win government business often introduces additional bureaucratic complexity and expense. Ironically, the very process of accessing credentials designed to favor these businesses can put them at a disadvantage. In addition, even if a supplier achieves one type of certification, this certification may not be recognized by other jurisdictions.
Some public entities are leading the way in ensuring that certifications can be used across an entire region. For example, Memphis, TN has developed a clear and transparent certification process for MWBEs and small business enterprises (SBEs) and lists the certified businesses in an accessible online portal. To make the certifications more meaningful, Memphis has reciprocity agreements with Shelby County and other surrounding entities to ensure that a SBE submitting a proposal to one government in the region is able to submit a proposal to the other governments as an SBE as well. Reducing the friction in your entity’s credentialing process, including by recognizing other types of credentials, can help reduce the costs of doing business for disadvantaged businesses.
6. Create more predictability in purchasing
The time investment required to apply for solicitation opportunities, especially when there is no way to anticipate upcoming government needs, is a challenge for diverse and disadvantaged businesses. To ease this burden, some public entities have started aggregating and publishing their anticipated demand. For instance, the City of Milwaukee released a buying plan that covers five years of anticipated commodity or service needs to provide greater lead time for local small businesses interested in submitting a proposal. Chicago’s Department of Procurement Services works with several other public entities in the Chicago region to produce a 15 month buying plan that offers potential suppliers the opportunity to prepare responses for upcoming needs.
7. Increase investment in outreach to and education of diverse suppliers
Public procurement is complicated. While working to simplify the experience for suppliers, we can simultaneously increase investment in outreach and education of disadvantaged businesses. Many public entities require targeted outreach to certain types of businesses during the solicitation process; others, like the City of Houston, require contractors to market and advertise subcontracting opportunities to diverse businesses through a number of media and distribution channels.
When it comes to shareable contracts, many disadvantaged businesses are not familiar with this procurement mechanism, and even if they’ve been awarded a shareable contract, they may not understand how to use it to generate new sales. Pavilion has guides for suppliers created by public procurement professionals to help level the playing field.