Fixing the Accessibility Gap in Municipal Procurement

How can minority- and women-owned businesses overcome structural disadvantages to building wealth through entrepreneurship? Emily Holloway and Nicholas Shatan assess minority- and women-owned business enterprise (M/WBE) procurement policies in New York City and show that while these programs are designed to generate equitable access to business growth, M/WBE participants are not receiving enough contracts—however, if implemented more strategically and equitably, such policies have the potential to make the economic and social ecosystems within neighborhoods of color more resilient.

Minority- and women-owned business enterprise (M/WBE) policies offer soft incentives for city and state agencies and affiliated bodies to contract with M/WBE firms for goods and services in an effort to “level the playing field” of private economic opportunity (Bates 2009). M/WBE—or preferential minority procurement—programs are an iteration of “race-conscious” policies that encourage greater participation from minority-owned businesses in government contract opportunities (La Noue and Sullivan 1995). Advocates argue that these measures are essential to overcoming the historic structural disadvantages minority groups face in building wealth through entrepreneurship.

Our research in the Bronx and Central Brooklyn demonstrates that M/WBE participants in those boroughs are still not receiving contract dollars proportional to their demographic presence. The Bronx is home to 29% of New York City’s black and 55% of its Latino populations, and Central Brooklyn hosts a population that is 59% black and 22% Latino. Both subareas are sites of historic disinvestment, segregation, and poverty. Only 0.023% of procurement dollars were awarded to businesses in these areas in 2017, out of a total procurement spend of $19.3 billion.

If implemented more equitably and strategically, minority procurement programs could provide a foundation to encourage sustainable, democratized wealth building in historically disadvantaged communities of color. The Evergreen Cooperative project, a Cleveland network of anchor institutions and firms, leverages institutional procurement relationships to support and grow cooperatively owned local businesses, and has achieved modest success with a version of this model. Our research suggests that two barriers prevent the city’s M/WBE program from realizing its potential to build neighborhood wealth in New York City: insufficiently targeted geographic access, and the tendency for the city to engage with very large contractors at the expense of the small enterprises that are more likely to be owned by minorities. The accessibility gaps of the M/WBE program for local entrepreneurs, particularly in the Bronx and Central Brooklyn, may derive from these two factors.

Methodology

To document the accessibility gap in New York City’s minority procurement program, we compared recent city contract award payments obtained from the New York City Comptroller’s Checkbook NYC database (NYCC n.d.) to the New York City Department of Small Business Services (SBS) database of registered M/WBE participants in New York City (NYCSBS n.d.(b)). We also conducted structured interviews and focus groups with certified M/WBE owners from the Bronx and Central Brooklyn, minority and women business owners who are not M/WBE certified, SBS representatives, and technical support organizations. Outreach and research were conducted with the assistance of the Bronx Cooperative Development Initiative (BCDI), a community-led organization that aims to build infrastructure for economic democracy in the Bronx. This organization is inspired by models like the cooperative network Mondragon in the Spanish Basque Country and Cleveland’s Evergreen Cooperative project, which emphasize development over growth and cultivate procurement opportunities between anchor institutions and local worker-owned cooperatives (Casper-Futterman 2011, p. 117). BCDI is evaluating New York City’s existing policy infrastructure to identify opportunities for endogenous wealth building in the Bronx (Casper-Futterman and DeFilippis 2017). Despite the M/WBE program’s accessibility equity deficit, on balance it provides a strong policy framework to leverage democratic strategies for wealth building and retention in New York’s communities of color.

How does M/WBE’s legal framework inhibit equitable access?

The M/WBE programs at both the city and state levels are restricted by federal preemption delineated by the Supreme Court’s City of Richmond v. J. A. Croson Co. (1989), which requires preferential procurement programs to precisely define and target discriminatory purchasing practices (Bates and Williams 1996, 294). Following Croson, M/WBE programs at state and city levels are required to conduct regular studies of minority participation when developing policy benchmarks. Article 11 of the New York State Finance Law, which also preempts city regulation, stipulates that all non-discretionary contracts are subject to a competitive bid process that privileges “quality, cost, and efficiency.”

Our research reveals the consequences of this emphasis on fiscal efficiency and limited protections for local businesses for equitable access to business growth and competition. The eligible marketplace for M/WBE bidders includes participants from locations as distant as Hawaii, provided they have a “real and substantial” presence in the New York City market (NYCSBS n.d.(a)). [1] As of November 2018, of the 7,784 businesses certified as M/WBE, 2,708 (36%) are located outside the five boroughs and 1,103 (14%) are located outside the geographic market. After isolating the Bronx and Central Brooklyn, we found that of over $1 billion in M/WBE total spending in financial year (FY) 2016, only $81 million went to M/WBEs in these subareas. Furthermore, less than 30% of that $81 million went to Black- and Latino-owned businesses in those neighborhoods. This disparity highlights a weakness of the current M/WBE program: the emphasis on bottom-line calculus over more strategic and holistic economic planning. Business owners based in New York City face significantly higher operating costs compared to other locales, which affects the prices of services and goods they offer. Smaller companies also lack adequate capital to sustain operating costs during lengthy contract periods, or requisite insurance and bonding capacity. As a result, larger, more established companies, both within and outside New York City, continue to accrue contracts.

The $1 billion awarded to M/WBEs is a meaningful accomplishment for the de Blasio administration when compared with previous administrations. But to make this program count for the most disinvested communities of color, strategic programmatic emphasis should target existing and potential entrepreneurs in those neighborhoods to expand the program’s impact and transform it into a source of community-controlled wealth building. SBS should enhance outreach efforts in neighborhoods of color with low rates of M/WBE participation.

Table 1. Spending by race and area, FY 2016

Source: Checkbook NYC (NYCC n.d.)

How does contract size disadvantage M/WBE participation?

A tendency towards uneven access is also visible in the size of contracts received by M/WBEs in New York City. The top 100 contracts (by value) equal half the City’s annual procurement spend ($11 billion), but only one of these was awarded to an M/WBE. The average City contract award in FY 2018 totaled $329,547 compared to the average M/WBE contract award of $78,828 (MOCS 2018). This disparity reflects structural obstacles to business capacity: for small or undercapitalized firms, large contracts are difficult to fulfill. Bonding and insurance capacity are often tethered to contract eligibility, and operating capital to sustain large-scale projects until payment can dissuade small firms from competing. Several focus group participants cited these barriers to growth and participation, and one mentioned that “smaller contracts work well, smaller amounts, smaller jobs.” One strategy would be “debundling” large contracts into smaller, more competitive ones. If this were mandatory for all contracts over a benchmark of $5 million, there would improve access for small M/WBEs.

The distribution of contract types among contracted firms also reveals intervention opportunities. In 2017, for non-M/WBE firms, competitive sealed bids made up nearly 25% of their total contracts, while small purchases (under $100,000) made up only 2.45%. For black-owned firms, small purchases represented 26.2% of their contracts; for Hispanic-owned firms, 8.4%; and for women-owned firms, nearly 20%. Competitive sealed bids and Requests for Proposals (RFPs) were among the largest award methods (by dollars awarded) for all City contracts in 2017, at $4.12 billion and $4.66 billion, respectively. Both of these methods tend to require more paperwork, greater capital assets, insurance and bonding capacity, and are much larger awards. Clearly, smaller, less time-consuming contract types, like discretionary small purchases, are a more viable option for minority-owned firms. This evidence supports our recommendation for “debundling” because it shows that smaller contracts do, in fact, work better for minority firms.

Equitable economic development by and for communities

This article outlines two areas of intervention to improve equity of both access and outcome: an SBS-directed focus on M/WBE firms in areas with low rates of procurement participation and a State legislative amendment to create more robust opportunities to “debundle” large contract awards. This also lays the foundation for the more ambitious restructuring of urban political economy to economic democracy.

Limiting the scope of economic restructuring to demand-side tools, like the M/WBE program, leaves the system “vulnerable and unsustainable” (Schweickart 2002). Economic democracy seeks to revolutionize social and class relationships by subordinating market principles (profit-seeking) to democratic and inclusive norms (Schweickart 2002). By centering democratic, collective ownership of assets and embedding economic discourse in political and social struggles, a thoughtful consideration of future economic strategies could guide program reform.

Strategic coordination of policy infrastructure, like the M/WBE program, with equitable economic development planning could bolster the resiliency of the economic and social ecosystems within neighborhoods of color (Casper-Futterman 2016). Geographically targeted procurement programs could encourage social assets (like small businesses) to grow and strengthen (Warren, Thompson and Saegert 2001). “Debundling” large contracts to diversify participation would lower the significant barriers to entry facing many small businesses owned by women and people of color. Reimagining and realigning the boundaries of equity planning (Giloth 2018) with procurement policy introduces a new paradigm of development and economic structuring, one grounded in place, built by and for its community.

Bibliography

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Footnotes

[1The geographic market includes the metropolitan statistical area of New York City, but for applicants whose headquarters are based outside this area, they must provide proof of past transactions with the city (within the last three years); proof of a bank account or banking transactions in the city; and/or the owner(s) must possess a license issued by a city agency to do business with the city.

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Emily Holloway & Nicholas Shatan, « Fixing the Accessibility Gap in Municipal Procurement », Metropolitics, 5 March 2019. URL : https://www.metropolitiques.eu/Fixing-the-Accessibility-Gap-in-Municipal-Procurement.html
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