By: Faiza Chappell

Federal and State governments offer a wide range of opportunities for small businesses to compete for government contract. On a more local level, efforts have been made to ensure that minority-owned and women-owned businesses are not overlooked for government contract work. However, most government contracts are awarded to white-owned businesses, despite affirmative action goals.[1] The phrase “minority-owned businesses” refers to groups that are racial and economically underrepresented. This principle also applies to women. The federal government considers a business to be a “woman-owned business” when 51% of the business or company is owned by a woman who “controls” and “manages the daily business operations.”[2] Every year, the federal government sets a goal of the amount of government contracts that are to be awarded to minority-owned businesses and women-owned businesses, which incentivizes both underrepresented businesses to seek out government contracts and the government agencies to award them.[3]

The federal study from 2017, conducted by the U.S. Department of Commerce, concluded that there are three categories of “most frequently cited contracting barriers” facing minority-owned businesses.[4] The barriers include: (1) prime level discriminatory barriers; (2) prime level non-discriminatory barriers; and (3) pervasive barriers. The barriers listed under each of these categories range from prejudicial treatment, instances of exclusion on the basis of race, and marketplace barriers implemented by discrimination in both the private and public markets.[5]

Federal studies show that minority-owned businesses face significant disparities and barriers when trying to do business with state and local governments. Both the City of Richmond v. J.A. Croson Co.[6] and Adarand Constructors Inc. v. Peña[7] were legal precedents that “established the evidentiary tests necessary to evaluate local, state, and federal race-conscious contracting programs.”[8] In City of Richmond v. J.A. Croson Co., Virginia adopted regulations that required companies to award the city construction contracts to subcontract 30 percent of the business to minority-owned business.[9] The Court ultimately held that “generalized assertions of past racial discrimination could not justify rigid racial quotas for the awarding of public contracts.[10] Similarly in Adarand, the terms of a federal contract set by the U.S. Department of Transportation stated that the prime contractor would receive additional compensation if it hired small businesses controlled by “socially” and “economically” disadvantaged individuals, in other words minority-owned businesses.[11] Here, the court held that all racial classifications imposed by the federal, state, or local governments must pass a strict scrutiny review. Additionally, the court stated that compensation programs based solely on “disadvantage,” as opposed to race, would be evaluated under lower equal protection standards.[12]

Although these disparities and varying court interpretations can be alarming, there have been attempts to change the trends. For example, in Massachusetts (MA), the state government attempted to bridge the gap between the economic disparities and minority-owned business by passing legislation and creating state agencies to support them.[13] Such actions helped increase minority-owned businesses participation and contracts with projects approved by the State. These changes were intentionally targeted towards “diversifying the workforce.”[14] However, critics recognize that the state’s efforts to “increase fairness” and “equity” for minority-business owners is not sufficient to change the disparity.[15] In contrast, NPR recently explored how the local government in Philadelphia has taken on the issue at hand, which serves as an example for many other state and local governments.[16] The city of Philadelphia is planning on spending one-third of the money hiring minority-owned businesses to do contracting work that is needed in communities where they are representative of the populations (racially, socio-economically, etc.). [17]

With the barriers set out in the federal study and looking at the above examples of the state government in Massachusetts and Philadelphia’s city government, there are overarching principles that need to be broken down in order to see a change in the trend. More state and local governments need to start implementing a unified system to actively combat such barriers and implement work that is tailored toward minority-owned businesses and women-owned businesses. Looking at the legal precedents of Adarand and City of Richmond, it is easy to predict that future litigation will likely create more challenges to interpreting how to analyze the awarding of government contracting work to minority-owned businesses.

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[1] See Christopher Burrell, Government Contracting Disparities Hurting Minority Business, NPR, (Feb. 16, 2020) https://www.npr.org/2020/02/16/806536052/government-contracting-disparities-hurting-minority-businesses.

[2] Megan Janetsky, Women and Minority-owned Business Receive Only a Small Fraction of Federal Contract, Open Secrets Center for Responsive Politics (April 13, 2018) https://www.opensecrets.org/news/2018/04/women-owned-biz-receive-fraction-of-fed-contracts/.

[3] Id.

[4] See Contracting Barriers and Factors Affecting Minority Business Enterprises, A Review of Existing Disparity Studies, U.S. Dep. Of Comm., Dec. 2016 https://www.mbda.gov/sites/mbda.gov/files/migrated/files-attachments/ContractingBarriers_AReviewofExistingDisparityStudies.pdf

[5] Id.

[6] See 484 U.S. 469 (1989).

[7] See 515 U.S. 200 (1995).

[8] Contracting Barriers and Factors Affecting Minority Business Enterprises, A Review of Existing Disparity Studies, U.S. Dep. Of Comm., Dec. 2016 https://www.mbda.gov/sites/mbda.gov/files/migrated/files-attachments/ContractingBarriers_AReviewofExistingDisparityStudies.pdf.

[9] 484 U.S. at 486.

[10] Id. at 511.

[11] 515 U.S. at 205.

[12] Id. at 218-219.

[13] Christopher Burrell, Disparities in Government Contracting Hurt Minory-Owned Businesses, NPR, (February 20, 2020) https://www.npr.org/2020/02/20/807126443/disparities-in-government-contracting-hurt-minority-owned-businesses.

[14] Id.

[15] Id.

[16] Id.

[17] Christopher Burrell, Government Contracting Disparities Hurting Minority Business, NPR, (Feb. 16, 2020) https://www.npr.org/2020/02/20/807126443/disparities-in-government-contracting-hurt-minority-owned-businesses.