An improved procurement process would allow government to reach more businesses.
- $120 billion in federal contracts is allocated to small businesses, but only a small percentage of companies bid on government contracts.
- Governments get too little competition from too few companies, and citizens ultimately do not get the best value for their tax dollars.
- An improved procurement process would allow governments to reach more businesses, boost bid volume and grow new business opportunities by more than 55%.
- Such a process requires support and participation by governments and a modern technical platform that reaches every local and national business.
In a historical first, the federal government has awarded more than $120 billion in federal contracts to small businesses – exceeding the SBA's targets for the sixth consecutive year. Overall, the federal government spent more than $550 billion on contracts in 2018 – and the money doesn't stop flowing there. Billions of dollars in contracts are awarded at the state and municipal levels too. California, for example, spent more than $311 billion on contracts last year.
Yet, it's extremely unfortunate to think that just a small percentage of U.S. businesses bid on – or win – government contracts each year. Minorities, women and disadvantaged businesses are among the groups disproportionately underrepresented in the contracting space. Why is this? To help fix the problem, a more inclusive system is needed to provide more (and new) businesses with a better, modern and easier way of connecting with available government opportunities.
Simply put, governments have an extremely hard job to do, and they can't do it alone. They need the support and connection with suppliers. The more diverse businesses we connect to governments, the greater value governments will be able to deliver to all of our communities, and everyone wins.
If connecting businesses with opportunities is the secret to more local business growth, which benefits all communities, here's how we can all work together to get this done.
1. Technology should level the playing field.
Technology has come a long way since the days of rotary phones and bunny ears, but there's still plenty of opportunity for technical platforms to be utilized and simplified – especially in the world of procurement. We estimate that businesses spend just under $2 billion annually simply to identify government opportunities. It's a highly fragmented market that favors incumbents and well-resourced businesses that have sales teams specifically targeting these opportunities, but this market shuts out many small, midsize and historically underrepresented businesses.
As a result, governments receive much too little competition from too few companies, and citizens ultimately do not get the best value for their tax dollars. Independent online services are simplifying the process with competitive intelligence, real-time connections and timely updates. As more governments transition from siloed purchasing systems to shared purchasing networks, more businesses will be brought into the ecosystem.
Just think about how that will even out the playing field, giving local businesses the opportunity to respond and successfully bid for government work as a way to guarantee their growth and build long-lasting business relationships. Most often, these bids come with a set budget, the funds already earmarked and ready to be spent. This process ensures that a company could scale with new hires or new equipment based on the set budget, which ultimately leads to more business in the future.
2. Everyone can and should compete.
It's not just businesses that profit from the procurement process. In fact, it's the local, state and federal governments that stand to see the greatest benefits. Without new businesses bidding on new solutions, government procurement departments are missing out on new technologies, new approaches, and new services and ideas.
The government recognizes the need for greater inclusiveness and has programs to strengthen the bidding odds for disadvantaged, small and minority-run businesses. In some ways, those efforts are paying off. Last year, for instance, the federal government exceeded its goal to award at least 23% of contracts to small businesses. More than 25% of small businesses won bids in 2018, according to the SBA's annual procurement scorecard. But more needs to be done to educate businesses on these opportunities so they are aware of them and can successfully and competitively bid on these projects.
Within its stated small business goals, the federal government lays out a subset of contracting goals to help disadvantaged and minority-run businesses. These goals state that the government wants 5% of small business contracts to be awarded to women-owned businesses, and another 5% to disadvantaged small businesses. Additionally, they would like 3% of bids to service-disabled veterans, and 3% to businesses located in historically underutilized areas.
Businesses with these designations should seek out these government procurement opportunities once they are certified. To comply, a business needs to be 51% owned by an individual who is socially or economically disadvantaged. Gaining certification isn't as difficult as it may seem. There are several agencies that can guide businesses to earn official designation as a small or disadvantaged business, including the SBA.
Efforts are also being made at the state and municipal levels. For example, earlier this year, the city of Los Angeles became the largest economy to formally include LGBTQ-owned businesses in its contract procurement processes. Other large U.S. cities – including Orlando, Nashville and Baltimore – are embracing LGBTQ-certified businesses through their procurement departments.
It's nice to see governments stepping up their inclusiveness efforts, but there's still plenty of work to do. Larger targets for minority-owned businesses – coupled with greater multilevel incentives to incorporate diversity – would go a long way in improving the procurement process.
3. Businesses should help other businesses.
Municipal governments are huge clients for businesses, and the support they provide to contractors trickles through the entire community. For each $100 spent at a local business, $68 stays in the community. Conversely, just $43 spent at a non-local business remains in the area. That's an impactful difference. Supporting local businesses is also a great way to promote inclusiveness; nearly half of small businesses are owned by minorities.
By awarding contracts to small businesses, governments help fuel local economic growth, bolster diversity and create a continuous cycle of success. A tip for helping businesses connect with local government procurement offices is to make connections. To do so, introduce yourself and market your company to government procurement managers. These government offices often host a "meet the vendor day" event that businesses can attend. Again, they just need to know where the opportunities exist.
One of the ways to approach that is through an online marketplace that host the bids. Going forward, governments must take a more modern approach to the procurement process to maximize the benefits for both businesses and the public. Opening up the bidding process to new ideas and strategies can help governments connect with forward-thinking and progressive leaders, which will strengthen the community as a whole.
The process must be modernized and simplified to help businesses easily connect with the right opportunities. It should also help make the connection between opportunities and suppliers on a hyperlocal level. Landscapers, maintenance crews and construction workers should all have the opportunity to secure government projects. They just need to know these opportunities exist for their business, and we need to lean on the government and businesses to understand the importance of these opportunities and how to engage with them.
After all, when the relationship between government and business is healthy, it creates the perfect breeding ground for growth and innovation.