Five Local Government Trends for More Equitable Public Purchasing

At the local level, public procurement manages the exchange of over $1T of U.S. taxpayer dollars each year. How these dollars are spent matters for equity in two ways:

The responsiveness and quality of government services affects some members of our communities more than others.

First, not all members of our communities rely on government services equally. When government services fail to work, or don’t work as well as they should, society’s most vulnerable residents are disproportionately affected. Since the speed and quality of purchasing decisions affect the speed and quality of government services, procurement has a strong role to play in promoting equity in our communities.

Government purchasing decisions determine which businesses, and what kinds of businesses, grow.

Government spending is big business. Therefore, how governments award contracts massively impacts which types of businesses ultimately succeed and grow.

While public purchasing has evolved to include more formal rules and regulations, which 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 steps that public agencies can take to make public purchasing more equitable:

1) Set contracting goals

Several governments have taken steps to establish aspirational benchmarks for contracting with traditionally underserved businesses. For example, Portland, Oregon codified tangible goals for contracting and subcontracting with minority- or 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).

2) Change how you determine contract awards

Many governments choose to prioritize local businesses and diverse businesses, such as minority-owned and women-owned businesses, through policies that provide a discount and/or tie-breaking advantage to these businesses during the bid evaluation phase. In other words, governments may automatically award a contract to a local and/or diverse supplier in the event of a pricing tie, or purchasing staff may deduct a certain percentage off the quoted pricing when comparing a local or diverse company’s proposal with one submitted by an entity from outside the area.

For example, Santa Fe, New Mexico will deduct 3% from the quoted price provided by a local supplier when making a low-bid determination. 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 threshold for small purchases to $150,000 when those purchases are made with MWBEs.

These policies can help local and diverse businesses compete with larger or more incumbent suppliers, which may be able to achieve lower pricing due to greater buying power or better distribution channels for their products.

3) Lower the cost of participating in the competitive bidding process

Award cooperative contracts as a default to all suppliers

Taking the step to include cooperative language in solicitations and contracts can drastically lower the costs of buying and selling for governments and vendors. Local agencies share similar needs and are legally allowed to collaborate on purchasing (known as “cooperative purchasing”). Local agencies can help local and diverse businesses grow by making cooperative language a default in bid solicitations and contracts. This business can use a cooperative contract to leverage a single successful bid response (and the cost of participating in one competitive bidding process) to sell to more businesses in the region and potentially beyond. Local governments should think about helping diverse and local businesses grow by helping equip those businesses with contracts that help them sell to many government clients, rather than just one. This can make working with local and diverse businesses easier and less expensive for other government agencies as well.

Require master vendors to subcontract with diverse business types

As noted earlier, some governments have begun thinking about the importance of developing not only contracting goals but subcontracting policies as well. Agencies that have set goals for engaging diverse business types can achieve those goals by awarding more contracts to diverse businesses and also by requiring larger, master vendors to working with diverse business subcontractors. Indeed, many contracts, including cooperative contracts, already contain arrangements for resellers and subcontractors that offer governments opportunities to work with smaller, diverse, and/or local businesses. CoProcure is making it easier to find businesses that are eligible to subcontract through existing cooperative contracts.

Make business certifications more interoperable

One challenge that diverse business types face in government contracting is that the process of getting credentialed as a specific type of business introduces additional bureaucratic complexity and expense into the process. The process of accessing the credentials that are designed to favor these businesses can therefore sometimes deter them. In addition, even if a supplier achieves one type of certification, this certification may not be recognized by other jurisdictions.

Some governments are taking a leadership role 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 an 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.

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 small and diverse businesses. To ease this burden, some governments have started aggregating and publishing their anticipated demand. For instance, the City of Milwaukee recently 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. In Chicago, the Department of Procurement Services works with several other public entities in the Chicago region to produce a 15-month buying plan that offers potential vendors the opportunity to prepare responses for upcoming needs.

4) Target diverse suppliers in focused outreach

Governments are increasingly conducting outreach focused on engaging more local, small, and diverse businesses. Some local governments even require that public purchasers conduct targeted outreach to certain types of businesses as part of the procurement process. For instance, Austin, Texas mandates that government buyers reach out directly to MWBEs when collecting informal quotes for a purchase. In Houston, contractors are required to market and advertise subcontracting opportunities to MWBEs through a number of media and distribution channels. Startups like Avisare and CityMart are building solutions to help governments manage outreach to a wider range of business types.

5) Pay Suppliers On Time

The previous interventions focus on helping businesses navigate the competitive bidding process. However, governments are also realizing that there is more work to be done to improve the experience of working with public customers after a contract has been signed. One huge challenge, and a potential deterrent for certain businesses in working with government, is the predictability of pay schedules. While slow payment may be little more than an annoyance for large national corporations, small businesses or startups likely do not have the capital to sustain operations if they are not paid in a timely manner. In response, some government agencies have instituted prompt pay policies that prioritize payments to small 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.

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While this post includes many of the more common ways governments are advancing equity in public purchasing, we’d also love to hear any ideas or practices we missed.