Reforms to Increase Equity and Level the Playing Field for Underserved Small Business Owners

The federal government is the largest purchaser of goods and services in the world, buying everything from software and building construction to financial and asset management—making its procurement a powerful tool to advance equity and build wealth in underserved communities. Despite this, less than 10 percent of federal agencies’ total eligible contracting dollars typically go to small disadvantaged businesses (SDB), a category under federal law for which Black-owned, Latino-owned, and other minority-owned businesses are presumed to qualify. Moreover, while women own roughly 20 percent of all small businesses economy-wide, less than 5 percent of federal contracting dollars go to women-owned small businesses.

Increasing federal spending with underserved businesses not only helps more Americans realize their entrepreneurial dreams, but also narrows persistent wealth disparities. According to new analysis from the White House Council of Economic Advisers, based on data provided by the Small Business Administration (SBA), differences in business ownership account for 20 percent of the wealth gap between average white and Black households.

For this reason, at the June 1 centennial of the Tulsa Race Massacre, President Biden announced a bold new goal: increasing the share of contracts going to small disadvantaged businesses by 50 percent by 2025 – an unprecedented target projected to translate to an additional $100 billion to SDBs over 5 years.  The announcement built on the President’s Day One Executive Order 13985, which directed agencies to work to make contracting opportunities more readily available to all eligible firms and to remove barriers faced by underserved individuals and communities.

In addition, on November 18, the Administration launched its President’s Management Agenda (PMA) Vision.  The third PMA priority—managing the business of government to build back better—recognizes that fostering lasting improvements in the Federal acquisition system can create opportunities for underserved communities.  The PMA Vision states, “By creating more opportunities for all types of businesses and underserved entrepreneurs to compete for Federal contracts, the Federal marketplace can serve as a platform to create a more equitable economy.”

Today, the Biden-Harris Administration is announcing a set of reforms to the federal procurement process to help meet the President’s ambitious target of increasing the share of federal contracts to SDBs, advance the President’s Management Agenda, and increase opportunity for all underserved businesses. Today’s actions include:

  • For the first time, asking agencies to increase their goals so that governmentwide spending results in 11 percent of contracting dollars being awarded to small disadvantaged businesses, up from the current statutory goal of 5 percent. This is the first step towards meeting the President’s goal of ensuring that 15% of federal contracts go to SDBs by 2025.
  • Releasing, for the first time, disaggregated data of federal contracting spend by race/ethnicity of business owner, a powerful transparency and management tool.
  • Implementing major changes to the federal government’s use of “category management” to boost contracting opportunities for underserved small businesses.
  • Increasing the number of new entrants to the Federal marketplace and reversing declines in the small business supplier base. 
  • Adopting key management practices to drive accountability and institutionalize achievement of small business contracting goals.

For the first time, asking agencies create ambitious goals in order to exceed the existing statutory goal of 5 percent by spending 11 percent of Fiscal Year 2022 governmentwide procurement dollars on small disadvantaged businesses.