Biden Seeks to Use Procurement ‘Power’ to Close Racial Wealth Gap

President Biden announced on Tuesday he seeks to double the share of federal contracts that go to small,  disadvantaged businesses over the next few years as part of his administration’s goal to narrow the racial wealth gap. 

The administration rolled out a slew of actions aimed at increasing wealth in communities of color in conjunction with its commemoration of the 100th anniversary of the massacre on “Black Wall Street” in Tulsa, Oklahoma. An estimated 100-300 Black Americans were killed and thousands were left homeless and impoverished. The White House noted that the massacre, along with certain laws and policies enacted, made recovery almost impossible for those affected. The consequences continue to reverberate in Black communities nationwide. 

“The federal government is the largest consumer of goods in the world, buying everything from software to elevator services to financial and asset management” and “federal procurement is one of our most powerful tools to advance equity and build wealth in underserved communities,” said a fact-sheet from the White House. “And yet, just roughly 10% of federal agencies’ total eligible contracting dollars typically go to small disadvantaged businesses, a category under federal law for which Black-owned, Latino-owned, and other minority-owned businesses are presumed to qualify.” 

To rectify this, the administration is initiating an “all-of-government effort to expand contracting opportunities for underserved small businesses across the country.”

The main goal is to increase by 50% the share of contracts that go to small, disadvantaged businesses by 2026, which will lead to an additional $100 billion for small, disadvantaged businesses over that period, according to the White House. 

“Agencies will assess every available tool to lower barriers to entry and increase opportunities for small businesses and traditionally-underserved entrepreneurs to compete for federal contracts,” said the fact-sheet. “The impact could be historic: all told, attainment of the new goal will represent the biggest increase in [small, disadvantaged businesses] contracting since data was first collected more than 30 years ago.” 

Bibi Hidalgo, associate administrator for government contracting and business development at the Small Business Administration, said the agency “is proud to be ushering in a new era for small business contracting,” in a statement to Government Executive. “Increasing the small disadvantaged goal will help build back the industrial base of small business contractors and will improve the nation’s resiliency while supporting the goal of narrowing the racial wealth gap. SBA is working closely with its federal agency partners to identify and create meaningful growth paths for small disadvantaged businesses.”

Awesta Sarkash, government affairs director for the Small Business Majority, an advocacy organization, also commended the administration’s announcement in a statement to Government Executive.

“Small business contracting is essential to and a benefit of any business commercial enterprise and infrastructure plan,” she said. “We must ensure that small businesses—particularly those that have been at an economic or social disadvantage pre-pandemic, such as businesses owned by people of color, women and those in rural areas—are sufficiently resourced and have equal access to contracting opportunities.” 

Barron Avery, a partner at the law firm Baker & Hostetler who leads the firm's national government contracts team, said this is a “laudable effort” by the Biden administration. “But that sharp an increase in federal agencies’ goals makes one wonder how realistic that goal is,” he said. “Federal agencies on a whole have been doing well in meeting their small disadvantaged business goals. But not every individual agency has done so well in the past, and this sharp increase may be unrealistic for those agencies.” 

Daniel Snyder, director of contract analysis at Bloomberg Government, told Government Executive that since fiscal 2017, small businesses spending, overall, has increased each year, but the share of contracts going to 8(a) companies—the contracting sub-category that includes Black-owned small businesses—has actually dropped from 3.4% in 2017 to 3% in 2020. 

“The June 1 memo outlined by the Biden administration appears to be an effort to boost the amount of set-asides that are directed to 8(a) companies,” said Snyder. “If enacted in law, that could boost spending to total about $40 billion, or 6% of the overall total disbursed to agencies each year.” 

The Small Business Administration reported last summer that the federal government exceeded its overall small business contracting goals for the seventh consecutive year in fiscal 2019 (the current governmentwide and individual agency goals for awarding contracts to small and disadvantaged businesses is currently 5%). 

Biden previously previewed his intentions to use federal contracting to support small and disadvantaged business during the campaign, in his fiscal 2020 budget preview and then in his full budget proposal released on Friday.

Housing Equity

In addition to the small business goals, Biden announced a new interagency approach to combat racial discrimination in the housing market. 

Derek Johnson, president of the National Association for the Advancement of Colored People, told Politico on Monday that Biden has made a good start on closing the wealth gap, but “until we address the student loan debt crisis, which disproportionately impacts African Americans, we can never get to the question of home ownership, therefore accumulating wealth.” 

The White House also released new information on how the American Jobs Plan (the infrastructure package proposed by the administration) would increase wealth for communities of color. 

One of the provisions in that plan would allocate $31 billion for small business programs to increase access to capital and provide mentoring and networking to small and disadvantaged businesses looking to participate in federal contracting and research and development. 

“We must find the courage to change the things we know we can change,” said the president during his speech in Tulsa.