In the bid to enhance collective growth for all industries by encouraging the development of entrepreneurship culture, governments develop policies that ensure equitable access and evaluation of contract bids that are placed by different firms irrespective of their size or ownership.
The main criterion for selection of the firm or business enterprise that wins federal government contract in the US principally rests on the capacity of the firm or enterprise to deliver on the scope of a given contract as postulated in the terms and conditions of a contract. The United States government leads across the globe in terms of purchasing of various goods and services.
According to American Express (2010), it spends an average of 500 billion US dollars annually. 23-percent (US $115) of contracts for supply of the goods and services are allocated to small firms. This observation suggests that federal contracting encompasses an essential avenue that is utilizable by small firms to grow.
Five percent of the total US government’s spending is on small firms owned by minority and women. This makes these two groups of people important for consideration in the discussion of challenges and opportunities in the US federal procurement. This paper seeks to answer the question of whether minority-owned and women-owned small businesses work harder than their peers do to get the same amount of contracts.
The paper is divided into three sections. The first section discusses equality in terms of the effort of minority-owned and women–owned small businesses to successfully bid for a contract from federal governments.
The second section discusses how minority-owned business strategies differ from the strategies for majority owners. The third section reflects on these differences to examine whether minority-owned and women-owned firms and enterprises that engage in federal contracting encounter more hardships, hence requiring working harder in successful contracting.
Equality in Success for Minority-owned and Women-owned Business
The 2008-2009 global financial crisis produced negative impacts in the employment sector in the US. Estimations for employment forecasts conducted by Economic Co-Operation and Development (OECD) (2009) indicated that the global recession led to the loss of about 25 million jobs.
Failure of economic recovery to pick momentum made unemployment rise to 57 million (Ernst & Young, 2011). This situation revealed the significance of creating more employment through small businesses as part of the US government’s agenda to prevent and manage higher unemployment rates as the economy struggled to recover from the crisis.
In the context of the minority-owned businesses and women-owned businesses, the two have an incredible share for the provision of employment in the US. In 2007, women owned 7.8 million small businesses, which accounted for 30 percent of all small businesses (Blank, 2010). The businesses reported sales and/or receipts of US$ 1.2 trillion. Those with paid workers employed 7.6 million people in total (Blank, 2010).
According to American Express (2010), about 65 percent of small businesses engaged in federal contracting and secured their first contract, reporting sales of over $ 1 million each. This figure includes 63 percent of all prime small business contractors owned by women and 63 percent of prime small business contractors owned by people of color (American Express, 2010).
Organizations such as a division of minority and women’s business development (DMWBD) are established in response to the challenge of enhancing the capacity of the women-owned and the minority-owned small businesses to offer solutions to the challenge of unemployment.
The organization aims at promoting “equality of economic opportunities for MWBEs and to eliminate barriers to their participation in state contracts” (DMWBD, 2013, Para. 1). This suggests that DMWBD fosters fair allocation of contracts to women-owned and minority -owned small businesses. Amid this effort, equality in the success for minority-owned and women-owned businesses requires working harder to secure the first contract.
Minority and women-owned small businesses acquire equal achievements in business growth, which is driven by procurement market place variables that come at equal levels to that of their peers after securing their first contract. American Express (2010, p. 2) supports this affirmation by asserting “once they become active prime contractors, women and minority-owned small businesses match the average small business contractors both in terms of business size and with respect to the total value for federal contracts”.
However, the research organization partly agrees and partly disagrees with this assertion. It posits that even though minority and women contractors have acquired similar levels of contracting in comparison with their peers, persons of color (who also constitute the minority) who win their first contract have to pay an extra price. Small businesses owned by people of color invest 35 percent more in comparison with an average minority business to seek a contract with the federal government (American Express, 2012).
Statistical evidence indicates that small businesses owned by men dominate in federal contracting. For instance, American Express (2010) confirms that even though small businesses owned by women and engaging in contracting for supply of goods and services to federal agencies are successful, they have not attained similar levels of success compared to men-owned small businesses.
This observation is evidenced by 42 percent of women who are actively engaged in federal contracting reporting $1 million in sales compared to 47 percent small businesses owned by men reporting equal amounts of sales (American Express, 2010). This inequality creates the necessity for investigating the differences between small businesses owned by women and minority groups compared with their peers in a bid to establish the points of disparity or parity in awarding of federal contracts in the US.
Differences between Women and Minority-owned and Majority-owned Businesses
Data derived from the US Census Bureau in 2009 depicted a close relationship between small business populations’ racial and gender characteristic. According to the data, women represented 28 percent of all active contractors. This figure corresponded to 28 percent in their total share for population of people engaged in small business prime contracting or subcontracting with federal governments (American Express, 2010).
From the context of minority groups, the data from the same organization showed that persons of color accounted for 24 percent of all active small business contractors against their population of 20 percent in the small businesses’ overall population.
This data indicated that small business owners have equal opportunities of winning a federal contract irrespective of gender or racial demographic characteristics. However, considering the characteristics of the population of those who have applied for federal contract without success, inequalities in successful federal contracting are evident.
Data from the US Census Bureau in 2009 shows that about half (48 percent) of the business population that applied for contract with the federal agencies without winning a prime contract (non-contractors) were minority-owned small businesses while 39 percent were owned by women (American Express, 2010).
This finding shows that minority and women-owned small businesses constitute the largest proportion of small businesses seeking to secure the first contract with federal agencies. A skeptical explanation for this difference may require claiming out that more minority and women-owned small businesses seek opportunities in contracting with Federal agencies.
Nevertheless, while noting that 10% of the federal agencies’ contracts are reserved for women and minority-owned business, higher inequalities in winning contract among these two groups of small business under normal market dynamics would even be higher.
This assertion invalidates a claim that setting 10% stake in contracting for women and minority-owned business (each 5%) encourages more minority and women-owned businesses to seek contracting opportunities with federal states so that they constitute the highest population for non-contractors in comparison with their peers.
Ernst and Young (2011) contend there are inequalities between small businesses owned by women and those owned by men. The organization reckons that by 2011, women-owned businesses’ revenues accounted for only 9 percent of the total US economy in comparisons with the 36 percent contribution from the revenues generated by men-owned small business enterprises.
This suggests that in case women would raise their revenue objectives to equalize with small businesses that are owned by men, they are likely to make a bigger economic impact. However, a scholarly question emerges on how exactly this mission can be accomplished. Trechiel and Scott (2006, p. 52) suggest that women owning small businesses lack adequate “negotiating, assertiveness, and decision-making skills”.
Considering that these skills are important during contracting negotiations, a possible mechanism of reducing the number of women non-contractors is through the creation of programs for their empowerment. In support of this claim, Ernst and Young (2011, p. 22) insist, “treating women entrepreneurs as a homogeneous group is unlikely to yield positive results, as women’s experiences in cultural backgrounds, education, and life circumstances vary widely”.
Therefore, normalization of the incapability of women to manage and execute a contract to deliver its objectives as prescribed by contractual terms and conditions may reveal the prevalence of women small businesses in the non-contracting category of small businesses in the US.
Minority-owned businesses face the challenge of negative representation of their ability to deliver the deliverables of a contract similar to the women-owned small businesses. Indeed, according to Samuels, Joshi, and Demory (2008), they encounter challenges that are articulated to business formation together with equal engagement in government contracting with their peers.
In the effort to ensure the businesses overcome the challenge of formation, the US government has created policies such as affirmative action to increase the number of small business firms owned by minorities applying for government contracts.
For instance, the government has established a policy requiring reservation of 5% of all contracts awarded by federal governments to minority-owned small businesses (Trechiel & Scott, 2006). Nevertheless, such policies do not necessary translate into increasing the number of small businesses owned by minority and engaging in government contracting.
Minority-owned small businesses engage in government contracting in the effort to offset limitations that the private sector imposes on them. This does not imply that minority-owned small businesses have a better play in government contracting compared to their peers. Coleman (2005, p. 154) state, “barriers embedded in the contracting process itself can impede minority firms from winning government contracts”.
For instance, the government may not view as appropriate breaking down various contracts into small fragment to allow minority-owned small businesses to bid competitively. Challenges of ineffective screening to eliminate false minority disguise together with bid shopping also constitute important impediments to equality in the participation of minority-owned small businesses in government contracting.
This suggests that for minority-owned and women-owned small business to engage competitively in government contracting in comparison with their peers, they have to work extra harder as discussed in the following section.
Hardships in Contracting Ability of Minority-owned and Majority-owned Business
Winning federal government contracts is significant to both minority and women-owned small business. A research conducted using a sample of 1,508 participants by American Express (2010) found out that women and minority small business owners work harder to win federal contracts for three main important reasons. 70-percent of the sample claimed that winning a prime federal contract was essential for growth of the businesses.
Indeed, 37 percent of the sample contended that seeking business growth opportunities was the prime reason for engagement in federal contracting (American Express, 2010). In all minority and women small business owners, 74 percent cited growth as the main reason they pursue federal contracts.
The research by American Express (2010) also indicated that women have higher probabilities of engaging in government contracting in the quest to acquire personal leadership together with management skills. Women of color cited the development of the ability to increase their contributions to wellness of the communities as another major driver into engaging in federal contracting (American Express, 2010).
The results of the study provide evidence of the willingness of women and minority small business owners to invest more in making bids for contracts and even in ensuring compliance with their businesses to statutory requirements that are essential for successful bids. The main question is, ‘how hard do they work and at what cost?’
Seeking a response to the above query formed the basis for the American Express (2012) study that deployed a sample size of 740 participants who were drawn from small business owners’ population in the US.
The organization’s findings indicated that 35 percent of all active small businesses owned by women won contracts worth US $1 and above in 2011. 15-percent reported having won contracts worth US$10 million and above. 37-percent and 20 percent of minority-owned small businesses reported having won contracts with the federal government worth US $1 million and above and 10 million and above respectively.
These findings evidence that women-owned and minority-owned small business were fairing equally in terms of achievement in federal contracting. However, equality only occurs when equal achievements correspond to equal inputs in terms of the effort required to successfully bid for a federal contract.
Different amounts of efforts to win federal governments’ contracts nullify equality in contracting achievements for different small businesses in the US. Samuels, Joshi, and Demory (2008) further claim that women and minority small business invest both energy and time seeking federal governments’ certifications together with additional designations for them to qualify either as a prime contractor or subcontractor.
Some of these certifications include women-owned small business certification, registration with GSA, minority-owned small business certification, designation for acceptability in the 8(a) program category of businesses, and veteran-owned small businesses among others.
While it is important for small businesses owned by minority and women to seek more than one designations, such an endeavor is non-beneficial to the enterprise when it does not increase the probability for successful bidding for a contract. This suggests that increased successful contracting opportunities as discussed by American Express (2012) have an extra effort attached to them in comparison with their peers.
Putting extra energy in seeking a designation of 8(a) business category or acquiring the designation for ‘service-disabled veteran-owned business’ proves effective in enhancing contracting abilities of minority-owned small businesses.
American Express (2012) agrees with this postulation by reporting that 64 percent of the sample studied embraced ‘service-disabled veteran-owned business’ designation as an important extra effort incorporated by minority-owned small businesses in the bid to enhance their competitiveness in winning federal contracts.
Similarly, women-owned businesses benefit from seeking registration with GSA. 41-percent of the sample of women-owned small businesses studied by American Express (2012) held that GSA registration was ‘very important.’
Consequently, it is sound to infer that compared to the peers, small businesses owned by women and minority in the US require an additional mechanism of enhancing their competitiveness in winning bids for the federal government contracts. Although this effort does not require financial inputs, winning contracts in some isolated cases requires higher monetary investments compared to their peers.
The contracting process involves expenditure of business financial resources. In 2010, the expenditure for small businesses that were actively seeking federal contracts averaged at US $103,827 (American Express, 2012). However, minority-owned small businesses had to invest more than the industry’s average contracting investment. They invested US$139,709 (American Express, 2012). This figure was about 35 percent higher than the industry’s average.
Compared to women-owned businesses who only invested an average of US$86,643 (17-percent less than the industry’s average), this high commitment of business financial resources meant that minority owned-small businesses were the ones required to work harder to secure a federal contract.
Thus, equal achievement in contracting for women-owned small businesses and minority-owned small businesses do not necessarily reflect equality in the overall benefits accruing from contracting. A similar comparative analysis may also apply to both women and minority-owned business when compared to their peers. Considering the time required to bid successfully for a federal government contract, women and minority-owned small businesses require working harder to secure the first contract.
Average small business contractors take lesser time than women and minority-owned small businesses to secure their first contact. According to Ernst and Young (2011, p. 43), “it took minority business owners an average of 1.7 years (20 months) and 6.1 unsuccessful bids before they notched their first victory in procurement in 2011” (p.43). Comparably, a small business average contractor took only 16 months (1.3 years) to secure the first contract.
This was accompanied by 4.4 failures for successful bidding. Women-owned businesses did not require working harder than average small businesses to a win a bid successfully. They only used 1.2 years with only four failures in successful bidding (Ernst and Young, 2011). However, the saved amount of energy may have been utilized elsewhere, for instance, in seeking registration with GSA to increase probabilities for success in contracting.
Although women and the minority-owned small businesses face several challenges requiring them to work harder than their peers do, it does not imply that the peers do not also face higher expenditure in securing contracts with federal governments. The costs of living in many nations across the globe have been on the rise since the end of the global financial crisis experienced in 2008-2009 (Ernst and Young, 2011).
This situation has resulted in the general increase in costs of doing business including contracting. Amid this challenge, minority-owned small businesses increased their investments in seeking contracting opportunities in federal governments by 29 percent between 2009 and 2010 compared to 21 percent industry average and 23 percent of the investments made by women-owned small businesses (American Express, 2012).
Therefore, despite the rise in investments in financial resources together with the time required for securing the first contract across all small business enterprises, this growth was more pronounced amongst women and minority-owned small businesses in comparison with their peers.
A government has a noble mandate to ensure equitable distribution of resources and business opportunities with a nation. This concern resulted in the establishment of policies for ensuring that particular disadvantaged groups of small business in the US acquire a share in accessing federal governments’ contracts.
One of such policies was the allocation of 5% of total contracts awarded by the federal government to women-owned small businesses and an equal share to minority-owned small businesses. These two groups of businesses also possess the freedom to engage in bidding for the remaining 90% stake of contracts awarded to small businesses.
To win a contract in this stake, especially where a small business seeks to bid successfully for the first contract, the paper revealed that women-owned and minority-owned small businesses have to worker harder than their peers do. Working harder encompasses commitment of more financial and time resources in the contracting process.
It also entails spending time and other resources in seeking multiple designations or certifications to enhance the competitiveness of a women-owned business enterprise or minority-owned business enterprises to win the first bid. After winning the bid, such firms acquire an equal ability to contract similar to their peers without necessarily having to work harder.
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Blank, R. (2010). Women-Owned Business in the 21st Century. New York, NY: US Department of Commerce, Economic and Statistics Administration for White House Council on Women and Girls.
Coleman, S. (2005). Constraints Faced by Women Small Business Owners: Evidence from the Data. Journal of Developmental Entrepreneurship, 7(2), 151-174.
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