The White House announced Dec. 2 that it will order federal agencies to direct 11 percent of government spending contracts to minority and underserved small businesses next year at more than twice the current level.
The 11 percent increase goes well beyond the 5 percent mandated by law.
This announcement is a step toward the Biden administration’s goal of having minority-owned small businesses receive 15 percent of all Federal contracts by 2025 in order to boost racial equity.
Small disadvantaged businesses (SDB) are covered under a category of federal law in which minority-owned small businesses receive priority for government contracts.
The White House expects that it will shift “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,” said the White House, and that “increasing federal spending with underserved businesses not only helps more Americans realize their entrepreneurial dreams, but also narrows persistent wealth disparities.”
The Biden White House’s Small Business Administration report shows that black, Hispanic, American Indian, Native Alaskan, female, and rural business owners remain underrepresented in proportion to the rest of the population.
“Based on data provided by the Small Business Administration, differences in business ownership account for 20 percent of the wealth gap between average white and black households,” said the White House.
The report also found that the number of new small business entrants to federal procurement decreased by 60 percent over the past decade. “This trend is directly at odds with the Administration’s equity goals and not only means fewer growth opportunities for small businesses, but weakened diversity and resilience of the federal supplier base, according to the White House.
“President Biden is committed to leveraging every tool available to him and helping level the playing field for small and underserved businesses … as a way to narrow the racial wealth gap,” said a senior administration official to Reuters.
The official said the federal government is the single largest buyer of goods and services in the world with $600 billion a year and that the “Federal government can be a powerful driver of equity and wealth building in underserved communities.”
The White House said it will release for the first time, disaggregated data of federal contract spending by business owner race/ethnicity to improve transparency.
Major changes will be made to the government’s use of “category management” to boost contracting opportunities for underserved small businesses in order to raise the number of new entrants to the federal marketplace and reverse declines in the small business supplier base.
The Biden administration says that it will enforce its small business goals by holding agency leaders accountable for making their projected targets and by having them report directly to senior officials.