Equity in government contracting: Analyzing the performance of small disadvantaged businesses

• Published date: 01 May 2024
• Author: Benjamin M. Brunjes,Evelyn Rodriguez‐Plesa
• Date: 01 May 2024
• DOI: http://doi.org/10.1111/puar.13704

RESEARCH ARTICLE

Equity in government contracting: Analyzing the performance

of small disadvantaged businesses

Benjamin M. Brunjes

1

| Evelyn Rodriguez-Plesa

2

1

Daniel J. Evans School of Public Policy and

Governance, University of Washington, Seattle,

Washington, USA

2

Department of Public Administration, North

Carolina Central University, Durham,

North Carolina, USA

Correspondence

Benjamin M. Brunjes, Daniel J. Evans School of

Public Policy and Governance, University of

Washington, 4105 George Washington Lane NE,

Parrington Hall 260C, Seattle, WA 98105, USA.

Email: brunjes@uw.edu

Abstract

Set aside programs, which preference disadvantaged businesses, have long been

among the largest government equity programs in the United States. Set asides

ensure government revenues spur economic growth in firms and communities

that have traditionally lacked representation in systems of power. However, there

has been skepticism about whether set aside programs are compatible with the

efficiency objectives of government contracting. Few empirical studies have

assessed the comparative performance of small, disadvantaged businesses and

other firms to determine if there are differences. Using contract level data from

the Federal Procurement Data System: Next Generation, we test whether set aside

contracts are associated with a reduction in the government’s ability to secure

“best value.”We find few performance differences between small, disadvantaged

businesses, and other vendors across a range of goods and services, suggesting

mutual benefits and no outsized risks when governments engage in contracts with

disadvantaged firms.

Practitioner points

•Though government contracts are primarily used to lower costs and improve

the efficiency of government spending and services, public procurement pro-

grams also seek to accomplish equity goals through programs like set asides for

small and disadvantaged businesses.

•There is a longstanding belief that procurement equity programs reduce the effi-

ciency of public procurement, as small and disadvantaged firms may require

more effort to engage in solicitations, require more oversight, and may perform

worse.

•Our findings show small firms do not perform differently than other firms using

six performance measures across 11 commonly procured services in federal con-

tracting. This suggests working with small and disadvantaged firms does not

sacrifice performance efficiency, and that the attainment of both efficiency and

equity is possible in a longstanding public social equity program.

INTRODUCTION

Government contracting has been a cornerstone of public

service delivery since the late 1980s when emphasis was

placed on market-centered approaches to service provi-

sion. This model assumes increased market competition

leads to greater efficiency, in terms of both cost reduction

and performance (Brown II & Kellough, 2020;

Brunjes, 2020; Denhardt, 2004; Osborne & Gaebler, 1992;

Prager, 1994; Savas, 1981; Savas, 2002). As a result, effi-

ciency has been the guiding motivation for most public

procurement activity, undergirding managerial planning

and decision-making.

At the same time, the purchasing power associated

with government contracting leads to externalities beyond

service provision (Hafsa et al., 2021; Rodriguez-Plesa

et al., 2022). These externalities commonly address envi-

ronmental, economic, and social areas of public policy and

administration (Dimand, 2022; Rodriguez-Plesa et al., 2022),

and drive innovation and investment (Brunjes, 2020;Kim

et al., 2016; The White House, 2021a,2021b). Some of

these benefits have been codified, granting preferred

Received: 7 July 2022 Revised: 6 July 2023 Accepted: 10 July 2023

DOI: 10.1111/puar.13704

484 © 2023 American Society for Public Administration. Public Admin Rev. 2024;84:484–499.wileyonlinelibrary.com/journal/puar

status to different types of firms to spur investment in the

advancement of disadvantaged firms (Fairchild et al., 2018).

Social equity contracting addresses disparities that small,

disadvantaged businesses encounter because of existing

market mechanisms, such as high entry costs and volatile

revenue streams. In general, public procurement aiming to

achieve social outcomes focuses on both what is being pur-

chased and who it is being purchased from (Hafsa

et al., 2021). The current research addresses the next step in

social equity contracting: analyzing small, disadvantaged

contractor performance after they win contracts. It does so

by investigating the following research questions:

Are contracting equity programs associated

with a reduction in the government’s ability

to secure “best value?”

Are contracts with small, disadvantaged busi-

nesses more likely to experience perfor-

mance problems than contracts with other

firms?

The analysis focuses specifically on minority-owned busi-

nesses, Black-owned businesses, Alaskan Native Corpora-

tions, and SBA8(a) program participants. These firms

qualify as small, disadvantaged businesses based on a

combination of social and economic factors, established

in the SBA 8(a) program.

Small businesses comprise more than 99.7 percent of

all businesses in the United States (U.S. Small Business

Administration, 2020). Of these, about 18 percent (or 5.7

million firms) are owned by members of historically under-

represented, or disadvantaged, groups. Given their pres-

ence in the market, governments at all levels have

implemented measures to address these disparities. Noting

the economic importance, yet underrepresentation of

small, disadvantaged businesses in federal contracting

awards, the Biden-Harris Administration has initiated

reforms that aim to remove barriers that small, disadvan-

taged business owners face and create opportunities that

will promote “amoreequitableeconomy”(The White

House, 2021a,2021b). The Biden-Harris Administration

reforms to increase contract dollars awarded to small, dis-

advantaged businesses (SDBs) include raising the percent-

age of contracting dollars awarded to SDBs and increasing

transparency of federal contract awards (The White House,

2021a,2021b). Other initiatives have been instituted by the

Small Business Administration (SBA) under previous admin-

istrations with a focus on small businesses. For example,

during the Trump Administration, the SBA “expanded its

approved lenders”so that small businesses have greater

access to capital (U.S. Small Business Administration, 2020).

The Small Business Jobs Act of 2010 (Public Law 111–240)

and the National Defense Authorization Act for Fiscal Year

2013 (Public Law 112–239), signed into law by President

Barack Obama, also provide support for small, disadvan-

taged businesses, serving as vehicles to increase

opportunities for them in the Federal marketplace

(Congress.gov, 2010; Regulation.gov, 2020).

To implement contracting equity programs, the US

Small Business Administration works with federal agencies

to set procurement equity goals. The SBA also reviews pro-

gress toward these goals annually and works with agencies

to adjust goals as needed and implement corrective

actions. Across the federal government, the overall goal for

spending with small, disadvantaged businesses for FY22 is

11 percent of prime contract awards and 5 percent of sub-

contract awards. Other protected classes also have speci-

fied prime contract award goals.

1

These procurement

equity initiatives are met with varying degrees of success.

For example, in recent years, the federal government has

fallen short of its goals for women-owned businesses and

HUBZone firms but has been able to regularly meet its

overall spending goals with small and small, disadvantaged

businesses (The White House, 2021a,2021b). State and

local governments, as well as governments in other

nations, have similar types of procurement equity pro-

grams and have also met with mixed success (Fairchild

et al., 2018). Investing in small and small, disadvantaged

businesses through contracts has been a priority for many

US presidents and other political actors around the nation.

Globally, small businesses face similar barriers as small,

disadvantaged businesses in the United States. For exam-

ple, in Europe, small and medium-sized enterprises (SMEs)

have challenges in accessing capital and hiring skilled

workers, and face “excessive regulations and administra-

tive burdens”(European Union, 2019, p. 1). Initiatives to

address these challenges implemented by the European

Union include: Small Business Act (2008), Agenda of the

European Union 2020—Toward an Inclusive, Sm art and

Sustainable Europe of Diverse Regions (2011), an action to

improve access to finance for SMEs (2011), smart regula-

tion responding to the needs of small and medium sized

enterprises (2013), upgrading the Single Market to provide

more opportunities for people and businesses (2015)

(European Union, 2019). In Korea, the Ministry of SMEs and

Startups has programs in place to assist SMEs become

more competitive in the market by supporting overall busi-

ness growth, helping business start-ups turn ideas into

businesses, and supporting micro enterprises (Ministry of

SMEs and Startups, n.d.). Similar procurement equity pro-

grams exist in other nations as well (Thai, 2015), suggesting

equity is an important consideration for government con-

tracting around the world.

In the United States, reforms such as those cham-

pioned by the Biden-Harris Administration aim to instill

social equity into common contracting practices. Yet,

efforts to promote social equity are often met with skepti-

cism, as critics hold equity goals will increase costs and

possibly reduce the value that governments are able to

attain through contracts (Athey et al., 2013;Denes,1997;

Kashin et al., 2020). Such critiques often assert that small,

disadvantaged firms lack the capacity to perform as well as

other firms, and thus are more likely riskier contractors

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