A business can spend up to $1.5 million just to participate in a competitive solicitation process over four to 24 months.

A business can spend up to $1.5 million just to participate in a competitive solicitation process over four to 24 months. boonchai wedmakawand / Getty Images

To Advance Equity in Contracting, Make It Easier and Cheaper to Sell to the Public Sector

COMMENTARY | The key to making procurement more inclusive will be to systemically reduce the cost of doing business with public entities—by an order of magnitude.

The Biden administration recently announced the launch of two new platforms aimed at improving equity in federal procurement through the General Services Administration. These tools––the Governmentwide Procurement Equity Tool and the Supplier Base Dashboard—will help agencies identify qualified vendors, track progress toward equity goals and find businesses that are new to the federal marketplace. 

The effort is aimed at helping agencies achieve the federal contract spending goal for small disadvantaged businesses, which has been increased to 15% by 2025 and is in direct alignment with the Biden administration's commitment to advancing racial equity and supporting underserved groups. 

While a well-intentioned first step to make progress on the executive orders signed on the president's first day in office, the key to successfully making procurement more inclusive will lie in systemically reducing the cost of doing business with public entities––by an order of magnitude, not just around the edges. 

Today, the costs of doing business with the government are too high. A business can spend up to $1.5 million just to participate in a competitive solicitation process over four to 24 months. By ruthlessly focusing on reducing these costs, all businesses—especially diverse businesses and those that are new to government contracting—will benefit, which means better services for taxpayers. 

We’ve seen it before with the introduction of the Common Application in higher education: lowering the cost of applying to college for everyone had a significant, disproportionate positive impact on enrollments of historically disadvantaged populations including nonwhite, first-generation, female and low-income students. To support inclusive contracting, governments should take a similar approach and focus on radically reducing friction for all businesses, which will especially benefit small and diverse businesses. 

It’s also worth mentioning that state and local governments account for the lion's share of government spending, with a combined total of around $2 trillion per year. Since this dwarfs the $637 billion spent annually by the federal government, it is crucial for state and local governments to take their own steps towards increasing equity in procurement. Here are three ways governments can reduce the costs of doing business for suppliers.

Make contracts shareable by default. Shareable contracts can go by many names: cooperative contracts, piggyback contracts, and interlocal or intergovernmental contracts. At their core, shareable contracts are agreements created by one public entity through a formal competitive process that another public entity can use to make a purchase. Taking steps to include shareable language in solicitations and contracts can drastically reduce the costs of selling to public entities for businesses, since it’s much less expensive to sell to a public entity using a contract your business has already won than it is to participate in a new solicitation process. Increasing the number of shareable contracts available to public entities will also make working with diverse businesses easier and less expensive for governments, too.

Make diversity-related certifications more interoperable. For disadvantaged businesses, the process of getting certified as a specific business type in order to win government work often introduces additional bureaucratic complexity and expense. Ironically, the very process of accessing credentials designed to favor these businesses can put them at a disadvantage. In addition, even if a supplier achieves one type of certification, this certification may not be recognized by other jurisdictions. Reducing the friction in your entity’s credentialing process, including by recognizing other types of credentials, can help reduce the costs of doing business for disadvantaged businesses.

Simplify the payment process. For many businesses, one of the greatest hurdles isn’t just winning a contract, it’s getting paid on time. Many governments like L.A. County have policies to encourage prompt payment to small businesses, typically within 15 to 30 days of receipt of an invoice. Nevertheless, unreliable or late payments are a massive challenge to small and disadvantaged businesses and can even deter businesses from continuing to work in the public sector altogether. A prompt payment policy is a good start, but it is insufficient; vendors often experience confusion navigating the invoicing process, which triggers the prompt payment requirement. To improve support for small and disadvantaged businesses, local and state governments must systematically remove friction in the payments experience for all suppliers. 

If we are serious about advancing racial equity and supporting underserved groups in the government contracting process, we must take a more dramatic approach to reduce the costs of selling to governments for all suppliers. Taken together, making contracts shareable by default, increasing the interoperability of diversity-related certifications, and simplifying the payment process will massively decrease the costs of doing business with governments for suppliers, and therefore especially benefit small, diverse and non-incumbent suppliers.

Mariel Reed is the co-founder and CEO of Pavilion, a venture-backed marketplace for the $2 trillion public procurement sector. Previously, Reed served as a public servant with the San Francisco Mayor's Office. She was an early employee at Coursera, a venture-backed education technology startup. She graduated from Georgetown University's School of Foreign Service.