(co-authored with Benjamin Weiser, Elijah E. Davis and Victoria Orozco)

There’s been much talk of federal spending this year. Two of us have written on the flow of federal resources, and how locals prepare for major shifts. As we have noted, a critical part of federal funding flows through public procurement, in addition to federal entitlements and programs.

Frankly, procurement writ large forms a substantial part of the economy, touching every geography via federal, state, and local purchasing, in addition to procurement by corporations and nonprofit institutions. While it is difficult to say with certainty how spending patterns will shift in public procurement, the magnitude will continue to be immense and unmatched.

In a field of its own, the federal government has enormous purchasing power and uses it to drive innovation and make markets; because of this, the federal government — when serving as a buyer — acts as a proxy for the next economy. Federal procurement drove the innovations that led to the creation of things like the internet, GPS, and semiconductors, and more recently mRNA vaccines through Operation Warp Speed. Beyond making the markets that drive innovation in these spaces, federal procurement also shapes the spatial distribution of supply chains — by supporting R&D activities through universities and national laboratories, as well as industrial development.

Procurement is a vehicle used to deliver goods and services and a capital tool to underwrite large scale investments in industry and infrastructure. More broadly speaking, government purchasing power can be an economic driver. Earlier this year, two of us noted that a critical component to any assessment and strategic response to federal retrenchment is understanding a region’s distinctive comparative advantages. Those advantages — like hosting federal assets, research hubs, large production facilities, or critical infrastructure — shape the spatial distribution/geographic flows of this buying power.

But to recognize public procurement’s potential for business building, there needs to be a paradigmatic shift in how economic development practitioners and buyers look at procurement.

Considering the federal largesse during and following the pandemic over the last five years, Drexel University’s Nowak Metro Finance Lab developed Procurement Playbooks to define a modern strategy for business building that is grounded in a community’s authentic assets and oriented toward the next economy. The Aspen Institute Latinos and Society Program was critical in the evolution of this product.

The latest in this generation of Procurement Playbooks is Supply California, a partnership with the Latino Community Foundation, led by former Mayor of San Antonio and HUD Secretary Julian Castro, in furtherance of their commitment to advancing economic justice and building a more inclusive and equitable economy. Supply California is focused on defining the State’s starting point, opportunities, and strategies for growing Latino-owned businesses across the state.

Defining the Procurement Playbook

The Procurement Playbook builds on decades of efforts to use public procurement as a lever for inclusive business growth and community wealth-building. Since the 1970s, local leaders have worked to diversify and grow local vendor bases, often guided by the “parity or disparity ratio”—the idea that a region’s business ownership should reflect its residential demographics.[1] A landmark example came from Atlanta’s first Black mayor, Maynard Jackson, who implemented a 20—25% minority business enterprise (MBE) requirement for airport construction contracts, increasing MBE participation from 1% to 39% in just five years, and creating opportunities for Black and minority-owned businesses, like H.J. Russell & Company, to compete, perform, and scale. Inspired by such successes, Congressman Parren Mitchell advanced federal Disadvantaged Business Enterprise (DBE) programs that now apply to federally funded projects nationwide. However, landmark legal decisions like City of Richmond v. Croson and the SAFFA ruling have since curtailed affirmative action efforts in public contracting, requiring public agencies to conduct disparity studies before setting contracting goals—entrenching a demand-side focus in procurement reform.

In contrast, our Procurement Playbook approach is firmly supply-side and ecosystem-centered, focusing on the capacity and growth of firms themselves. We use a three-part diagnostic to size the procurement economy, assess firm participation, and evaluate the ecosystem of support. This framework shifts the lens from compliance to business-building, guiding interventions by governments, business chambers, financial institutions, and entrepreneurial support organizations. Over the past five years, we’ve applied and refined this methodology with key partners in regions including El Paso, San Antonio, Philadelphia, Camden, Maryland, and California. Across these places, we find constants:

• federal procurement remains a dominant driver of local markets;

• regional sector strengths shape vendor opportunity; and

• supplier development must be tailored to both firm stage and industry.

Procurement, when viewed through this firm-centric lens, becomes a platform for long-term economic transformation.

Different stakeholders have leveraged the playbooks to the same ends by distinct means. In Maryland, Governor Moore and Comptroller Lierman have used the Procurement Playbook to inform the State’s procurement reform efforts, looking to simplify procurement processes and provide greater opportunities for state-based businesses in all forms of public procurement. In San Antonio, local leaders — including former Mayor and HUD Secretary Henry Cisneros and Congressman Joaquin Castro — have launched Supply SA which serves as a hub for convening public buyers, hosting supplier development events and resources, and coordinating regional efforts to promote local businesses.

In California — tremendous opportunities abound, with the Olympics and budding investments, as well as the need for small business support in the aftermath of the January wildfires.

The Supply California Playbook

California represents a unique opportunity. In 2024, the State’s GDP surpassed Japan’s, making it the fourth-largest economy in the world, and California is home to 4 of the 10 U.S. metros with the highest concentration of Latino-owned businesses (LOBs). Direct federal spending in California to vendors totals $71 billion. However, despite California’s Latino population, only 2% of federal contracts are captured by LOBs.

This spending is largely oriented towards R&D and manufacturing — future oriented sectors that will continue to grow and be driven by public and private dollars. Manufacturing and R&D investments favor regional innovation ecosystems and the co-location of supplier firms with strong anchor institutions. Industrial development of this nature can transform and level up regional economies.

LOBs, like GLASS, an e-commerce infrastructure company bringing innovation to how governments purchase goods and services and CG Moving Company, a logistics firm with commercial, residential and governmental clients, are positioned to grow and succeed in California. Our analysis identifies over 4,000 Latino-owned businesses in California that have considered contracting opportunities, including 2,900 that have registered to compete for contracts but not yet won one. These firms are at different stages in their growth journey and thus have different needs. With robust, targeted support, these firms can be more competitive for federal contracts and scale, catalyzing regional growth through procurement capture.

California’s procurement strategy must reflect the reality of regional variances and ensure that efforts to support business-building are grounded in regional strengths and assets, as well as identified sectoral opportunities. The State and constituent regions must invest in the economy of tomorrow, not the economy of the past, to ensure that the State’s Latino business community, and economy writ large, can continue to grow. 

Progress here requires catalyzing competitiveness through sector-aligned and procurement-oriented business building. It requires an infrastructure that deepens business support and capital access that are bespoke for firm stages and sectors — an approach that we expound in the Ready-to-Scale Framework in the playbook.

California has the diversity, scale, and entrepreneurial talent to lead in this shift, but it will require bold action from regional and state actors, entrepreneurial support organizations, chambers of commerce, capital providers, and others to drive forth the innovation and ecosystem needed to empower Latino-owned firms and other emerging vendors.

What We’ve Learned and Where the Field Should Head

Federal procurement policy is entering a new era. Marked by rollbacks on race-conscious contracting and the erosion of diversity initiatives such as the recession of Biden administration’s DEI-focused executive orders, the Department of Transportation’s looming overhaul of its DBE program, and the SBA’s contraction of prime contracting goals for small businesses, policy developments signal a shift that demands a new strategic playbook for supplier development.

Across our playbooks — from Supply Philly to Supply California — we have consistently found that the firms best positioned to scale are those with flexible and growth financing, peer networks, market access, and appropriate alignment with strategic sectors. Along with a tight understanding of ready-to-scale firms, business support ecosystems should be collaborate to provide an accessible ladder of sector-specific support for construction and next economy supplier firms.

Emerging Approaches

Intermediaries are refining approaches to capital access and business support. In Philadelphia, the Grow Philadelphia Fund, led in part by The Enterprise Center (TEC), is a sector-specific, supplier finance product, offering working capital and contract financing tailored to small businesses serving public clients. Additionally, TEC, after engaging entrepreneurs across several cities in the country, is launching a first-of-its-kind Center for Capital and Investment, which is a new model of advisory services for small businesses, particularly those who have been traditionally excluded from growth industries and capital. Also in Philadelphia, the collaborative Supply PHL initiative is a hub-and-spoke model comprised of the Urban League of Philadelphia, The Economy League’s PAGE initiative and TEC to support business back-office services, reduce barriers to bidding, and coordinate business services to firms in the construction industry and public contracting.

In St. Louis, MobilizeSTL, in partnership with Rise CDFI, provides bridge financing to contractors and suppliers at a low interest rate, a small business-friendly alternative to the often-expensive tertiary market. In California, Merriweather & Williams’ Contractor Development and Bonding Assistance Program (CDBAP) provides integrated capital — bonding and business services — that has enabled local, women and minority-owned firms to bid on over $1 billion in public works construction and complete work with a less than 1% default rate.

In Detroit, the Motor City Contractor Fund, a collaborative effort among Detroit’s CDFIs, is helping local construction firms grow their financial capacity and operational efficiency through contractor-focused lending and industry-specific assistance to compete for infrastructure and construction projects. In Maryland, the Veteran’s Institute for Procurement in Montgomery County, Prince George’s County Economic Development Corporation’s Procurement 360, Prince George’s County Chamber of Commerce’ Equity in Procurement, and John Hopkins’ BLocal BUILD College in Baltimore show how institutional partnerships, procurement-relevant content, market access, and tailored business services can build supplier capacity at scale.

A New Localism Approach to Supplier Development

As the Lab wrote a few years ago in Big Ideas for Small Business, and in this newsletter, the business support ecosystem needs wholesale reform. From our findings across geographies, we propose a set of actionable moves for supplier development and business-building:

• Conduct firm-centric diagnostics: Regions should know their starting point. That means knowing the firms, assets, and levels of direct federal spending in your market so that economic and business ecosystem development investments can be aligned with targeted, sector-specific, business-building.

• Seek the scalars: Business support ecosystems should target, recruit and be proactive with firms which are Procurement Starters and those which are Ready-to-Scale. Growing firms interviewed in our reports indicated that access to capital, relationships with buyers and primes, and accurate information were critical elements to procurement. In the Supply California Playbook, our analysis shows that 41.7% of Latino-owned firms securing major prime federal contracts were 8(a) Business Development Program certified, and many firms interviewed reported that the Mentor-Protege program as helpful to scaling their business. Ecosystems should expand the peer and professional networks of firms entering the procurement market with experienced firms for organic mentorship and collaboration opportunities. Additionally, buyers should embrace streamlined, transparent, and tech-enabled solutions for sourcing and purchasing

• Organize a firm-centric ladder of capital: Regional banks, community banks, CDFIs, and philanthropies have a critical role to play in expanding the product type and small business capital availability in the region, a call to action echoed in the National Association for Latino Asset Building’s (NALCAB) Latino-led CDFI report, also commissioned by the Latino Community Foundation. We find that firms able to scale in the procurement economy, across industries, have access to lines of credit and other flexible working capital sources to scale up, cushion for “slow pay,” and fulfill contracts.

• Scale 1:1 expertise and relevant content: Localities should supplement Small Business Development Centers (SBDCs) and APEX Accelerators to increase firm awareness, impact, and reduce service overload. Based on a review of program outcomes across the generations of playbooks, cohort-style programs or business service models should focus training and networking on the things most important to doing business —such as forecasting, bid preparation, bonding/working capital, sales, compliance and HR.

Closing thoughts

Focusing on a business-building approach in procurement does not mean ignoring the realities of the political environment we find ourselves in, but rather it is a means by which local and regional leaders can come together to support their communities from the ground up. Small and local businesses provide vast benefits — they drive competition, create jobs and wealth, further innovation, and strengthen community identities.

Supply California should serve as a call to action in California, and for others to reflect on the role and power of procurement. By reshaping the approach to procurement and business building, community and regional leaders can work together to support their local economies amidst the transition to the new economic order.

[1] https://www.mbda.gov/sites/default/files/migrated/files-attachments/webinar_011817_DisparityStudy.pdf

Bruce Katz is the Founding Director of the Nowak Metro Finance Lab at Drexel University. Benjamin Weiser and Elijah E. Davis are Research Officers at the Nowak Lab. Victoria Orozco is the Founder of the Punto Labs.