An Historic Opportunity: Building Wealth for Historically Underutilized Businesses
In collaboration with The James Irvine Foundation and Social Impact Fund
July 23, 2021
With support from the Irvine Foundation, this report proposes changes in historically underutilized business (HUB) procurement policy to close the nation’s racial wealth gap. With at least one large infrastructure measure at the federal level in the offing, the HUB Project provides specific, actionable recommendations to change our country’s paradigm to ensure that a generational investment in infrastructure is also a generational investment in small and minority owned businesses. Our analysis and interim prescriptions focus on the following questions about each relevant challenge for local decision makers:
- To what extent have HUB procurement and equity initiatives succeeded in creating and expanding prime contracts to entrepreneurs of color? Put another way, how have they succeeded in creating wealth for HUBs?
- Why have initiatives to include more HUBs in procurement failed? (i.e., Is it lack of vendors to supply services? Human or financial capital limitations? Institutional inertia? Other structural barriers?)
- Why have initiatives to include more HUBs succeeded?
- Who are the main actors or institutions responsible for implementation of these initiatives from start-to-end of HUB contracting?
Core HUB Challenges
Through interviews with a dozen local procurement and HUB leaders, the HUB team identified the following core challenges, identifying the highest barriers to growing Black and Brown wealth as expanding access to capital and the need to change procurement practices to facilitate prime contracting opportunities for HUBs. The following charts show both the overall HUB challenges as well as a deep dive into HUB challenges with respect to access to capital.
The HUB team proposed reforms to address the identified challenges above. These recommendations are focused on the federal government, with future phases of this effort to focus more explicitly on local public agencies.
- Access to Capital: HUBs cannot access financing for a variety of their business needs. The US Department of Transportation (USDOT) can partner with participating lenders to offer new financial products.
- Direct Contracting: Small and minority owned businesses often do not have access to prime contracts. Direct contracts address this and facilitate business growth.
- Unify Supplier Diversity Efforts: Local procurement practices are often fragmented and increase barriers for HUBs. A unified local effort would alleviate some of this difficulty.
- Raise Existing Cap Limits: Existing net worth caps on definitions for disadvantaged business enterprises are outdated. Raising caps facilitates business growth.
- Burdensome Processes: HUBs often spend a disproportionate amount of time on certification and other processes. Easing these often invasive requirements will allow HUBs to focus more on proposing bids and completing work.
Looking to Next Steps and Local Implementation
As the HUB team evaluated its work and plans for local implementation, the team organized policy changes into three categories: new procedures, new practices, and new programs, each with an increasing level of difficulty to implement. Procedures are lower-effort policy changes, while practices are more complex sets of actions implemented by a single agency, and programs require multi-stakeholder efforts. The figure below shows that the majority of local innovations are practices, followed by procedures and programs.
Using this framework, the HUB team’s next phase will be to work with local public agencies for adoption of these policies, with our first targets being SANDAG (San Diego Council of Governments) and LA Metro. Changes in procurement policy will ensure that as local and state governments deliver projects supported by federal investments, they do so in ways that create a more equitable future, thus supporting wealth building for Black and Brown Americans.