Disparities In Government Contracting Hurt Minority ...

The broader term of government contracts – government procurement, simply put, is the process by which public sector organizations acquire goods, services, and works from external suppliers.

Federal procurement spending remained high in fiscal year 2025, totaling about $630 billion. This increase was fueled by economic recovery initiatives, expanded government contracts in areas like research and development, and investments in renewable energy. State and local government spending also saw an uptick, reaching $2.4 trillion as they focused on rebuilding infrastructure and managing the public health crisis.

That’s a significant amount of money in this lucrative industry that many want to join. However, the attractiveness of this field has sparked scrutiny regarding disparities, as studies have shown that not all groups are adequately represented, particularly women and minorities.

Why are There Disparities in Government Contracts?
The persistent disparity in government contracts can be attributed to several factors, starting with the government’s preferred contractors.

Research by Benjamin Rosa, an assistant professor of business economics and public policy at U-M’s Ross School of Business, indicates that while there are efforts to create an equal opportunity for firms from disadvantaged backgrounds to compete for contracts, discrimination may still occur even among these groups.

Rosa’s study highlights that network access is crucial; government agencies and prime contractors tend to favor established firms. As a result, equally qualified but lesser-known disadvantaged firms may be overlooked, and affirmative action policies aimed at supporting these firms may not effectively address these disparities.

These businesses often lack the visibility and networks of larger, established firms, which makes it challenging for them to discover and access contract opportunities.

Next, we must examine the systemic racism present in procurement processes. For instance, a study conducted in 2024 found that New Jersey allocates hundreds of millions of dollars in government contracts each year, predominantly to companies owned by white men. We will explore this study in greater detail in the following sections.

Minority- and women-owned businesses also face significant challenges related to limited access to capital, which hinders their growth and competitiveness in the marketplace. These groups are disproportionately underrepresented in business ownership, particularly among employer businesses that have paid employees, indicating systemic barriers to financial resources.

According to data from the U.S. Commerce Department’s Minority Business Development Agency, minority-owned businesses are less likely to obtain funding compared to white-owned businesses, particularly those with gross receipts under $500,000.

Furthermore, for those minority-led businesses that do receive funding, the average interest rates are higher than those offered to their white-owned peers. This discrepancy arises from biased practices in many traditional banking institutions, which tend to view white-owned businesses as “less risky.”

A study by the National Community Reinvestment Coalition revealed that Black-owned businesses looking for small business loans through Covid-19 programs like the Paycheck Protection Program (PPP) experienced unequal treatment compared to white business owners.

The findings showed that lenders often discouraged Black entrepreneurs from applying for loans while encouraging white business owners to seek multiple loan options. This bias underscores the significant hurdles minorities face in securing financing. The initial rollout of PPP loans disproportionately excluded small and vulnerable businesses, benefiting larger firms instead.

The White House acknowledged that family-owned, women-owned, and minority-owned businesses found it difficult to access PPP due to excessive paperwork and flaws in the program, which exacerbated financing inequalities and marginalized individuals with delinquent student loans or noncitizens.

Businesses in rural areas also encounter similar difficulties in securing funding, further limiting their ability to scale and compete for federal contracts. While programs like the SBA’s 8(a) offer some support through contracting set-asides, many minority- and women-owned firms struggle to access capital outside of these initiatives.

Why do We Need Disparity Studies?
Disparity studies originated from the 1989 U.S. Supreme Court case, City of Richmond v. J. A. Croson Company. In 1983, Richmond required prime construction contractors to allocate 30% of their subcontracting funds to firms with at least 51% minority ownership. However, the Supreme Court struck down the ordinance, arguing that governments could not apply remedies without clear evidence of discrimination.

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