Inclusive local procurement

Before making investments in this strategy, city and county leaders should ensure this strategy addresses local needs.

The Urban Institute has developed an indicator framework to help local leaders assess conditions related to upward mobility, identify barriers, and guide investments to address these challenges. These indicator frameworks can serve as a starting point for self-assessment, not as a comprehensive evaluation, and should be complemented by other forms of local knowledge.

The Urban Institute's Upward Mobility Framework identifies a set of key local conditions that shape communities’ ability to advance upward mobility and racial equity. Local leaders can use the Upward Mobility Framework to better understand the factors that improve upward mobility and prioritize areas of focus. Data reports for cities and counties can be created here.

Several indicators in the Upward Mobility Framework may be improved with investments in inclusive procurement. To measure these indicators and determine if investments in these interventions could help, examine the following:

• Opportunities for income: Household income at 20th, 50th, and 80th percentiles. These data are available from the Census Bureau’s American Community Survey.

• Employment opportunities: Ratio of pay on an average job to the cost of living. These data are available from the Bureau of Labor and Statistics’ Quarterly Census of Employment and Wages.

• Access to jobs paying a living wage: Employment-to-population ratio for adults ages 25 to 54. These data are available from the Census Bureau’s American Community Survey and the Bureau of Labor and Statistics’ Local Area Unemployment Statistics.

• Designing a customer service oriented procurement system: Navigating public procurement is often administratively complex. This tends to hurt small and minority- or woman-owned businesses, which lack the specialized capacity to pursue public funds. By reducing administrative barriers, governments can create a more approachable and user-oriented experience for all vendors. Some ways to accomplish this include the adoption of plain language in Requests For Proposals (RFPs), the use of standardized documentation to streamline multi-contract bidding, and the implementation of digital tools that eliminate manual paperwork while accelerating review cycles. Issuing payments within 30 days is central to inclusive, user-oriented procurement because historically underutilized firms and other small businesses, which often lack the cash reserves to operate beyond a month, are disproportionately harmed by the cash flow strain of late payments.
• Programmatic changes for inclusive procurement: Experts recommend several interventions to create more robust and inclusive government procurement systems. Local governments can create Sheltered Markets that limit eligibility for RFPs under a certain value (e.g,. contracts under $1 million) to certified HUBs, small, or locally owned businesses while maintaining competitive bidding. Localities can unbundle contracts by breaking large, complex projects into smaller, separate contracts to make them accessible to smaller firms. While requiring additional staff capacity, unbundling contracts makes public procurement more accessible for HUBs and small firms. Localities can also enact policies that raise the informal bid threshold (e.g., from $50k to $250k) for certified vendors, creating more opportunities for smaller firms to pursue public funds while sparing them the burdensome formal bidding process and streamlining the review process for procurement offices. Additionally, procurement offices should consider "best value" or "results-driven" contracting instead of lowest bidder requirements to allow for higher-quality outcomes and broader social impact. 
• Coordinate procurement across departments: When local governments have highly decentralized procurement systems, each department may develop a different procurement process. Coordinating procurement processes across departments creates a more consistent and navigable experience for vendors and facilitates the sharing of best practices between departments.
• Raising awareness among potential vendors: Business owners from disadvantaged groups often lack awareness of opportunities to pursue government contracts. To address this, procurement officers can publish public procurement forecasts that preview expected business opportunities for the next six months or fiscal year, giving potential vendors more time to prepare their bids. Local governments can further increase vendor participation by building relationships with diverse vendors, often through partnerships with business or civic associations representing specific industries or demographic groups. A dedicated procurement liaison who cultivates connections across a wide range of vendors is often key to successful engagement.
• Technical Assistance (TA) and financial support for businesses: Inclusive procurement programs often feature technical assistance to strengthen the competitiveness of proposals from businesses owned by disadvantaged individuals. To assist vendors, procurement departments can host workshops focused on the RFP process or how to apply for government business certifications. Local governments should leverage "ecosystem partners" such as Chambers of Commerce, the Urban League, or industry associations to build the capacity of local vendors. Financial support from local governments can also help build the capacity of firms to win public solicitations. In states where governments can directly loan money to businesses, support for certified small businesses and HUBs can include providing low-interest loans or grants to help firms overcome financial barriers to pursuing public contracts like acquiring bonding or insurance. 
• Track data on the full contract: Procurement reforms must include data tracking systems alongside digitization or other efficiency upgrades. Staff should monitor process efficiency, such as the time to pay invoices and award contracts to vendors, payment data for subcontractors, and market penetration to ensure reforms attract a wider variety of vendors. Tracking disaggregated data on vendor demographics and size is essential to ensure large firms do not crowd out smaller businesses and that inclusion goals are met.

• Consult directly with historically excluded firms to map the constraints they face: Each community has its own economic environment where disparities have taken root in different ways. To implement more informed and effective procurement reforms, leaders should consult directly with historically excluded firms and organizations representing minority- or women-owned businesses to map the specific constraints they face. Intentional outreach to HUBs can help jurisdictions effectively bridge the capacity gap, empowering firms to successfully compete for and win public funds.
• Adopting accurate categories: Procurement offices should define categories for eligibility in inclusive programs that aren’t too broad, accurately reflect the market, and avoid perpetuating existing economic disparities. For example, 99.9% of US businesses are “small,” leaving many agencies to further differentiate business size by “small” and “micro” businesses. Some agencies require Personal Net Worth statements from certified firms to verify that they are disadvantaged firms. Categories for what defines a disadvantaged business should be transparent. 
• Creating opportunities for business growth: Minority-owned businesses are often clustered in specific sectors, and awards for small or disadvantaged firms tend to be clustered in low-dollar, low-profit sectors, like trucking. In these tight-margin sectors, expanding opportunities by unbundling contracts or raising the value threshold for informal bids, as well as offering multi-year contracts can provide firms with stable revenue and facilitate business growth.
• Tracking data on disparities: Tracking disaggregated data on award winners by business characteristics (e.g., size, local business, woman- or minority-owned status) helps governments understand whether procurement reforms are having their desired effect. Agencies should monitor what types of awards are going to HUBs, local, or small businesses, and the size of those awards in addition to the number of contracts. Tracking disaggregated data helps procurement officials understand which firms are winning bids, and helps officials identify where there is opportunity to increase participation from disadvantaged firms. 
   

• Procurement office staff: Central procurement offices often conduct purchasing for many different agencies. Engaging procurement staff to help them adopt new processes is crucial to the long term success of any procurement reform. 
• Local government departments: Central procurement offices should engage with city agencies that are the biggest purchasers to adopt inclusive processes or pilot inclusive programs. Often these include agencies related to  health and human services, law enforcement, fire departments, and public works.
• Elected officials or Executives: Procurement reforms should involve executive leadership, like mayors, county executives, agency heads, etc. Their involvement ensures political support and sets the tone that organizational change is necessary to enhance performance. 
• IT leaders: Modernizing procurement systems requires IT support to upgrade digital infrastructure. Include IT early in the planning process so they can identify obstacles to updating processes in existing government systems.
• Legal counsel: Engage legal counsel experienced with contract and procurement law early on to ensure inclusive procurement programs include clear legal boundaries, and align with any guard rails established in state or local law.
• Business owners: Outreach and engagement with businesses is essential to plan and implement inclusive procurement reforms. Local governments should engage with business organizations representing specific groups and industries, chambers of commerce, or individual business owners. Financial institutions can also serve as a partner to increase access to capital for disadvantaged businesses.
• Economic and community development organizations: Economic development departments and community-based development organizations often have deep relationships with business communities. Working with these organizations to engage community members can be helpful in building trust. Additional resources and training for businesses to enter and participate in public procurement are available nationwide through Small Business Development Centers (SBDCs) and APEX Accelerators.  

• Buy in from leadership: Political and executive support is essential to initiate procurement reform and drive cross-department collaboration. Strong leadership support across departments facilitates a more predictable, navigable experience for vendors and encourages best-practice sharing. Most importantly, leadership of a government’s procurement office needs to embed inclusive procurement as a priority in their work. This can be accomplished by integrating inclusive procurement into performance evaluations by measuring progress on inclusive procurement as part of agency impact or effectiveness. 
• Analyze the procurement market for a jurisdiction: To make policy decisions about procurement, local officials should conduct a market analysis for different purchasing categories (e.g. IT services, construction, etc.) on the types of vendors, business owners’ demographics, and the average size of vendors. Understanding the size and health of the market within a sector will help procurement officials set realistic goals and ensure their outreach efforts engage vendors who have the capacity to take on public projects. 
• Understand why processes exist: To understand the culture of the procurement office and identify areas for growth, program leaders can conduct an institutional analysis. Recognize that pain points exist for a reason, seek to understand why processes have been developed and adopted. Assume that people are making rational decisions within their context and that inefficient processes are the results of constraints, not incompetence. Encourage people within the procurement office to find points of leverage that make their jobs easier and advance reform goals.
• Investing in staff training and capacity building: Procurement offices typically stick to existing processes, including recycling prior scopes of work and working with vendors who have prior government contracting experience. As leaders seek to reform procurement processes, they should recognize that culture change requires extra time, resources, and accepting failure through experimentation. Some inclusive procurement reforms, like unbundling contracts, require additional labor to administer. Staff will also need additional training to ensure compliance and track data that helps improve operations. To encourage inclusive and innovative practices, staff should have time and support to iterate processes rather than meeting quotas, and initially, the performance of procurement officers should not be tied to contract performance.
• Piloting and scaling new processes: Begin procurement reforms by focusing on one or two programs or departments that purchase the most services (i.e. public works or a human services department) to test reforms in sectors with a large vendor pool. This creates an opportunity to demonstrate impact, identify places for improvement, and train a core team of staff before a jurisdiction-wide rollout. To scale procurement innovations, consider following  a hub and spoke model where a hub of innovation (i.e. the central procurement office) provides norms and expertise to other departments to scale reforms across a government. 

• Timing and efficiency: Timing and efficiency can be assessed by the length of time it takes to award a contract and the "time to pay," which measures the speed of invoice processing. Payment processes should be optimized to ensure that all properly submitted invoices are settled within 30 days or less to maintain vendor cash flow.
• Spending and disaggregated data on vendors/award recipients: Agencies should track spending and disaggregated data on award recipients to identify exactly which businesses are receiving public funds. Agencies should also track payment data on when subcontractors are paid by vendors. This data should be broken down by business typology, including the size of the firm, and the race or ethnicity of the owners. 
• Tracking vendor performance: Procurement offices should monitor aggregate spend, the actual money paid out, and whether vendors require contract modifications if their costs exceed the original contract maximum. Agencies should also track on-time delivery from vendors, measuring the percentage of contracted goods and services delivered on time. 
• Subcontracting: Procurement offices must track the actual dollars paid to subcontractors and compare them against the commitments made by prime contractors at the time of the bid. It is essential to verify whether initial commitments to utilize HUBs and small business subcontractors are actually being met once the project is underway. Offices should require that vendors report payment data to ensure that prime contractors are fulfilling their legal obligations to their subcontractors.
• Market health and utilization: To measure competitiveness and ensure awards are distributed broadly rather than to the same few firms, agencies should track the average number of bids per contract, bidder success rates, and the total number of unique contractors winning work. Agencies should strive to ensure that the utilization of HUBs and small or local businesses mirrors their actual availability within the competitive market. A key metric is measuring the government’s utilization rate of certified businesses by comparing the number of awards against the availability of certain types of vendors in a specific sector. This helps local governments to achieve a more inclusive system where a wider variety of firms win and participate in government work.
• Vendor experience: Collecting survey data on vendor satisfaction provides critical insights into the perceived fairness and accessibility of the procurement process. Vendors should be encouraged to provide feedback on core processes, including payment speed, transparency, and the use of accessible, plain language in paperwork. Agencies should evaluate whether technical assistance was readily available and effective when vendors needed support during the process, especially for new vendors.