MBN USA

June 07, 2024

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Transparency in contracting is more critical than ever

The Biden administration recently announced that it will award $6.1 billion to Micron to manufacture semiconductor chips in the United States. It’s a historic investment, but we won’t know who will get to be a part of that history. Despite the large sum of money Micron received, the company is under no obligation to disclose the business partners it will choose to fulfill its award commitments. This is the history of buying in the United States. It’s contributed to the exclusion of minority-owned businesses for decades and the concentration of wealth among a select few.

In 2021, for the first time in history, the federal government disclosed the racial and ethnic breakdown of business owners that win government contract awards. Now it is time for corporations to do the same. After all, Fortune 500 firms such as Micron and Intel stand to gain the most revenue and valuation from the trillions in taxpayer dollars now flowing thanks to historic federal investment legislation and the market opportunities they create.

Consider the scale of companies like these. The total revenue of the Fortune 500 in 2023 was $18 trillion, or two-thirds of U.S. gross domestic product. Corporate procurement data is hard to come by, but according to a 2016 analysis by Bain and Company, on average, approximately 43% of a firm’s revenues go toward procurement. That means the largest 500 corporations in America have approximately $7.7 trillion in annual purchasing power—more than 10 times that of the federal government.

Soon after President Joe Biden issued an executive order on advancing equity, the federal government revealed that out of a $560 billion contracting budget in fiscal year 2020 for which small businesses were eligible to compete, just over 1.6% (or $9 billion) was awarded to Black-owned small businesses, and a little under 1.8% ($10 billion) to Latino- or Hispanic-owned small businesses.

While the government certainly has hills to climb to tap into the full potential of minority-owned businesses, it is likely that major U.S. corporations have mountains to scale. To achieve minimum contracting parity with the federal government, the Fortune 500 would need to award at least $123 billion in contracts annually to Black-owned businesses, and $137 billion to Latino- or Hispanic-owned businesses. Yet only 39 corporations are in the Billion Dollar Roundtable, comprised of companies that award at least $1 billion annually in contracts to diverse firms. This suggests that the Fortune 500 is far from achieving parity with the government on contracting with minority-owned businesses— excluding millions of top business owners and employees from a robust path to building generational wealth.

Transparency in contracting is more critical than ever. Although corporations made significant financial commitments to the Black community after the Black Lives Matter protests in 2020, a Washington Post analysis revealed that these same companies stand to profit from 90% of these commitments, most of which were loans or investments. Meanwhile, we still do not know to whom they have awarded contracts—and with them, wealth.

The urgency of knowing is greater now that the federal government is investing historic amounts of taxpayer money in infrastructure and advanced manufacturing. To fulfill their contracts and build chip manufacturing plants, Micron and Intel will need to partner with a range of businesses, including construction, IT, banking, security, and even food service firms to feed a growing workforce. The CHIPS and Science Act does have provisions requiring investments in workforce and small business development. But corporate federal award recipients can take a consequential step further by publicly disclosing—by race and ethnicity—who will be their business partners, and the percentage of taxpayer-subsidized wealth they will receive.

Recent attacks on race-conscious business development add to the urgency of making corporate contracting data more transparent. Black and Latino or Hispanic Americans represent approximately 26% of all business owners, and minority-owned firms—including Black, Latino or Hispanic, Asian American, South Asian, and tribal—represent over 30% of all businesses. Following the June 2023 Supreme Court decision that struck down affirmative action in college admissions, the courts have overturned a half-century of precedent in one historic business program after another created to connect marginalized communities to opportunity. We don’t yet know the full impact of these court decisions. But transparency in contracting data—apart from data on access to capital—will allow the country to have an informed conversation about contracting and its financial implications relative to one-third of our country’s self-starters, as well as the broader societal implications.

In fact, disclosure on lending rates by race has been the law of the land since the 1970s, including through the Home Mortgage Disclosure Act. So why not on contracting? After all, loans need to be repaid, while contracts do not.

Too often, the default refrain is that disadvantaged firms need more technical assistance or training. Although important, this shifts responsibility to the entrepreneurs and service providers, rather than acknowledging that the buyers can do more to calibrate demand and expand their networks. The government partners with thousands of top minority-owned firms in technology, finance, engineering, security, etc.—to the tune of nearly $20 billion with Black- and Latino- or Hispanic-owned businesses. But the federal government is just one entity. Imagine what the Fortune 500 could do.

Publishing contracting data disaggregated by race and ethnicity among the Fortune 500 is the new frontier in ensuring that we tap into the full strategic and economic potential of our nation’s innovators. Our country is counting on it.