Difficulties That Minority Businesses Face While Bidding for City Contracts

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City contracts can be lucrative for minority businesses by providing a level of revenue that might be difficult to achieve working solely in the private sector. However, to bid successfully might require human and capital resources that are beyond the reach of some minority-owned businesses.

Competition from Larger Contractors

Many city contracts are bid competitively, a process that seeks to obtain the needed goods or services at the lowest price. Minority businesses often must compete for these contracts against larger, more established companies with more resources than typically smaller, minority-owned businesses might have at their disposal. This can thwart the ability of some minority-owned companies to submit lower bids.

Insufficient Capacity

City purchasing officials carefully vet bidders to determine whether they are capable of successfully fulfilling all the terms of the contract. This can include making sure they have sufficient human resources with the relevant expertise, as well as a demonstrated track record of previous work that is similar in size and scope to the project that is out for bid. Despite that cities receiving federal funding are mandated to use “disadvantaged” enterprises -- a category that includes minority-owned businesses -- for certain kinds of contracting activities, the U.S. Government Accountability Office or GAO estimated that less than 7 percent of all fiscal year 2011 contracting dollars was awarded to minority-owned businesses. This is a strong indicator that such businesses might not have the capabilities to successfully implement city contracts.

Inability to Access Working Capital

Contractors are expected to begin conducting the activities set forth in the contract on the start date, yet cities seldom advance payments to contractors. Consequently, businesses must often meet initial start-up expenses from cash on hand and request reimbursement from the city. This can place a financial hardship on minority businesses if they have limited cash reserves and/or difficulty borrowing working capital.

Overcoming Obstacles

If you are a minority business owner and want to pursue city contracts, there are steps you can take to increase your chance for success. 1. Identify appropriate subcontracting opportunities. Many city governments have minority utilization goals. This means that any enterprise doing business with the city must make reasonable efforts to award a specified minimum percentage of contract dollars to minority-owned businesses. Larger companies planning to bid on city contracts will oftentimes use the Legal Notices section of the local newspaper to solicit qualified minority-owned businesses that might be interested in subcontracting on a particular project. You can also attend pre-bid conferences to meet face-to-face with these contractors and let them know your potential interest in partnering as a subcontractor. 2. Consider working smaller. Identify contracting opportunities that won’t require substantial up-front investment and that you can implement with existing resources. 3. Obtain a line of credit. Speak with your business banker about obtaining a line of credit that you can use for working capital purposes. Ideally, this should be done before you actually have a need for the cash. That way, you can speak with more than one bank, if necessary, as well as compare rates and account features and select the one that best meets your particular needs.