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Multicultural Enterprises Closing the Gap, Increasing Success

American Express OPENA Research Summary for the American Express OPEN for Government Contracts Program

Federal contract spending has declined in recent years. It amounted to $517 billion in fiscal year (FY) 2012, which is down $35 billion (6%) since FY2009.[1] During this time, however, spending with minority-owned firms has held firm. In FY2012, contract spending with small disadvantaged businesses (SDBs, the majority of which are minority-owned firms) amounted to $32.3 billion, 8% of the total spending – which exceeds the government’s 5% SDB procurement goal.[2]

American Express OPEN is the only company to commission a comprehensive report on the small business government contracting landscape.  Now in its third year, this fact sheet focuses specifically on trends in federal contracting among minority-owned businesses.

KEY FINDINGS

  •  Minority business owners invest more time and money seeking federal contracts than do all active small business contractors – $143,356 in 2012 compared to $128,628 among all small firms.
  •  Minority contractors are increasing their contract performance activity, fulfilling an average 3.2 contracts compared to 2.2 among non-minority contractors. They also report a higher level of contracting activity now compared to five years ago: 39% of minority contractors have increased their contract activity, compared to 29% of non-minority contractors.
  •  Minority small business contractors – most particularly African American and Latino contractors – are more likely than average to leverage the designations and certifications that are available to them.

Minority business owners invest more time and money seeking federal contracts

In 2012, minority business owners invested an average $143,356 seeking federal procurement opportunities – a figure that is 11% higher than the amount invested by all active small business contractors ($128,638) – and 32% higher than the investment minority contractors made three years prior in 2009. However, because non-minority-owned firms have seen a 55% increase in their procurement investment, the investment gap between minority and non-minority firms has declined over the past three years.A look at the three most populous minority groups finds that Hispanic contractors areinvesting the largest amount seeking procurement opportunities: $154,842 in 2012, followed by Asian American contractors at $141,284 and African American contractors at $110,530.

As with all active small business contractors, bidding activity has declined for minority contractors in the face of declining contract spending, yet success rates remain on par with the national average. Between 2010 and 2012, minority business owners submitted 5.7 prime contract bids and participated in 3.9 bids as a subcontractor – down 79% and 60%, respectively, from the 2007-09 period. This decline is statistically similar to the overall decline among all small firm contractors.

The success rates comparing the number of contracts performed on versus the number of bids submitted over a three-year period – remain strong, and are in line with averages among all active small business contractors. The prime contracting success rate for minority business owners is 51%, while the subcontracting success rate is 81%. The similarity between all minorities and all small firms masks some interesting subgroup differences, however. The prime contracting average among Asian American contractors is 69.4% – well above average – while the average among African Americans is 4.2% – well below average. With respect to subcontracting, however, African Americans are on par (90.7%) while Asian Americans have a lower batting average (48.5%).

Minority contractors are increasing their contract performance activity

On average, minority contractors are performing on 3.2 contracts at the present time, modestly more than the 2.2 contracts being performed on by non-minority contractors. This statistically significant difference is being driven by a higher level of activity among African American contractors, who are performing on 3.6 contracts (most as the prime contractor, but African Americans are more likely than other contractors to either subcontract out a portion of their contract performance to others or to be performing as a part of a teaming arrangement). Their greater than average utilization of teaming may be why their total number of active contracts is somewhat higher than average.  Both Asian American (performing on 2.9 contracts) and Hispanic (2.5 contracts) businesses are much closer to the national average of 2.5 active contracts. 

A higher share of minority business owners (39%) than non-minority owners (29%) say they are performing on more contracts today compared to five years ago. This difference is being fueled by Asian American and Hispanic contractors – a 52% majority of each state that they are busier now than they were in 2008. Overall, 32% of active small business contractors say they are performing on more contracts today than five years ago, 21% are less active today, 24% say it’s about the same, and 24% say they entered the federal procurement marketplace within the past five years.

Minority small business contractors are more likely to leverage designations and certifications

A majority (86%) of active minority small business contractors have at least one of ten tested government certifications, compared to a much lower 68% of non-minority contractors. Among minority contractors, African American contractors are most likely to avail themselves of at least one certification: 97% have done so. In comparison, 89% of Hispanic contractors have obtained one or more certifications, while 76% of Asian American contractors have done so.

The top three certifications among all contractors are getting on the GSA schedule (27% have done so), self-certifying as a woman-owned small business (24%), and self-certifying as a minority-owned business (21%). Among minority-owned firms, 52% have self-certified as a minority-owned firm, 34% are on the GSA schedule, and 29% have self-certified as a woman-owned small business.

There are three certifications that have proven to be much more helpful for minority business owners than for the average active small business contractor: being in a HUB zone, being certified as a veteran-owned firm, and being certified as a woman-owned small business (WOSB). In each case, a significantly greater share of minority business owners says that the certification has been very or extremely useful to them. In the case of being in a HUB zone, 57% of minority contractors compared to just 33% of non-minorities say it has been useful. Veteran status has been very or extremely helpful to 53% of minority business owners but just 33% of non-minorities. And 47% of minority women business owners have found the WOSB certification helpful, compared to just 30% of non-minority women.

Survey Methodology

A total of 684 small business owners responded to an online survey fielded in February and March of 2013. The survey population is randomly drawn and representative of small businesses that are active federal contractors, defined as small businesses that are either currently performing on a federal contract as a prime contractor or subcontractor, or that have performed on a federal contract within the past five years. These business owners are a specialized population: they own small businesses that are contained in the Federal Procurement Data System (FPDS) and are registered on the System for Award Management (SAM) database.

Small businesses, as defined in this survey and report, are derived from the federal government’s size standards: procurement-focused definitions of “small,” which vary by industry (either by revenue or employment) and are defined by the US Small Business Administration. In this environment, a small firm can employ more than 500 people and generate more than $1 million in revenue, because their baseline of comparison (and competitors) in a given industry may be very large, publicly-traded corporations.

The survey is thus representative of all active small business contractors in the federal procurement system, but is not nationally representative of all small businesses. The sampling error for a survey of this size (N=684) is +/- 3.5%, and is higher when analyzing sub-populations (for example, +/- 6.9% when examining findings among all multicultural enterprises). This means that, 95 times out of 100, the survey findings will be within those ranges compared to true population values.

This report was prepared for American Express OPEN by Womenable, a research, program and policy development consultancy whose mission is to improve the environment for women-owned businesses worldwide. Womenable pursues this mission by working with the stewards of women's entrepreneurship around the world – policy makers, multi-lateral organizations, corporate decision makers, entrepreneurial support organizations and the women's business community – to evaluate, implement and improve policies and programs to support women's enterprise development. Learn more at womenable.com.

About American Express

American Express is a global services company, providing customers with access to products, insights and experiences that enrich lives and build business success. Learn more at americanexpress.com and connect with us on facebook.com/americanexpress, foursquare.com/americanexpresslinkedin.com/company/american-express, twitter.com/americanexpress, andyoutube.com/americanexpress

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[1] See usaspending.gov (click on spending trends, then list view) and smallbusiness.data.gov (choose the desired fiscal year on the home screen) for additional information. Data as of August 2013.

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