The thing about set-asides

In March, Gov. Phil Murphy signed a bill requiring New Jersey school districts to incorporate instruction on diversity and inclusion. Some business leaders wish he’d do the same thing for entrepreneurs. It’s not as though the state has ignored minority business owners, they say. It’s just that the process is so convoluted — at the federal level too — that many small business owners get discouraged.

“There are plenty of minority- and women-owned businesses in New Jersey that can successfully perform state contracts, but New Jersey hasn’t really made it a priority to award the contracts to them,” said John E. Harmon Sr., founder, president and Chief Executive Officer of the African American Chamber of Commerce of New Jersey. “We’ve had discussions with the Murphy administration, but we feel he still needs to make it a priority, so there’s equal representation when state contracts are awarded. For the most part, New Jersey’s public contract preferences favor union labor — which is fine — but when public money is used for contracts, a diverse set of people should have access.”

Some private-sector organizations, like PSE&G “have found a way to bring a number of African-American businesses into their supply chain,” he said, while “some banks have been very responsive, and have helped to fund contracts, and loan and grant programs that benefit diverse communities. But I’d like to see the state step up its own efforts. We’ve tried to get more minority and women firms to get work on state-funded projects, but we have often not been successful in a meaningful way. The taxpayers are signing the checks, but then there’s the same song and dance.”

Sometimes, applying for a set-aside contract can be exhausting, according to Veronica Williams, managing director at ACT Inc., a management consulting and technology services firm. She recalled spending thousands of dollars to bid on a federal “$20 million, multi-year set-aside contract. I took teams of people to Washington, D.C., to make presentations at federal agencies, but I could see the deal was wired for a politically connected company.”

Even if the fix isn’t already in, she added, “Often, as part of the contract bidding process, your firm has to invest in a database or other system — at your own cost — which can price many smaller companies out right at the beginning. Other people may have had a different experience, but I’ve found that it’s often very expensive to jump through the hoops for federal and state contracts.”

There are some advantages to set-aside programs, “since they often involve multi-year contracts, so you’ve got a guaranteed revenue flow,” she noted. “But personally, I’ve had more success in the private sector. I find it’s better to spend my time there.”

Another challenge is that “Set-asides certainly help minorities and others get into government contracting, but they don’t always help them to become sustainable, or to grow their competency,” according to Darold Hamlin a founding partner of the Washington, D.C.-based Emerging Technology Consortium, a group of companies and individuals dedicated to ensuring that the benefits of technology reach all communities.

“Set-asides certainly help minorities and others get into government contracting, but they don’t always help them to become sustainable, or to grow their competency,” cautioned Hamlin, who is working with National Institutes of Health on the “Path to Sustainability Initiative” that’s designed to increase the number of minorities owning next-generation businesses. “Many federal set-aside programs last for nine years, which sounds like a long time, but once you get cast out on your own, some of these firms are unable to sustain themselves.”

Sometimes the problem involves mismatched partners. Hamlin recounts the time he worked on a business development set-aside program that “was designed to link small, disadvantaged businesses in the biomedical arena with HBCUs [Historically Black Colleges and Universities].”

It “wasn’t as successful as we had hoped, because the university didn’t have the necessary business development capacity,” he said. “Also, the grant involved a government agency, and we asked them to identify some companies that would make for a good fit, but we encountered many obstacles in the process. The concept of working with the HBCUs sounded like a win-win proposal — and we worked on it for about three years through 2018 — but it was very disappointing.”

Many set-aside programs have two components, he added: “The first is to qualify, and the second is to work with the government agency to identify procurement opportunities. But there’s a lot of bureaucracy that can discourage many would-be entrepreneurs. Also, the set-aside programs frequently limit the participation to people and businesses that are economically disadvantaged, but the income limits are often set so low that the company likely won’t be able to succeed. If President Biden is serious about bringing out economic and racial equality, he needs to re-examine set-aside programs and the way that the government engages in procurements. Right now, it’s often skewed to a small number of connected vendors who do very well, while many others fall by the wayside.”