A Look at Women-Owned Small Business Contracting

The federal government is a huge buyer of goods and services. Each year, about 1 out of every 10 dollars in federal spending goes to contractors, who provide the government with everything from office supplies to fighter jets. By law, 23% of that spending must go to small businesses.

Small business participation in the procurement process supports important public outcomes, like job creation and a robust industrial base. It also benefits small businesses, who earn new sources of revenue.

Yet getting involved in government contracting is an extremely difficult process for small business owners, who frequently say the procurement system is broken and that there is a lack of accountability from agencies and intermediaries.

These and other challenges have resulted in women-owned small businesses earning fewer contracts than would be expected and years of unmet procurement goals.

Women-owned small businesses are underrepresented in federal contracting

Women own about 20% of small employer businesses in the United States, yet the federal government’s goal for women-owned small business procurement is just 5%. According to a Bipartisan Policy Center report, the federal government has only met this small goal twice—in 2015 (5.05%) and 2019 (5.19%)—since it was established in 1994.

The share of contracts that went to women-owned small businesses even declined from FY20 (4.85%) to FY21 (4.63%).

Years the WOSB Goal Was Unmet in the Past Decade

Double counting confuses the picture and makes things look better than they are

While the federal government fell short of the 5% WOSB government-wide contracting goal again in FY21, 75% of agencies (18 out of 24) met the WOSB goal. How is this possible?

The Department of Defense (DoD) is the government’s largest purchaser of contracted goods and services, accounting for more than half of all federal procurement dollars spent annually. When DoD falls short of contracting goals, it is difficult for the government-wide goals to be met.

Another contributing factor is that procurement data is muddled by double counting—a practice that allows agencies to count a contract it awards to multiple contracting goals. That means that when an agency awards a contract to a business owned by a Black woman, for example, it gets to count that contract toward two subcategory goals: the small disadvantaged business goal and the women-owned small business goal.

As highlighted in a recent Bipartisan Policy Center report, $27.1 billion in federal contracts were counted toward the WOSB goal in FY20. Without double counting, that total falls to $26.4 billion. That’s half a billion dollars in small business contracts—a substantial difference for small businesses that could be on the receiving end of those contracts.

A declining number of small businesses, including WOSBs, participate in federal procurement.

In FY21, 83% of agencies awarded fewer prime contracts to women-owned small businesses than they did the year before—contributing to a 6.8% decline in government-wide contracts awarded to small businesses owned by women.

This is further evidence of the long-term trend of a shrinking pool of small business contractors. As outlined in a Bipartisan Policy Center report on procurement, the number of small businesses providing common products and services to the federal government shrank by 38% from 2010 to 2019.

Even when agencies make year-over-year progress toward the goal, they may still fall short. The State Department was one of only six agencies to miss the WOSB goal in FY21, despite making nearly 10% more awards to women-owned small businesses than the year before.

Agencies who missed the goal in 2021

Three Ways to Increase Women-Owned Small Business Contracting

Conversations the Bipartisan Policy Center held with women small business owners participating in the Goldman Sachs 10,000 Small Businesses Voices program yielded an important principle to keep in mind when considering policy reform: Small business contracting should be thought of as a triangle, with each side a stakeholder—and each stakeholder having a responsibility for making it work. The three sides of the triangle are the small business, the contracting officer, and the offices within agencies with budgetary authority.

Improve Communication

The application process to become a government contractor or subcontractor is extremely tedious and takes hours to complete. That is assuming a small business owner even knows where to start. Prioritizing reforms that make procurement information more accessible and communication between the three sides of the triangle more transparent will bring much needed accountability to government contracting.

Expand Onramps

An easier entry point into federal contracting is for small businesses to win contracts under the simplified acquisition threshold. Currently set at $250,000, contracts under this amount are generally reserved for small businesses and are subject to fewer procedural requirements. Raising the threshold would create new opportunities for women-owned small businesses to win federal contracts.

Report True Data

Finally, ending double counting would give policymakers a better picture of actual performance against goals and increase vendor diversity.