'Still a struggle.' Owners of NC 'historically underutilized businesses' want more public contracts

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Friday, March 24, 2023
NC minority-owned businesses struggle to earn public contracts
North Carolina classifies a business as a historically underutilized business if it is 51% owned by a minority, woman or disabled individual.

It was in high school that Kristen Hess was first exposed to the barriers she'd face as a woman architect.

"My high school guidance counselor told me that I should not even apply to NC State College of Architecture. It was too hard; I wouldn't get in. My high school principal told me not to become an architect because it's a man's field and there's no point," she remembered.

Fortunately, Hess didn't listen. She became an architect and opened her own firm in 2005.

"Tell me I can't do something and I'll prove you wrong. So why do I keep doing it? Because we have a lot of work to do," she said.

Today, her business, HH Architecture, is the American Institute of Architects North Carolina's firm of the year and is made up of 62% female employees. Around half of the firm's projects are in the public sector, which means competing against other businesses for contracts funded by public tax dollars.

"It's tough to be known when you're an unknown. We're an 18-year-old company competing with firms that are 80 years old," Hess said. "Sometimes it feels like a David and Goliath scenario, but what I can say is that we just go in and give it our all."

It's a similar struggle that many small, and particularly historically underutilized businesses face. North Carolina classifies a business as a historically underutilized business (HUB) if it is 51% owned by a minority, female or disabled individual.

Bridget Wall-Lennon was instrumental in creating the HUB office two decades ago to help the state begin to lessen that burden for these businesses.

"Some of the challenges that we found that these historically underutilized businesses had was having a competitive advantage. You might be a small business firm bidding against a really large more established business firm.

And so it was important to provide an avenue for contracting opportunities but to also do that business development, supportive services to these firms to help them know and understand what the process is for state government procurement," Wall-Lennon said.

Back in 1999, state leaders did set a goal to award 10% of state contracts to HUB vendors. However, that goal hasn't always been met and over the last two decades, the percentage of HUB vendors receiving contracts hasn't altered much, according to North Carolina Department of Administration data.

While the state consistently awards more than 10% of its construction contracts to HUB vendors, the percentage has failed to significantly increase. Around 19% of the contracted dollars for construction went to HUB vendors last year, which is 3% less than a decade ago.

For goods and service contracts, the percentage is even lower. NC DOA data shows the state has never awarded 10% of its goods and services contracts to HUB vendors. HUB vendors won nearly 6% of the money last year, which is much lower than the nearly 9% vendors awarded in 2000 and 2001.

Wall-Lennon said part of the reason a higher percentage of construction contracts are awarded to HUB vendors is because of state legislation that establishes policies and enforcement surrounding contractors making effort to use HUB firms. Goods and services contracts do not have that law, which she said contributes to the lower percentage of dollars going to HUBs.

"It really would be good if we had legislation that would promote the utilization of these HUB firms for the procurement of goods and services," Wall-Lennon said. "I think it would be really instrumental in making sure that we have smaller firms that provide goods and services. Because a lot of times those contracts are just so large that there's no way that you can really be at them and be competitive."

The money allocated to women-owned vendors is even smaller. Just 3% of goods and service contracts and 10% of construction contracts went to women-owned businesses in the 2021-22 fiscal year.

"Everyone pays taxes and the way that the money is doled out to these companies ought to reflect, I feel like, the entire population," Hess said. "Right now that's still a struggle. I think that there's been historic struggles with excluding firms. There's been dismissal or discounting of firms."

Two years ago, an independent study found, "statistically significant underutilization of minority and women-owned firms in all five industry categories of NC State Agency contracting."

The study recommended the state's HUB program strengthen its enforcement authority, require firms to set "good faith efforts" and create standards and a program to help smaller firms.

Wall-Lennon said despite the lack of increase in the percentage of HUB vendors winning state contracts, she believes state leaders are doing a good job.

"In comparison to other states, in the legislation that we do have on the books, the types of outreach that we do have across this state, North Carolina, is probably more advanced in promoting minority-owned business firms," she said.

She also noted that often HUBs don't have the means to bid on some of the larger contracts.

"The bottom line is oftentimes they're looking for a very sharpened pencil that is awarded to whoever has the lowest bid. And so some it's difficult sometimes to out, be it a larger firm who might be able to get their supplies and a lot lower than a small business firm. And so those are some of the challenges that I believe probably have hindered the increase of participation," Wall-Lennon said.

She pointed to positive measures like placing HUB coordinators at universities to offering grant money during the pandemic to offering managerial and technical assistance.

"I just think that it's going to take a little more hands-on for business firms to really know and understand how to be on public sector contracting, but I also think that there has to be an initiative and push on the public sector as part of the leadership to make sure that their procurement, their purchasing agents, their project managers are actively identifying and utilizing minority and women business firms," Wall- Lennon said.

To help increase the number of HUB vendors who succeed, Hess serves on the Governor's Advisory Council on Historically Underutilized Businesses.

"I think it's important that we all push everybody to think about what are the choices they're making and why," she said. "A lot of people want to push the easy button. You know it, we all do; it's safe, but give a new business a chance."

She said networking events and mentorships are some of the ways businesses are working together to foster more success from HUB vendors.

It is resources like this that aided Amy Edge when she first started her business, Active Threat Solutions.

"I always have this self-imposed glass ceiling that I'm constantly hitting my head up against," Edge admitted.

She said being a female entrepreneur has been hard but she is driven by her passion for the impact of her work. Her company distributes defibrillators and trauma medical kits while also providing trauma medical training for law enforcement across the state.

"Entrepreneurship is not a career path. It's a way of life. And sometimes you'll work your heart out for free and you won't make any money. So it's very important that you love what you do," she said.

She does admit entering an industry involving governmental contracts was confusing and a bit daunting at first. But, through a partnership with another company, Edge's company was awarded a state contract.

"I'm very grateful for the state because they have put a lot of money to provide resources for women in businesses. There's the Women Business Center, they have this matchmaking event where they kind of get you in the room with decision-makers," Edge said.

As she works to continue to grow and diversify her business, Edge recommends others take advantage of every resource available and never be afraid to ask for help.

Hess also echoed this advice and hopes more HUB vendors take it so a higher percentage of state funds can be awarded to minority and female-owned businesses.

"We're half the country and we're half the taxpayer base and we deserve to be at the table."

No one from the Office for Historically Underutilized Businesses was available for an interview.

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