A consultant told the Little Rock Board of Directors recently that officials ought to consider pursuing a business certification program in an effort to support small firms with city contracts following the adoption of a new state law that bars affirmative action-style initiatives.
While the consulting firm was engaged in a study, Arkansas lawmakers approved Act 116, which prohibits discrimination or preferential treatment by government entities in employment, public education and procurement on the basis of “race, sex, color, ethnicity, or national origin.”
Act 116 took effect in August. It contains certain carve-outs, including for any preference shown to veterans as well as the consideration of “bona fide qualifications based on sex that are reasonably necessary to the normal functions” of employment, public education or procurement.
The recommended certification program would be race- and gender-neutral and instead target firms’ annual revenue, Sameer Bawa, the managing director of Denver-based BBC Research & Consulting, told the Board of Directors on Tuesday.
In December 2023, the board authorized a contract for BBC Research & Consulting to conduct the disparity study in exchange for up to approximately $430,026, plus any taxes and fees. The figure included a 10% contingency.
The study would determine if there was a legal need to create minority- or woman-owned business enterprise programs “to provide the maximum practicable opportunity for increased participation in City contracts,” board documents said at the time. “Such businesses are underrepresented and it is paramount to ensure that City contracting practices do not discriminate in employment and services when the City procures goods and services from the private sector.”
The study was designed to assess whether any disparities exist in the participation of small or disadvantaged businesses with regard to city contracts relative to their availability to do the work, Bawa said on Tuesday.
The approval of Act 116 did not affect the researchers’ analysis, but it did impact some recommendations and guidance on how the city can use the information and develop new contracting inclusion efforts, Bawa said.
The team examined $160 million worth of prime contracts, subcontracts and procurements that the city awarded during the period from 2019 through 2023. Of those dollars, 88% went to businesses not owned by people of color or women, he said.
Black-owned businesses received 6% of the total spending, Hispanic-owned businesses received 3% and Asian-owned businesses received 0.5%. Businesses owned by white women received 2% of the total.
Businesses owned by Native Americans or people who identify as Middle Eastern or North African did not receive any city dollars during the study period, or at least not enough to register as a percentage of the total, Bawa said.
Based on a survey of the businesses available for city work in a six-county area around Little Rock, all of the groups that were examined fell in what Bawa described as a zone of “substantial disparity” with regard to contracting dollars.
For every $1 that one would expect them to receive, businesses owned by white women received 15 cents. Additionally, Asian-owned businesses received 30 cents, Black-owned businesses received 63 cents and Hispanic-owned businesses received 50 cents, board members were told.
Bawa focused on Tuesday on one recommendation in particular from the study: that the city pursue a small local business enterprise certification program.
A tiered system would identify one category of businesses earning up to $500,000 in annual revenue and another category of those earning between $500,000 and $3 million. The city could then use subcontracting goals or set-asides for certain small contracts to target businesses within those tiers, according to Bawa.
The city also could implement a location component to the certification for businesses within the six-county area, he said.
The new state law makes clear that officials cannot base decisions on the race or gender of a business owner, but race- and gender-neutral measures — essentially, measures focused on small businesses — are often “perfunctory,” Bawa said in response to City Director Antwan Phillips.
Cities can “tailor those programs in such a way where it’s still race- and gender-neutral, but you are targeting businesses that need the support,” Bawa said. “And those are gonna be businesses owned by white men, those are gonna be businesses owned by people of color and businesses owned by women. But it improves the program because of its targeted nature.”
By way of example, a typical small business program that relies on U.S. Small Business Administration standards to determine which firms are eligible might allow a business earning up to $45 million annually to qualify in certain situations, Bawa said.
In Little Rock, the disparity study found that 85% of businesses make less than $3 million per year, and the percentage is even larger when only considering businesses owned by people of color and women, he said.
During the meeting, Mayor Frank Scott Jr. noted at one point that, when he took office in 2019, the city’s annual spending with minority-owned businesses was around 8-11% compared with 17-30% today, depending on the year.
