Federal Contracting
April 20, 2023

New Studies Show Stunning Lack of Diversity Among Federal Contractors, But There Are Solutions

In 2014, when Google released the first diversity report from a leader in the tech industry, the numbers were shocking. The spotlight on Big Tech’s diversity, equity, inclusion, and belonging (DEIB) gaps soon spread across other companies in the space. And despite efforts to bolster inclusive hiring and promotion practices, studies suggest the gaps today have increased. This we know. What’s less discussed is the equally stunning lack of DEIB among federal contractors, a serious problem recently uncovered in a joint investigation by USA Today and Reveal from The Center for Investigative Reporting. At companies that receive billions of dollars in federal contracts, women and people of color are severely underrepresented. And that’s a problem. But there are plenty of solutions to consider.

Public Sector Contractors Failing to Represent the Public’s Many Faces

In 2020, researchers found that 21 companies receiving more than $3 billion by the federal government, including major defense contractors like Lockheed Martin and pharmaceutical manufacturers such as Moderna, demonstrated tremendous diversity disparities that highlighted how our own tax dollars have unwittingly reinforced gaps in wealth and opportunity for women and people of color. From the authors of the USA Today and Reveal study:

Dr. Joseph Bryant Jr., who leads the Rainbow PUSH Silicon Valley Diversity Project founded by the Rev. Jesse Jackson, said public money should advance equity in the country. 

“Either the government should be giving more money to minority businesses or the government should be giving money to businesses that make diversity and inclusion a priority,” he said. 

Donald Tomaskovic-Devey, who runs the Center for Employment Equity, said making the data public allows people to compare companies and hold them accountable for their hiring practices. He said diversity, equity and inclusion officers also could use the data to benchmark their companies’ performance against competitors.

“The data is the largest trove of corporate diversity information ever made public after a yearslong legal battle by Reveal seeking the reports filed by government contractors each year to the Equal Employment Opportunity Commission,” USA Today and Reveal reported. “It includes more than 19,000 federal contractors. More than 4,000 others have objected, and their information remains in limbo pending further litigation.”

The Problem

Federal contractors are private companies that provide essential services to the government, such as building infrastructure, managing IT systems, and providing consulting services. However, the lack of diversity in federal contractors has far-reaching consequences, including reduced productivity, missed opportunities, and negative impacts on the economy.

According to the Government Accountability Office (GAO), the diversity of the federal contractor workforce is significantly lower than that of the general workforce. In 2019, the GAO reported that out of the top 50 federal contractors, only four were owned by women, and none were owned by people of color. Additionally, a study by the National Urban League found that in 2017, 7.5% of all federal contractors were minority-owned, while 39.7% of all businesses in the United States were minority-owned.

The lack of diversity in federal contractor companies isn’t simply troubling, it’s detrimental to the government, the economy, and the workforce. For one, it means that these companies are missing out on the benefits of a diverse workforce. Studies have shown that diverse teams are more productive, innovative, and effective than homogeneous teams. Additionally, a lack of diversity can lead to a lack of understanding of different perspectives and cultures, which can lead to misunderstandings and missed opportunities.

The lack of diversity in federal contractor companies also has negative impacts on the economy. According to the National Minority Supplier Development Council (NMSDC), minority-owned businesses contribute over $1.4 trillion to the U.S. economy each year. However, if these businesses are not given the opportunity to work as federal contractors, they are missing out on a significant source of revenue and growth. Additionally, the lack of diversity in federal contractors means that taxpayer dollars are not being spent in a way that reflects the diversity of the country.

  • In 2020, the most current data available in the report, only 4% of CEOs of federal contractor companies were women and only 2% were people of color.
  • Only 13% of senior executives at federal contractor companies were women and only 6% were people of color.
  • Only 10% of federal contractor employees were women and only 6% were people of color.

This lack of diversity has a number of negative consequences, including:

  • It limits the pool of talent available to federal contractors.
  • It makes it more difficult for federal contractors to meet the needs of a diverse population.
  • It can lead to discrimination and harassment.
  • It can damage the reputation of the federal government.

Why Is This Happening?

There are a number of reasons for this lack of diversity. Many federal agencies have procurement processes that are biased against small businesses. For example, some agencies require contractors to have a certain amount of experience or to be located in a certain geographic area. These requirements can make it difficult for small businesses, particularly those owned by women or minorities, to compete for federal contracts. 

The byproduct of this has resulted in fewer small businesses participating in federal contracting. As Sarah Treuhaft, Eliza McCullough, Michelle Huang, and Tracey Ross explained in the National Equity Atlas, “In 2020, the federal government spent 26 percent of its contracting budget on small businesses (a total of $145.7 billion), exceeding its goal of 23 percent. Yet, our review of federal data reveals that while the total dollar amount going to small businesses has increased, the number of small businesses doing business with the federal government has plummeted over the past decade. About forty percent fewer small businesses fulfilled federal contracts in 2020 compared with 2010, and every year, fewer and fewer small companies sell their goods and services to the federal government.”

“This dramatic decline in contracting opportunities matters,” the authors emphasized, “because of the outsized role that small businesses—and particularly small businesses owned by people of color—must play in an equitable recovery and economic future.”

Another reason for the lack of diversity is that many federal agencies do not have a strong commitment to diversity. Some agencies do not have any diversity goals or targets, and they do not track their progress on diversity. As a result, they are not held accountable for improving diversity within their contractor workforces.

Without robust DEIB across the federal contracting ecosystem, the federal government is not getting the best possible value for its money. Small businesses, particularly those owned by women or minorities, are often more innovative and efficient than larger businesses. By not awarding more contracts to these businesses, the federal government is missing out on the opportunity to save money and improve the quality of its services.

On a more sweeping scale, the lack of DEIB within federal contractor companies contributes to a lack of diversity in the federal workforce as a whole. When women and minorities are underrepresented in the contractor workforce, they are also underrepresented in the federal workforce. This is a problem because a diverse workforce is essential for the federal government to be effective. A diverse workforce brings a variety of perspectives and experiences to the table, which can help the government to make better decisions and to serve the needs of all Americans.

How Can We Fix It?

So, what can be done to increase diversity in federal contractor companies? There are several solutions that can be implemented to address this problem. Here are a few.

Set Diversity Goals and Metrics

Federal contractors should set goals and metrics for increasing diversity within their companies. These goals should be measurable and should be tied to the company's overall performance. For example, a federal contractor might set a goal to increase the number of minority-owned subcontractors they work with by 10% each year. This goal should be tied to the company's overall performance, and progress towards the goal should be regularly tracked and reported.

Partner with Minority-Owned Businesses

Federal contractors should actively seek out partnerships with minority-owned businesses. This can include subcontracting with minority-owned businesses or partnering with them to bid on contracts together. By partnering with minority-owned businesses, federal contractors can increase their diversity and create opportunities for these businesses to grow and succeed.

Invest in Diversity Training

Federal contractors should invest in diversity training for their employees. This training should be designed to help employees understand the importance of diversity and how to work effectively with people from different backgrounds. The training should also address any unconscious biases that employees may have and provide strategies for overcoming them.

Implement Diversity Hiring Practices

Federal contractors should implement diversity hiring practices to ensure that they are attracting a diverse pool of candidates. This can include posting job openings in places where diverse candidates are more likely to see them and using blind hiring practices to reduce the impact of unconscious biases. Additionally, federal contractors should ensure that their hiring practices are fair and unbiased by regularly reviewing their recruitment and hiring processes.

Hold Federal Contractors Accountable

Finally, the government should hold federal contractors accountable for their diversity practices. This can include requiring federal contractors to report on their diversity metrics and setting penalties for companies that do not meet diversity goals. By holding federal contractors accountable, the government can ensure that taxpayer dollars are being spent in a way that reflects the diversity of the country, and promote a more inclusive and equitable workforce.

Helping the Public Sector Help the Public

By taking these steps, we can help to create a more diverse and inclusive workforce in the federal government. This will benefit everyone by making the government more representative of the American people and by improving the quality of its services.

Photo by Obi - @pixel7propix on Unsplash

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