Minority-owned firms see big jump in Massachusetts state contracts

Minority-owned businesses won contracts worth $217 million from Massachusetts state agencies last year, a jump of more than $50 million from the year before, according to new data from the state’s Supplier Diversity Office.

The data in a new annual report covering fiscal year 2022 — which ended last June — also shows that minority-owned firms received another $133 million in subcontracting and other ancillary work from white contractors working on state projects.

That brings the minority business total to $350 million for the year, or about 5.4% of state contracts. The increase comes as the state made a number of changes to the agency tasked with supplier diversity, giving it more teeth to enforce the commonwealth's goals and creating more tools for agencies to see their own progress.

Gov. Maura Healey on Wednesday touted the increase and told GBH News that her administration is "committed" to doing more.

"Massachusetts is home to so many incredible, diverse businesses that are the backbone of our communities and economy. We are glad that Massachusetts exceeded our goals for supplier diversity last year, with more minority-owned firms winning state contracts than ever before," Healey said in a prepared statement. "Our administration is committed to building on this progress."

Whether or not the state met its goals depends on what contracts are counted. Gov. Charlie Baker's administration had set a goal for state agencies to hire minority-owned firms for 8% of their contract work. Similar to previous years, the Supplier Diversity Office report indicates that the agencies met that goal, because the report includes more than $230 million the state spent with nonprofits led by predominantly minority board members. But in 2021, GBH News surveyed a dozen other states and found only one — Connecticut — that included payments to nonprofits in its annual count of minority contracting totals.

The survey was part of an ongoing GBH News investigation, launched in 2020, called The Color of Public Money. Among other findings, the series showed that the value of government contracts won by minority-owned firms in Massachusetts had declined over the past two decades, and that the state had begun counting other expenditures unrelated to state contracts that obscured the shortfall.

Substantial changes came in November 2020 when Baker announced that he was elevating the Supplier Diversity Office into a standalone agency, giving it new authority and resources to force other state agencies to meet contracting goals. The change also created a new reporting system that distinguishes nonprofit spending from contracts with private businesses.

The new office has allowed for much greater transparency around what the state has achieved. More detailed breakdowns reveal that Black businesses have benefitted more than other groups from the state’s new effort to work with diverse contractors — an effort motivated partly by the racial reckoning that followed the 2020 murder of George Floyd.

For example, in fiscal year 2020, Black-owned businesses won only $11 million in state contracts. Last year, that number rose to $76 million. Hispanic-owned firms saw their share of state contracts rise from $12 million in 2020 to $28 million last year. For Asian American firms, the total rose from $71 million in 2020 to $110 million last year.

Reorganizing the Supplier Diversity Office also led to the creation of a compliance unit that would check and confirm statewide contractors’ claims that they had partnered with diverse firms. Companies getting state contracts are generally directed to meet goals for including minority-owned partners in the work, and they are required to submit reports on their spending. The office said that about one-third of the reports they examined were incorrect, but half of those errors were understating the amount spent with a minority partner, while the other half overstated it. The final totals included in the annual report reflect the corrected amounts.

The state also launched a new online portal where agencies can track their own progress — and their contractors' progress — toward meeting the minority inclusion goals, and connect with certified minority-owned firms that are available to take on work.

Nicole Obi, president and chief executive of the Black Economic Council of Massachusetts, said her group will be closely monitoring the state's effort. The council was a leading advocate of Baker's 2020 strengthening of the Supplier Diversity Office.

"While we are pleased that there has been some progress, there is still a significant amount of improvement to be made in eliminating barriers and ensuring that the state is held accountable for realizing its procurement goals with Black and other diverse businesses," Obi said. "Without transparency on goal-setting and accountability for implementing the necessary changes, the commonwealth will continue to fall short on equitable procurement."

Peter Hurst, who heads the Greater New England Minority Supplier Development Council, agreed new data shows a "positive trend." But he too wants to see more improvements. Part of the problem, he says, is that it's not the Supplier Diversity Office who makes the final procurement decision. Those choices lie with the individual state agencies.

"If you really want to see those numbers improved dramatically so that you're exceeding the goal instead of chasing the goal, what you need to do is push down accountability to the person who's actually making that procurement decision."

Hurst said that some of the work involves a change of mindset. He said people generally think of minority-owned businesses as small companies with limited capacity to fulfill large contracts. But in Massachusetts, he said, there are numerous minority-owned businesses with significant revenues and the capacity to not only fulfill government contracts, but also to mentor smaller firms. He said his council has identified about 150 minority businesses that, together, take in $1.6 billion in revenue.

Helping minority-owned businesses grow is not just an ethical imperative, Hurst said, but it is also the key to economic growth statewide.

"If you can do anything to help reduce the racial wealth gap by supporting minority business development, it inures to the benefit of everyone in the state — Black, white, brown, rich, poor. You know, it makes the economy stronger," he said. "Anything that makes the economy stronger, we all should be supporting."