Inclusive Contracting Can Produce Essential Infrastructure

A Changing Climate Means A Changing Society. The Island Press Urban Resilience Project, Supported By The Kresge Foundation And The JPB Foundation, Is Committed To A Greener, Fairer Future.​ This Article Was Originally Published September 20, 2018 In Governing.

For decades, many state and local officials have thought that they had to choose between developing their economies and protecting the environment. But the reality is that we have an opportunity to do both, creating jobs in struggling communities while building green, resilient 21st-century infrastructure. To make that happen, though, we need the right contracting and procurement policies in place.

The litany of challenges is familiar. Our infrastructure is deteriorating, just as climate change places new stresses on our aging roads, dams, sewer systems and power plants. And the much-vaunted economic recovery has left too many people behind, especially in communities of color.

State and local governments play an increasingly important role in infrastructure construction. Each year, they spend at least $250 billion on public infrastructure, including transportation, energy and water/sewer system upgrades. But a recent report by the Emerald Cities Collaborative and PolicyLink shows that infrastructure spending will not automatically "lift all boats," especially in historically marginalized communities.

The report highlights the multi-layered challenges that minority-, women-, disadvantaged- and veteran-owned business enterprises (or MWDVBEs) face in competing for infrastructure contracts. To overcome those challenges, governments must be purposeful about connecting local and underrepresented businesses to economic opportunities. That's where inclusive procurement and contracting comes in.

Of course, there is no one-size-fits-all inclusion policy. Inclusive procurement and contracting policies evolved over a 60-year history into a complex maze of standards and requirements that differ by the procurement agency, the level of government, and the local and state political environment. But a few strategies apply broadly:

• Prioritize local procurement, especially for underrepresented businesses. Small and medium-sized local businesses, those with fewer than 500 employees, are major engines of job growth. In fact, nearly half of the nation's private sector is employed at a small business, and small businesses are responsible for two out of three net new jobs. They are the secret sauce for spurring the local economy. But these enterprises are often cut out of infrastructure contracts, which favor large prime contractors. That's doubly true for MWDVBEs, which bear a legacy of discrimination in lending, contracting and business ownership. To level the playing field, states and localities should ensure that infrastructure investments give priority consideration to local contractors, including those historically excluded from public-sector opportunities.

• Adopt accessible project delivery methods. Water, energy, transportation and other climate-resilient infrastructure projects are large-scale, multibillion-dollar, long-term endeavors. The process for bidding on these complex projects has become increasingly difficult for smaller contractors. More than three dozen state legislatures have given local governments authority to use public-private partnerships and other innovative project delivery methods to help cut the time, cost and the complexity of these projects. But P3s can undercut local economic development goals. Because they are designed to maximize efficiency and investment returns, P3s tend to bid out large contracts to national or international firms rather than "unbundling" bids to match the capacity of smaller, local contractors.

One alternative is for public authorities to move beyond low-bid methods to values-based contracting, in which local procurement is one of the articulated project goals. Governments need to ensure that these goals are embedded in the program design and throughout the construction process.

• Build a robust small-business ecosystem. Finally, success requires improving support systems to help local businesses effectively compete. This includes streamlining the multitude of local, state and agency certification programs and sharing regional data on MWDVBEs available to collaborate on large projects. It is also critical to increase small businesses' access to bonding, insurance and capital; prime contractors can be awarded extra points for helping their smaller subcontractors obtain these essentials. In addition, a small assessment on an infrastructure project can readily capitalize collateral pools to provide credit enhancements for small contractors.

Of course, these strategies run the risk of modestly increasing program costs. But if the axiom that "you get what you pay for" is true, then-if you want good jobs for local residents-you will have to pay for it. With major new infrastructure investments on the horizon, state and local governments are uniquely positioned to put the jobs-vs.-environment myth to rest.

Urban Resilience