GAO: Only 5% of Government Ad Business Goes to Minority Firms

by Next Wave Team | Aug 14, 2007 | Change the world, Everything You Want to Know About Advertising, Great Ad Agencies, How To Select An Ad Agency, Minorities in Advertising

News Flash: the Federal Government just realized that minority firms aren’t getting their fair shake on Government contracts. How about throwing this into the equation: since 2003, there has been a Federal requirement for 3% of all Government contracts to be set aside to Service Disabled Veteran Owned Businesses. Now I can assure you that if only 5% is going to minority firms- which includes Women Owned, African American Owned, Native American Owned, Asian Indian owned, 8A firms, HUBZone located firms- and Service Disabled Veteran Owned Business owned- the SDVOB participation is an infinitesimally smaller fraction.

When I attended the Diversity Fair held by the 4A’s and the AAF in NYC last November (06)- there were only 3 SDVOB’s in attendance. I spoke to all the agencies that had military recruiting contracts- and almost universally was ignored.

It’s not just the agencies at fault here, it’s also the Federal buyers who also don’t seem to risk anything by non-compliance. We’ve only just begun a conversation with GSD+M who are in the process of defending the Air Force recruiting contract. Our only contact previously, was from a mid-level exec at Leo Burnett far into the process for the botched US Army recruiting award, which Leo lost to McCann. McCann has hired a “Diversity” exec, but all calls to his office are met with a standard line that we aren’t approaching them correctly, do not pass go, do not collect $200.

Here are some excerpts from the Ad Age article:

Advertising Age - GAO: Only 5% of Government Ad Business Goes to Minority Firms
The U.S. government is doing a poor job of awarding small and minority firms advertising and public relations contracts, according to a Government Accountability Office study.
The GAO found that on average the government devoted 5% of its $4.3 billion in ad-related expenditures to small or minority businesses.
The GAO found that on average the government devoted 5% of its $4.3 billion in ad-related expenditures to small or minority businesses.

The GAO report released yesterday examined contracts from 2001 through 2005. It found that on average the government devoted 5% of its $4.3 billion in ad-related expenditures to small or minority businesses, but that compliance varied considerably among government agencies.

Treasury, Defense
The Department of Defense used minority firms for advertising only 1.8% of the time and paid them on average nearly 84% less than non-minority firms. The Treasury Department used minority firms for advertising only 1.9% of the time and paid them on average nearly 47% less per contract than ad contracts with non-minority firms. (Government numbers usually include work preparing brochures, hiring photographers and public-relations efforts along with traditional advertising.)….

The Defense Department’s $2.7 billion in spending surpassed all the other agencies combined. Health and Human Services spent $494 million and the Treasury $188 million during the five years studied.

Senators speak out
The GAO report has angered some Democrats. In letters sent the day of the report’s release, Senate Majority Leader Harry Reid, D-Nevada; Senate Small Business and Entrepreneurship Chairman John Kerry, D-Mass.; Sen. Chuck Schumer, D-N.Y;. and Congressional Black Caucus Chair Rep. Carol Kilpatrick, D-Mich., urged the Defense and Treasury departments to do more.

“I am deeply concerned that the Departments of Defense and Treasury are denying minority advertising firms the opportunity to work with the federal government,” said Mr. Reid.

Mr. Kerry suggested the government’s record was inadequate. “This report shines a spotlight on the federal government’s failure to make equal opportunity a reality, not just rhetoric,” he said.

Ms. Kilpatrick said the lack of compliance is making a “mockery” of the contracting process. “Despite an [Clinton era] executive order, federal agencies are not providing minority business owners — who pay taxes, provide jobs, and help strengthen our economy — with equal opportunities in the federal contracting process. Failure to promote inclusion and fairness in contracting is not only an egregious disservice to America’s families, but it is also a mockery of the promise upon which our country was founded.”

Little mention has been made of the main reason for lack of minority participation: Bundling of contracts. We were recently contacted by the Veterans Administration, which now requires VA buyers to look first to SDVOBs then VOBs for outsourcing, about a video production contract.

The guaranteed buy has a maximum of  $14,252,000.00 (later purportedly revised up to $27 million) and ” the minimum amount the Government must order for each location (Salt Lake City, UT; St. Louis, MO; Washington, D.C.) is $500.00 for the entire contract, including optional ordering periods” to provide video production services. Some of the sample projects in the RFP were perfect fits for us, and other SDVOB businesses. An example from the RFP:

Purpose and Scope of Videotape Product:
Purpose:  To provide Production services for a 30 minute ‘PTSD Among Women Iraq Veterans’ videos.
The video format will be interviews with VA staff and patients with an on-camera professional narrator.

Which is fully within our- and many other SDVOBs reach.

Unless there are stringent rules about subcontracting, Primes contractors will find loopholes, set up shell firms or generally ignore Federal law requiring SDVOB and minority hiring requirements.

If you are interested in working with an SDVOB with HUBzone certification we can help you meet your hiring requirements- either by being your subcontractor, or by introducing you to other SDVOB and VOB businesses through our association with VOB108.org and NAVOBA.

If you would like to share you frustrations with us, please feel free to comment below.