The Biggest Barriers for Diverse Small Businesses in Procurement
Published on: July 17, 2025
Understanding why access remains uneven — and what can be done about it.
The State of Play
Minnesota's 2025 Joint Disparity Study confirmed what small business owners have long known: the playing field isn't level.
Across 16 state and local agencies, only 9% of contract dollars went to minority- or women-owned firms—far below their estimated 22% availability in the marketplace.
(mn.gov/disparity-study/resources/reports2025)
These numbers don't reflect a lack of talent. They reveal structural barriers that block participation. Here are the five most common.
1. Bonding and Insurance Requirements
For many small contractors, bonding and insurance are the biggest roadblock.
Public projects often require surety bonds worth 100% of the contract value. Without a long credit history, deep cash reserves, or an existing surety relationship, getting those bonds is nearly impossible.
Why it matters:
Without bonding, small and emerging contractors can't bid as primes. They're forced into lower-value subcontracting roles, limiting their growth and experience.
What can help:
Example:
MnDOT's Small Contracts to Advance Equity Program allows contracts under $250,000 with simpler bonding and insurance requirements, giving small firms more realistic entry points.
2. Complex and Inconsistent Paperwork
Every agency has its own process—and that costs time and money.
For small business owners juggling multiple roles, paperwork fatigue is real.
Fixes agencies can implement:
Example:
The Minnesota Office of State Procurement offers vendor training, but each local government maintains separate systems. Streamlining them would save everyone time.
3. Limited Access to Capital
Many small and minority-owned businesses operate on slim margins with little working capital. This makes it hard to cover upfront costs before reimbursement—especially when payment cycles stretch 30–90 days.
Real impact:
Possible solutions:
Minnesota has strong small-business finance tools. Linking them directly to public procurement could make a real difference.
4. Information and Relationship Gaps
Large contractors and established firms often know buyers personally. They attend pre-bid meetings, networking events, and industry associations. Smaller firms—especially new or underrepresented ones—may not know where to start.
Why this matters:
Procurement shouldn't depend on who you know, but relationships help vendors understand upcoming projects, bid timing, and expectations.
Ways to close the gap:
Example:
Hennepin County's annual Small Business Expo connects hundreds of vendors directly with procurement officers—a simple model that could expand statewide.
(hennepin.us/economic-development/business-support)
5. Unclear Accountability and Follow-Through
Even when agencies set supplier-diversity goals, enforcement is inconsistent. Reporting formats vary, and few agencies publish detailed progress data.
Common issues:
What would help:
Example:
The City of Saint Paul's Supplier Diversity Program publishes annual summaries of contract spending by diverse vendors—a transparency step other agencies could mirror.
(stpaul.gov – Supplier Diversity Program)
Beyond the Barriers: What Businesses Can Do
Small firms can't solve systemic problems alone, but practical steps can help you stay ready:
The more detailed feedback agencies receive, the harder it is to ignore persistent barriers.
Final Thought
Minnesota has made real progress in outreach and program design, but closing the procurement gap requires persistence.
Removing unnecessary complexity, improving access to capital, and enforcing accountability will unleash the full potential of the state's small business community.
Equity in contracting isn't just about fairness—it's about getting the best value and innovation for public dollars.