GAO: Too few ad contracts land at minority agencies

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The U.S. government is doing a poor job of awarding ad contracts to minority agencies.

That's the conclusion of a report by the General Accounting Office. The study seems to validate charges from minority shops and some congressmen about the government's performance.

In an 11-page letter to several congressmen, the GAO reported the government fell far short of its target in awarding advertising contracts to so-called small disadvantaged businesses, a term that encompasses minority-owned agencies.

The Small Business Act sets a goal of 23% of "prime contract dollars" being spent with small disadvantaged businesses. But according to the GAO, which studied a period between 1994 and 1999, the most the government awarded in ad contracts to disadvantaged and women-owned businesses was 3.1%, during the fiscal year that began Oct. 1, 1994. The number plummeted to 0.3% for the fiscal year that began Oct. 1, 1998.


"The report substantiates our expectations and the claims of small and disadvantaged business that we have been hearing from," said Heide Gardner, VP-diversity and strategic programs for the American Advertising Federation. "It points out how helpful industry initiatives could be."

Hal Shoup, exec VP of the American Association of Advertising Agencies, said use of minority agencies by the government is "a continuing concern." But he also noted that the figures exclude the use by prime contractors of minority-owned subcontractors, a common industry practice.

The GAO study was prepared at the request of U.S. Reps. Carolyn Kilpatrick (D., Mich.) and Robert Menendez (D., N.J.).

"It proves there is much room for improvement," said an aide to Rep. Kilpatrick. "For large and substantial contracts, there are several agencies more than capable of meeting the requirements."


The aide also said the report underscores the need to change the way the government tracks and judges small-business contracts. The government defines disadvantaged ad agencies as so small ($5 million or less in annual revenue) that many small agencies are too big to qualify.

The GAO noted that government agencies don't have to award 23% of ad contracts to small businesses, and can meet their small-business goals with contracts in other areas. It also noted the government doesn't gather information specifically on minority business contracting. In addition, larger businesses can also be minority-owned and are not counted in the GAO study.

Still, the report said that while federal ad contracts grew from $139 million to $368 million during the five-year period, the most the government spent on contracts in which small businesses were the prime contractors for advertising was $3 million.

The GAO also examined 12 reports by prime contractors of their use of disadvantaged businesses and found the government's prime ad contractors spent 8% of contract dollars with small disadvantaged businesses.

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