By Sarah Garcia
If you’re a leader within the construction industry, you’ve likely heard rumblings about supplier and subcontractor diversity strategies. But you may not be sure what such a strategy entails, whether working to increase diversity within your supply chain and business partnerships can help your business, or how to do so.
At NOVO Construction—which is itself a certified Minority Business Enterprise (MBE) through the National Minority Supplier Development Council (NMSDC) via the Western Regional Minority Supplier Development Council (WRMSDC)—the drive to place diversity front and center is part of our corporate DNA. NOVO’s cofounders established DEI as a cornerstone of NOVO’s operations from its inception. As director of DEI, I’ve worked to honor and execute that vision, both within NOVO and beyond.
We consider our commitment to training NOVO’s employees on DEI initiatives, recruiting diverse talent for the organization, and fostering NOVO’s community relationships to be prime factors in our becoming one of the largest general contractors in the Bay Area and the second-largest minority-owned business in the Bay Area. Half of our corporate leadership team members are women. NOVO’s percentage of female employees, in both field and office positions, is nearly double the industry average, and we continually seek partnerships with diverse community organizations through our “NOVO for Change” initiative.
Pursuing greater diversity in our subcontractor and supplier pool was always part of our corporate development plan, but charting the right path forward took time. Initially, we had a lot of questions. You probably do, too. So, here’s what we’ve learned about supplier and subcontractor diversity efforts, how it can benefit our industry, and some best practices for getting started.
WHAT DOES SUPPLIER AND SUBCONTRACTOR DIVERSITY MEAN?
Before getting into the “hows” of supplier and subcontractor diversity, it helps to have some background knowledge.
Supplier and subcontractor diversity programs are not new phenomena within the construction industry. The notion of “supplier diversity” emerged in conjunction with establishing the federal Office of Minority Business Enterprise in 1969. Early programs aimed to support women and people of color in opening their firms by addressing issues such as insufficient funding, training, or opportunity. Today, discussions about supplier and subcontractor diversity tend to focus on building relationships with existing diverse businesses.
Supplier and subcontractor diversity encompasses businesses primarily owned and operated by historically underrepresented groups. This subset of companies includes Small Business Enterprises (SBEs), MBEs, Woman-Owned Enterprises (WBEs), as well as those owned by LGBTQ, veterans (VBE), and individuals with disabilities (DOBE). Regarding certification—an essential element in vetting potential diverse partnerships—“primary” ownership means that the qualified minority owner or owners hold 51% of the ownership interests in the applicant company. This individual, or group of individuals, must control the day-to-day operations of the company and be able to demonstrate industry-specific expertise.
IS PURSUING SUPPLIER AND SUBCONTRACTOR DIVERSITY WORTHWHILE?
In a word, yes. Increasing supplier and subcontractor diversity offers both bottom-line and social benefits:
- Bottom-line Advantages: Research conducted by the Hackett Group shows that companies with supplier and subcontractor diversity programs enjoy a 133% higher return on investment than those without such programs. In the construction industry, supplier and subcontractor diversity programs can give firms a critical competitive advantage when bidding for public sector projects—a primary source of revenue. Supplier and subcontractor diversity programs can also help firms attract more private sector businesses from those who share their vision by showing a real-world commitment to stated corporate values.
Inclusive procurement widens the pool of potential suppliers, making supply chains more resilient and adaptable, especially in uncertain times. A diverse supplier base also increases competition, resulting in lower pricing and enhanced innovation and efficiency, ultimately benefiting the industry.
- Societal Impact: Certified MBEs have a significant economic footprint, generating billions in output and creating millions of jobs and substantial tax revenue. Inclusive procurement also bolsters economic opportunity in disadvantaged communities, lessening the racial wealth gap and promoting broader societal well-being.
NOVO’s partnerships with nonprofits such as Girl’s Garage, which empowers young women by providing hands-on experience in the trades, are one way we’ve sought to contribute to local development and create opportunities for underrepresented groups. Likewise, our subcontractor and supplier diversity initiative aims to extend NOVO’s DEI efforts beyond our company.
- Workforce Attraction and Retention: Surveys conducted by the Pew Research Center show that most workers today prefer working for companies that prioritize diversity and inclusion. Diversity initiatives—including robust supplier diversity and inclusion programs—are increasingly vital in attracting top talent.
Furthermore, a recent State of Sustainable Supply Chains report produced by Ernst & Young and the UN Global Compact found that employees of companies with effective supply chain diversity strategies are more likely to serve as “ambassadors” for their firms. This fact may tie into another one: People employed at companies committed to diversity are more engaged with their work. These individuals also tend to generate more innovative solutions to industry problems and, since they reflect the diversity of the markets they serve, are often better positioned to understand and adapt to meet the needs of their organization’s customers.
HOW CAN YOUR COMPANY GET STARTED?
A successful supplier and subcontractor diversity program requires careful planning and execution. By proceeding methodically, you ensure that all stakeholders and business partners understand your vision and the steps they need to take to participate in your program. Here are five steps to help make that happen:
- Get stakeholder buy-in.
During the early years of my career in construction, I didn’t have many minority female role models I could look up to. I couldn’t say, “Hey, I want to be like her,” because, more often than not, there was no her! This experience, together with NOVO cofounder Jim Fowler’s background as a first-generation Chinese-American, informs NOVO’s approach to DEI.
Regardless of your diversity executive’s effectiveness or how well you design your supplier and subcontractor diversity program, you still need buy-in from your company’s leadership team and broader workforce. You must identify your reasons for pursuing diversity and imbue that “why” throughout your organization. Everyone who works for NOVO, or with us, to diversity knows why it’s a cornerstone of our operations.
When possible, get your employees involved in setting and executing supplier and subcontractor diversity goals. By soliciting their input and encouraging them to act as program ambassadors, you offer them a sense of ownership and, thus, a more personal stake in the company’s diversity efforts.
- Determine your current supply chain and subcontractor makeup.
Before you set your supplier and subcontractor diversity goals, you need to know the makeup of your current supply chain. At NOVO, we are conducting a thorough audit of our current list of subcontractors to identify existing diverse partners, confirm their certifications and identify areas where we are most equipped to partner with new suppliers.
Remember, you don’t need to overhaul your entire supplier and subcontractor pool all at once. Rather than moving straight to switching vendors, first, look to expand your candidate options to include diverse partners. Be sure to check certifications – you may wish to use a service like supplier.io to help with this—and set up transparent systems for adding new supplier and subcontractor partners to your program and internal procedures for monitoring and tracking these partnerships.
- Conduct outreach.
In the last three months alone, NOVO has contacted over 2,500 potential supply and subcontracting partners, adding over a hundred diverse companies to our bid pool.
This deliberate, proactive outreach is an imperative part of the process. And don’t just stop at Tier 1 suppliers; reach out to their subcontractors, too. By seeking out these Tier 2 suppliers, you will likely find even more companies that meet MBE requirements. You can then offer to assist them in getting certified. At this point, they may become part of your Tier 1 pool.
If you need help finding diverse vendors, check out The National Minority Supplier Development Council (NMSDC); The Women’s Business Enterprise National Council (WBENC); Disability IN; The US Department of Veterans Affairs; and The National LGBTQ Chamber of Commerce (NGLCC).
- Offer mentorship.
Some diverse firms may feel too small or inexperienced to bid on prime construction projects.
As an industry leader, NOVO is responsible for providing resources and support to help our diverse partners expand their capacity and capabilities. NOVO not only assures members of our supplier and subcontractor diversity program that they are large enough to bid on such projects but also offers mentorship and training to help them develop new capabilities and strengthen their ability to meet procurement standards. We even break up bid packages so smaller companies can take on a manageable portion.
- Amplify.
Once your program is up and running, don’t forget to tell people about it! Promoting your diversity efforts and the high-quality work of your diverse suppliers helps expand your company’s opportunities while also giving your diverse partners a considerable boost.
CLOSING THOUGHT
Supplier and subcontractor diversity programs are ethically sound and economically beneficial for the construction industry. NOVO Construction’s experience demonstrates what you can accomplish with a systematic approach to building and executing a successful supplier and subcontractor diversity program. Companies can enhance business operations by actively engaging diverse suppliers and contributing to a more inclusive, competitive, and resilient sector.
About the Author:
Sarah Garcia is project executive and director of DEI at NOVO Construction. For more, visit www.novoconstruction.com.
Modern Contractor Solutions, December 2023
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