Philadelphia procurement contracts, which totaled about $4B last year, have long been coveted by the region's real estate and construction firms. The way they are allocated has changed dramatically.

Mayor Cherelle Parker signed an executive order removing race-based affirmative action from the city’s procurement process at a press conference Tuesday.

The move was a response to the federal government's legal threats against diversity, equity and inclusion initiatives in the wake of the Supreme Court’s ruling against Harvard University’s admissions process last year, City Solicitor Renee Garcia said at the press conference.

“There is a point where the risk becomes so high where we have to pivot, and that is the case here,” she said.

President Donald Trump issued an executive order on the first day of his second term directing the government to identify and combat DEI programs he called “discriminatory.” Commercial real estate companies have also responded to the administration's anti-DEI efforts this year by removing language about diversity initiatives from their public-facing communications.

DEI measures have been part of the contracting process in Philadelphia for roughly 40 years. A benchmark of 25% participation for minority-, woman- and disabled-owned businesses was established in the early 1980s and increased to 35% in 2016, The Philadelphia Inquirer reported.

The city is replacing the benchmark with a new procurement process focused on elevating small and local companies. The process was designed in part by Philadelphia Office of Business Impact and Economic Advancement Director Nadir Jones, who previously helped manage CBRE’s diversity efforts.

The new program has several different tiers of small businesses based on a company's employee count and revenue. The largest category, “middle market,” includes companies with up to 750 workers, Jones said.

Firms headquartered in Philly qualify as local. Companies with 60% of their workers living in the city also make the cut, as well as firms with half of their employees working there at least 60% of the time.

The executive order doesn't set a target for what percentage of city contracts should go to these businesses.

Woman-, minority- and disabled-owned businesses already registered with the city that qualify for either category will be grandfathered into the new program, Jones said.

The city doled out roughly $4B in procurement contracts last year, Philadelphia Procurement Commissioner Ronald Hovey said at the press conference, but he didn’t share how many went to minority- and women-owned businesses.

While the changes in the procurement process were quietly implemented earlier this fall, Garcia said she first notified Parker about the potential federal legal threats in December 2024.

The city hired constitutional law firm Hecker Fink, which Garcia said ultimately agreed with her concerns.

While Parker said some have panned the city's policy shift as “conservative,” she noted that the former Hecker Fink attorney the city worked with had clerked for Supreme Court Justice Sonia Sotomayor, who was appointed by Barack Obama.

The mayor said her concerns about the city’s procurement process predate Garcia’s warning.

While the city’s DEI measures have been in place for decades, just 20% of minority-, woman- and disabled-owned businesses registered with the city have been receiving active contracts, Deputy Mayor Vanessa Garrett Harley said. Companies owned by white women benefited the most, she said.

Parker also cited a July 2024 study from Harvard professor Raj Chetty that ranked greater Philadelphia last for upward mobility in a list of 50 U.S. metro areas.

“Some people benefited from a broken, dysfunctional system,” Parker said.

“Maybe some of the people who benefited financially from the broken system are realizing the gravy train is over,” she added.