Managing Strategically in Public Procurement: Dynamic Capabilities, Set‐Asides, and Contract Outcomes

ABSTRACT A key challenge in public procurement management is balancing equity and efficiency in government procurement. Based on longitudinal data on more than 120,000 US federal service and construction contracts awarded between 2008 and 2018 across over 500 federal agencies, we examine how agency‐level dynamic capabilities shape the performance of small business set‐aside programs. Employing a machine‐learning‐augmented propensity score weighting approach, we find that set‐aside contracts are, on average, negatively associated with execution performance. However, these associations are attenuated when agencies exhibit stronger learning‐based dynamic capabilities and operate in more competitive contracting environments. Moreover, under set‐asides, dynamic capabilities are associated with greater access for first‐time small business contractors. Our findings indicate that the equity–efficiency tradeoff in public procurement is contingent on strategic implementation, highlighting the role of dynamic capabilities in public value realization through implementation.