Big contracts may not be so bad for small businesses

Reports that small businesses are being shortchanged in large bundled federal contracts aren't necessarily true, according to a new General Accounting Office report.

Contract bundling, in which agencies combine two or more contracts into a single bid, has become a popular tool in federal procurement circles, largely because of its convenience. Small businesses, who often have trouble competing with larger companies for the bigger contracts, fear the trend will squeeze them out of the picture.

But the only analysis to date of the impact bundled contracts are having on small businesses was "based on a definition that was broader than the statutory definition of contract bundling and provided no convincing evidence that bundling caused adverse effects on small businesses," GAO concluded in its report, "Small Businesses: Limited Information Available on Contract Bundling's Extent and Effects" (GGD-00-82).

Christopher S. Bond, R-Mo., Chairman of the Senate Small Business Committee, requested the GAO review as a follow-up to reports from the SBA's Office of Advocacy, which concluded that federal agencies aren't meeting their legal requirement to award at least 23 percent of the total value of all prime contracts to small and disadvantaged businesses.

The SBA office reported that federal agencies awarded only 20.6 percent of prime contract dollars to such businesses in 1998. In addition, a June 1997 study commissioned by the advocacy office reported that contract bundling was on the rise and cutting in to small businesses' share of federal contracts.

An independent SBA review of 1998 contract data, however, showed that federal agencies spent 23.4 percent of prime contract dollars on small businesses. The Office of Advocacy figure was lower because it was based on a broader range of contracts, while the other SBA analysis excluded contracts that small businesses had no reasonable opportunity to compete for, GAO found.

GAO also reviewed contracting efforts at three procurement centers with large volumes of contracts-NASA's purchasing center at Johnson Space Center, the Energy Department's Alburquerque, N.M., center and one of the three procurement centers at the Wright-Patterson Air Force Base.

The results showed an overall trend towards contract consolidation, where existing contracts are combined or streamlined, but not necessarily toward contract bundling. In fact, only one contract bundling case was identified among the 13 contracts GAO reviewed.

Still, there isn't enough data to determine the real extent of bundling and how it is affecting small businesses, GAO said. The Federal Procurement Data Center will not collect data on bundled contracts until SBA finalizes an interim rule on the subject, and no definitive studies on the matter have been performed, GAO said.

GAO recommended that SBA figure out a way to increase its oversight of potential contract bundling at agency procurement centers.

SBA officials say they don't have the resources to fully review the impact of proposed contracts on small businesses. But GAO said SBA could increase training and adjust staff assignments to better utilize its resources, and should develop an overall strategy to accomplish such goals. SBA officials agreed, saying they plan to reevaluate staff placement and skills to improve contract oversight.