OMB orders agencies to reduce contract bundling

The Bush administration Wednesday told federal procurement officials to cut back on bundling contracts, saying the practice makes it difficult for small businesses to compete for federal dollars.

In a 12-page report issued by the Office of Management and Budget, the administration laid out a series of measures it will take to curb the practice of consolidating contracts into mega-deals. Critics of the practice say small businesses do not have the resources to compete against large companies for the bigger contracts.

Small business interest groups ranging from the National Women's Business Council to the National Black Chamber of Commerce hailed the initiative. But a Democratic lawmaker said OMB did not go far enough.

"Given the severity of the contract bundling problem, I was hoping for some bold vision and strong leadership," said Rep. Nydia Velázquez, D-N.Y., ranking member of the House Small Business Committee. "This report lacks both. It fails to recognize that the current procurement system is fatally flawed."

Citing data from the Small Business Administration's Office of Advocacy, the report noted that for every "100 bundled contracts, 106 individual contracts are no longer available to small businesses. For every $100 awarded on a 'bundled' contract, there is a $33 decrease to small businesses."

Contract bundling came into vogue during the 1990s, when the federal government overhauled procurement regulations and reduced the acquisition workforce. The theory was that merging several contracts into one would reduce administrative costs.

The government is supposed to award 23 percent of all contracts to small businesses each year. In fiscal 2001, small businesses captured 22 percent of federal contracts.

Officials at OMB believe that some agencies are ignoring the current guidelines and bundling contracts that either should not be or do not have to be consolidated. Hoping to crack down on such practices, OMB is ordering agencies to review proposed acquisitions above an agency-specific threshold for "unnecessary and unjustified" bundling. Only acquisitions costing between $2 million and $7 million are subject to review.

Roughly 10 percent of all prime contracts awarded in fiscal 2001 fell within this range, said Paul Murphy, president of Eagle Eye Publishing, a Fairfax, Va.-based firm that tracks federal procurement spending. Each agency's Office of Small and Disadvantaged Business Utilization, working with the Small Business Administration, will come up with the agency's threshold.

OMB will modify federal acquisition regulations by requiring agencies to identify alternatives to bundling for contracts above their threshold. OMB also ordered agencies to report quarterly on their efforts to reduce bundling. The first reports are due to OMB on Jan. 31, 2003.

"We are going to hold agencies accountable," Angela Styles, head of procurement policy at OMB said during an event to release the recommendations.

"The only thing that is really going to work is if agencies are given a small business goal that they have to meet each year," said Murphy. "Agencies should identify [at the beginning of the fiscal year] how much money they plan to set aside for small business competitions."

The Office of Small and Disadvantaged Business Utilization at each agency will do most of the work to monitor how well agencies are cutting down on bundled contracts. Agencies will be expected to allocate more resources to those offices, said Styles. Yet small business offices generally have very small staffs, and are often left in the dark about agency procurements, according to Murphy.

Other actions in the report include:

• Clarifying the definition of contract bundling in federal law and SBA regulations. OMB plans to issue proposed changes by Jan. 31, 2003.
• Ensuring that when contract bundling is deemed appropriate, agencies consider small businesses to be subcontractors. To enforce this measure, OMB plans to amend federal acquisition rules to require agencies to take a contractor's past performance for hiring small businesses into account before making an award.
• Having SBA collect best practices for increasing opportunities for small business.