Small businesses neglected in GSA procurement modernization, lawmakers fear

Just as the General Services Administration was announcing a new effort to modernize office supply purchasing schedules, a set of small business contractors were complaining to lawmakers that GSA’s changes were dealing too many vendors out of federal eligibility.

Rep. Mick Mulvaney, R-S.C.., chairman of the House Small Business Subcommittee on Contracting and Workforce, brought GSA’s top acquisition executive on Thursday to a hearing to listen to the concerns of a panel ranging from architects to office furniture vendors who feel left out from some of the agency’s recent efforts to economize on behalf of taxpayers.

“Small businesses need to be protected against proposed GSA changes that would preclude them from competing for $50 billion a year in federal contracts for commercial items and services,” Mulvaney said. “Unlike their larger counterparts, small firms don’t have the resources to fight bureaucratic impediments and unjustified bundling.” He added, “Small businesses are forced to hire expensive outside proposal preparation services and invest in new record-keeping systems to compete for schedule contracts.”

Ranking member Judy Chu, D-Calif., noting GSA is one of the few agencies not required to implement mandatory set-asides for small businesses, said, “GSA must lead by example in making sure that agencies meet their final goals” in getting contracts to small businesses. To do otherwise “would shortchange not just businesses but the agencies that could benefit.”

Steven Kempf, commissioner of the Federal Acquisition Service, summarized progress both in cost savings and in cultivation of small businesses in three components of the GSA’s multiple award schedules, which government agencies use voluntarily to purchase services and supplies. In response to the 2010 Small Business Jobs Act and subsequent changes to the acquisition regulation, Kempf said, GSA has trained some 1,700 federal employees in how to best exploit such tools as the Federal Strategic Sourcing Initiative, the office supplies blanket purchase agreements called OS2 and the new “demand-based model” of multiple award contracting.

Before OS2 was created in 2009, he said, two-thirds of the dollars under the schedule for office supplies went to small business. “In 2011, this figure increased to 73.9 percent and we expect it to surpass 75 percent in 2012. We believe this figure demonstrates that not only can small business compete with large business, they can excel,” Kempf added.

The demand-based approach to narrowing the list of active vendors is important because “we have reached a point of saturation” with so many companies competing, he said. “When contracting officers are bogged down managing thousands of contracts with little to no sales, they can’t focus on adding innovative solutions to the schedules, improving pricing and simplifying the buying experience for our customers.”

Kempf said the government has identified the “dead ends where [it] is not going to be buying” -- areas such as sales of typewriters, shipping and photographic supplies, “where no innovation is going on.”

But panelists lodged an array of objections. Thomas Jacobs, a Chicago-based architect testifying on behalf of the American Institute of Architects, said GSA’s promotion of the “best value concept” in strategic sourcing sometimes violates the 1972 Brooks Act’s requirements that agencies hiring builders consider quality, not just price, in selecting a vendor. “They’re not protecting the health and safety of those who use the building,” he said, adding that as firms have struggled to compete during the economic downturn, GSA is paying few stipends for bidders and naming eight or 10 bidders as finalists rather than three, which makes the costs of competing “prohibitive.”

Mike Tucker, a Maryland office furniture business owner testifying on behalf of the National Office Products Alliance, said GSA’s encouragement of agency “strong-arm” tactics in selecting vendors under strategic sourcing “is a massive form of `contract bundling,’ which has and will continue to reduce the opportunities and level of small business participation and healthy, long-term competition in federal markets.” Citing his sales losses of 60 percent, he said GSA is focusing too much on price, volume discounts and a contractors’ ability to deliver nationally, while some locally oriented contractors are more effective because they are situated near a military base or a veterans hospital.

The agency’s focus on the “demand base,” which means closing some companies with zero or low recent sales out of the lists of eligible contract holders, “may assist GSA’s management workload,” said Larry Allen, the head of Allen Federal Business Partners in McLean, Va. “But there are benefits to staying on the list, such as help with state business, for which GSA serves as an auxiliary.”

GSA’s claim that its new supplies initiative saves money was backed largely by William Woods, director of acquisition and sourcing management at the Government Accountability Office, who said agencies had saved 8 percent, or $39 million, by using the voluntary schedule, and greater savings are possible. The program’s focus on electronic records also allows agencies to use data to make strategic decisions and to better manage vendors. The resistance to its use, he said, is the feeling that it’s more convenient to simply go to the corner office supplies store for same-day service.

As a solution, Tucker recommended the White House issue a statement of administration policy reminding agencies that participation in the strategic sourcing initiative is not mandatory.

Mulvaney was lukewarm, saying the reminder wouldn’t have the force of law. He suggested that legislation to help businesses navigate GSA may be possible down the road. He asked Kempf what harm it does to allow companies with few recent sales to stay on as contract holders to help them win other work.

“It costs us money,” Kempf said, noting there are 400-500 companies on the GSA schedule that have to be tracked when new opportunities present themselves. “Let’s not divide the pie more by adding 50 more,” he said. He expressed sympathy for small businesses going through economic hard times, and said he has noticed architecture firms bidding for work that in healthier times they wouldn’t pursue.

“Some companies jump in because they’re told by folks who’re getting paid that they must do this,” Kempf said, noting GSA uses its mentorship programs to counsel small businesses not to bid on contracts before they are ready. “Some of them call us all excited that they got their [qualifications],” he added, “but then they get no business.”

Kempf said GSA enforces the Brooks Act on stressing quality. The lawmakers appeared to disagree with him about whether states literally require vendors they consider for contracts to have GSA contract holder status, or whether such status is simply a marketing tool, as Kempf said. He promised to look into it.

Correction: The original version of this article misstated the name of the panel chaired by Rep. Mick Mulvaney, R-S.C. The story has been updated to correct the error.