Panel questions e-procurement’s effects on small businesses

Several emerging acquisition techniques, touted by the Bush administration for their ability to procure goods and services more strategically and efficiently, frequently leave out small businesses, a key congressional Democrat suggested on Thursday.

At a House Small Business Committee hearing, Chairwoman Rep. Nydia Velázquez of New York said automated procurement systems, contract bundling and online auctions have created an uneven playing field, and large contractors now are able to dominate the marketplace.

"Taken together, these new processes are creating roadblocks for small firms as they try to navigate the federal procurement system" Velázquez said. "If left unchanged, this could lead to a marketplace without the contributions of small businesses -- ingenuity and innovation. This will result in a less diverse supplier base -- leaving taxpayers paying more for less."

Small business owners testified that the root of the problems can be tracked to a depleted and undertrained acquisition workforce that is forced to aggregate large contracts to save time and streamline operations.

Administration officials, however, argued that new electronic procurement processes have helped lower contract costs and spurred greater participation from small firms.

Last year, small businesses accounted for more than 76 percent of sales on GSA Advantage, an online shopping and ordering system, said James Williams, commissioner of the General Services Administration's Federal Acquisition Service. Small firms also represent about 95 percent of all business on GSA's e-Offer -- a tool in which businesses submit online contract offers and modifications.

"E-systems allow for faster and easier processes, and can increase accessibility and transparency and minimize costs to small businesses wanting to sell to the government," Williams said.

The Multiple Awards Schedules program, GSA's prime contracting vehicle, also has proved beneficial to small businesses, Williams said. In 2007, small firms received roughly 37 percent of dollars spent through MAS, exceeding the government's goal of 23 percent.

Velázquez challenged Williams on GSA's eTravel initiative. Small travel agencies received only 1 percent of prime contracts through the program in 2006. Williams said these companies are taking advantage of the program through subcontracting opportunities.

The governmentwide electronic travel booking program has been a bone of contention with small firms since the program's inception in 2004.

Velázquez also was skeptical of the Office of Management and Budget's strategic souring initiative, in which agencies are asked to analyze their spending to leverage their purchasing power and reduce costs.

The initiative, she said, runs contrary to President Bush's 2003 directive for agencies to break down the size of large contracts to make them more accessible to small businesses.

Paul A. Denett, administrator of the Office of Federal Procurement Policy at OMB, disputed that assertion. He noted that 41 percent of the Defense Department's strategic sourcing efforts in 2006 -- totaling $4.3 billion -- went to small businesses, as did nearly all of GSA's blanket purchase agreement contracts for office supplies in when they were awarded in August 2007.

"In most instances, strategic sourcing has helped small businesses," Denett told the chairwoman, who continued to express doubts about the program.

Questions also were raised about the government's use of reverse auctions -- online competitions in which sellers vie to offer agencies the lowest bid. The initiative is designed to drive down prices because vendors have the opportunity to see the bids they are competing against.

In 2003, the Army Corps of Engineers conducted a pilot study of reverse auctions for some of its construction projects, but the agency said the program provided little to no savings compared with traditional contracting efforts.

"Reverse auctioning has a chance to provide benefit when the commodities or manufactured goods procured possess a controlled and consistent nature with little or no variability," said Maj. Gen. Ronald Johnson, the Corps' deputy commanding general. "Construction and construction services are, by nature, variable due to factors such as changing customer requirements and site conditions."

In 2007, the Office of Federal Procurement Policy and the Acquisition Committee for E-Gov formed an interagency working group to review best practices in reverse auctions. The group surveyed sellers and government buyers about their experience with reverse auctions and is now analyzing the results, Denett said.