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Witness Testimony of Anthony R. Martoccia, Acquisition, Technology and Logistics, Director, Office of Small Business Programs, U.S. Department of Defense

Chairwoman Sandlin, and distinguished Committee members, I welcome the opportunity to speak with you concerning Service-Disabled Veteran-Owned Small Business (SDVOSB).  The Department of Defense (DoD) is greatly indebted to the men and women who have served so valiantly to preserve the freedom of this nation.  As loyal supporters of the SDVOSB community, DoD is thoroughly committed to achieving the Government-wide 3% SDVOSB prime and contracting goals.  We are taking all reasonable steps to identify and enhance procurement opportunities for SDVOSBs, and to remove obstacles hindering their participation in DoD acquisitions.

You have asked me to speak to you about how contract bundling affects SDVOSB.  We believe that the impact of bundling on SDVOSB is the same as that of all the other subcategories.  Thus my testimony today about contract bundling applies to SDVOSBs and applies equally to other small businesses.  

When I testified recently before the Senate Committee on Small Business and Entrepreneurship, I realized, based upon the testimony of some of the other panelists, that there is a great deal of confusion about consolidation and bundling.  The definitions have changed a number of times leading to this confusion.  Let me take time to explain the basics of the current definitions of these concepts. 

Contract Bundling and Contract Consolidation

In the mid-1990’s, Congress passed several statutes requiring the Government to buy products and services more efficiently.  At the same time the Federal Workforce Restructuring Act led to an unprecedented downsizing of DoD acquisition personnel.  As a result, DoD acquisition professionals became adept at leveraging the immense buying power of the Government to enable prudent stewardship of public funds with fewer internal resources.  The consolidation of several requirements into a single contract to save money and gain other benefits is one such methodology.  Consolidation occurs when requirements previously performed by either large business or small business under two or more separate, smaller contracts are combined into one contract or order.  Benefits of such consolidated actions must be documented, justified, and approved prior to such action being taken.  Although consolidation reduces the number of available contract opportunities, consolidated actions are awarded to a small business and may even be awarded under one of the special target small business set-aside or sole source authorities.  If the requirement is awarded to a small business, it is a consolidated, but not a bundled action. 

Contract bundling occurs when requirements that previously were, or could have been, performed by small business are consolidated into a single procurement, resulting in an acquisition that is unsuitable for award to small business.  The bundled action may be unsuitable for award to a small business due to its dollar value, geographic dispersion, technical diversity, size or specialized nature, or any combination thereof.  Bundled actions not only reduce the number of available contract opportunities but displace small business as well.

Analysis When a Contract is Bundled or Consolidated

Due to its negative impact on small business, DoD has long discouraged the practice of contract bundling.  Any acquisition strategy that contemplates bundling or consolidation must undergo an extremely rigorous justification and approval process prior to the action being taken.  Only when the Department has determined it will derive a measurable and substantial benefit can this type of acquisition strategy be used. 

The Department requires analysis of alternatives including methods for mitigating the impact on small business, even if the bundling or consolidation can be justified by its anticipated benefits.  If small business prime contracting opportunities are not available, DoD acquisition professionals are obliged to develop strategies that set aggressive small business subcontracting goals, including methods for ensuring that the goals are achieved.

Things Essential for Dealing with Bundling 

The Department has been monitoring data to determine the full effect of bundling and consolidation for several years.  This has led us to several conclusions:  (1) data must be accurate; (2) the acquisition workforce needs training on the consolidation and bundling concepts; (3) tools are needed to assist the acquisition workforce, as well as small business; and (4) small business participation must be a primary consideration in strategic sourcing.  I will discuss our progress as we are attempting to address each of these areas.

Data Accuracy

The Office of Small Business Programs is working within the Department and with other Federal agencies to ensure data systems are programmed with built-in edits that will, to the degree possible, prevent the most common miscoding errors.  Accurate record keeping is paramount.  It is difficult to understand the full effect of bundling and consolidation if we cannot rely on our ability to obtain accurate data.  In May of 2007 the Under Secretary of Defense for Acquisition, Technology, and Logistics issued a memorandum to the Administrator, Office of Federal Procurement Policy, Office of Management and Budget, affirming the Department’s commitment to the establishment of infrastructure, policies and processes to ensure continuous improvement of data quality.  DoD has dedicated a significant number of resources to ensure the successful transition into Federal Procurement Data System – Next Generation (FPDS-NG).  Additionally, the DoD Office of Small Business Programs is currently developing a "Data Monitoring and Analysis Plan."  The intent of the Plan is to ensure small business data is reviewed for anomalies and to perform analysis of the data.  

We can already see that our Monitoring Plan will help us find and solve data problems early.  For example, as a result of this initiative, OSBP recently discovered 2,066 actions in FY 2007 that were coded as bundled by one DoD agency.  Further investigation revealed that all 2,066 of these actions had been miscoded as a result of issues related to migration of data into the FPDS-NG.  We were pleased to facilitate a prompt correction of the data.  We are encouraged by this example which demonstrates the usefulness of our Monitoring Plan even though it is still in its development stages.

Training

DoD has established a small business training program as a joint initiative between the DoD Office of Small Business Programs and the Defense Acquisition University.  The Department has placed emphasis on educating the acquisition workforce in the area of bundling and consolidation during the past year and a half.  In fiscal year 2006, we presented a live webcast on bundling and consolidation still available for viewing online.  The Air Force has also developed an online bundling course that is available on their Web site.  Additionally, we have provided train-the-trainer sessions at many conferences throughout the past two years.  We plan to continue an aggressive training program in this area.

Tools

The Department is working to provide tools that will assist the acquisition workforce, further ensuring that requirements are not improperly consolidated or bundled.  One such tool is the Benefit Analysis Guidebook which the DoD Office of Small Business Programs developed and posted online in 2002 to assist DoD acquisition personnel with the justification and analysis requirements necessary prior to bundling or consolidating.  We are in the final stages of revising this Guidebook and will post it online soon.  Additionally, OSBP is developing a Teaming/Joint Venture Guidebook as well as training to assist small businesses in pursuing larger procurements.  This Guidebook and training will be available by the end of the year.

Thanks to the Small Business Administration’s regulations, the DoD veteran-owned small business program is able to count the SDVOSB prime contractor work-share and also SDVOSB subcontractor work-share in the limitations in subcontracting requirement on service-disabled veteran owned small business set-asides.  For example, on a service or supply acquisition, a prime SDVOSB contractor may perform 35% of the work in-house and subcontract to several SDVOSBs who perform a total of 25% of the work, with the 40% balance of the work going to other small businesses or other-than-small businesses.  The action remains a SDVOSB contract since at least 50% of the cost of personnel for contract performance (in this case 60%) is spent for employees of SDVOSB concerns.  Similarly, a provision exists for the Historically Underutilized Business Zone (HUBZone) small business program.  This encourages the use of SDVOSB and HUBZone set-asides on larger contracts and still preserves the integrity of the statute through support of SDVOSBs and HUBZone small business concerns.  

Size Standards  

The Department is optimistic that adjustment of the small business size standards will improve SDVOSBs ability to take on an even greater role in DoD procurement.  The Defense Department believes that a number of size standards in critical Defense industries have not kept pace with the U.S. economy.    DoD would favor the adjustment of small business size standards as needed to keep them in line with the dynamics of the U.S. economy and the U.S. military.  Earlier this year DoD OSBP met with representatives from the Small Business Administration (SBA) and the Office of Federal Procurement Policy, Office of Management and Budget.  All parties agreed that a comprehensive review of the size standards is needed.  

Strategic Sourcing

Strategic sourcing initiatives began in the late 1990s within Military Departments (MILDEPs) and Defense Agencies.  Strategic sourcing is a collaborative and structured process of critically analyzing an organization’s spending and using this information to make business decisions about acquiring commodities and services more effectively and efficiently.  Centralization of strategic sourcing efforts began in 2004 when the Office of the Secretary of Defense created the Strategic Sourcing Directors Board (SSDB), an organization to champion defense-wide strategic sourcing efforts.  In May of 2005 the Office of Management and Budget directed agency heads to identify no fewer than three commodities that could be purchased more effectively and efficiently through the application of strategic sourcing.

In 2007, the Department identified “services” as primary targets to benefit from strategic sourcing due to the growth in spend and other factors (e.g., the number of suppliers and types of commodities).  Today, “services” represent over 50% of DoD’s total spend.  The Department is working to ensure that strategic sourcing does not result in bundling; however, it can many times result in consolidation.  Each strategic sourcing action includes a small business advocate and seeks to increase, rather than decrease, achievement of socioeconomic goals.  

One such example is the Department of Navy, Clerical Support Services contracts awarded October 13, 2006.  The solicitation limited competition to 8(a) small disadvantaged businesses, Historically Underutilized Business Zone (HUBZone) small business concerns, and service-disabled veteran-owned small businesses.  Over 100 proposals were received and evaluated and nine contracts were awarded.  Contracts were awarded to one service-disabled veteran owned small business, one service-disabled veteran owned small business who is also a Historically Underutilized Business Zone concern, one service-disabled veteran owned small business who is also a woman-owned small business, one Historically Underutilized Business Zone small business who is also a veteran owned small business, one 8(a) small disadvantaged business who is also a veteran owned small business, three 8(a) small disadvantaged businesses who are also woman owned small businesses, and one 8(a) small disadvantaged business.  

Conclusion

Today I have given a brief overview of contract bundling and the efforts taken by the Department to eliminate or lessen its effects on all small business, particularly, SDVOSBs.  The Department is developing new training and guidance and implementing acquisition strategies to provide the maximum contracting and subcontracting opportunities for small business.

I will close by stating that the achievement of the 3% contracting goal for SDVOSBs has become a focus area within the DoD Office of Small Business Programs as well as the entire Departmental acquisition workforce.   DoD is working aggressively to fulfill its obligation to SDVOSBs.

I welcome your questions and any comments you may have that will guide us toward working more effectively with this important segment of the small business community.

Thank you.