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Witness Testimony of Lisa N. Wolford, CSSS.NET, Bellevue, NE, President and Chief Executive Officer

I would like to thank all the members of the committee for the opportunity to speak today on this critically important issue of contract bundling and it’s impact on Service Disabled Veteran Owned Businesses.  I have been in business for over ten years now and the last six years exclusively with the federal government.  I am a veteran of the United States Marine Corps and my firm is a SDVOSB, WOB and  8(a)/SDB.  My firm provides information technology engineering systems and solutions to the federal government and therefore the majority of my testimony regarding contract bundling will concentrate on that sector.  My firm has an excellent record of past performance and yet even with this my firm has been dramatically impacted by the issue of contract bundling.

Therefore, I submit to you that new firms owned by SDVOSBs that have returned or will return from Iraq or Afghanistan will have an even greater struggles since they are newer in the marketplace.  I would also like to remind you that veterans have vested into their citizenship rights in a way that no other group has through the sacrifices we have made in the service of our country.  SDVOSBs are owned by people from both genders and any race you can think of, therefore we are both diverse in characteristics and united in our history.   Small businesses do not have access or money for PACs and/or lobbyists.  Instead we spend 180% of our energy in growing and maintaining our businesses.  Consequently, many laws and modifications to regulations make it into the FAR and business practices of the government that favor large business and are harmful to small businesses. 

Fact finding related to the impact of contract bundling on SDVOSBS is difficult to attain since the majority of the data is related to the small business market in general.  As a result, I will speak to you regarding the issue as it relates to small businesses in general.  However, please remember, the economic preference for SDVOSBs is fairly new to the federal market and therefore the impact to SDVOSBS is even greater than the average small business. 

The US government has an economic interest and responsibility to enable and encourage the growth of small businesses.  Small businesses are the economic engine that fuels the growth of our economy.  Therefore, if the government wants a healthy economy and job market they have a fiduciary responsibility to grow small businesses.  The fact that the government has goals of only 23% of prime contracting dollars to go to small businesses is actually a travesty of justice to our American economy.  Small businesses generate two thirds of net new jobs and over 50% of the private sector output.  If the goal of this administration is to build an even stronger economy, the government should tie the goals of prime contracting dollars to the percentage of growth of our economy that small businesses are responsible for creating. 

Some of the facts that I would like to remind you of in respect to contract bundling are:

  • Small businesses employee over half of all private sector workers
  • Small businesses generate more than half of private sector output
  • Small businesses create more than two-thirds of net new jobs
  • Information Technology services and technology purchases represent the largest portion of the federal budget
  • Bundled contracts represented 16.4 percent of all prime contracts in 2001 and 51 percent of all reported contract spending
  • Majority of bundled contracts occurs in defense contracting
  • Over the past five years, total government contracting has increased by 60 percent, while the number of small business contracts has decreased by 55 percent (1)
  • Total prime contract obligations solicited by the federal government in FY 06 88 percent obtained by large businesses(1)
  • Increasing subcontracting goals for large prime contractors winning a bundled contract is not a sufficient mitigation or solution
  • Multiple Award Contracts (MAC) are a tool that are increasingly used to bundle contracts but are not viewed as contract bundling (2) (3)
  • Use of GSA contract vehicles to use small businesses as pass throughs by federal agencies

As a result of reviewing these facts I ask you: Why do firms that generate only one third of new jobs get 88% of the total prime contracts obligations?  Why are small business prime contracting goals overall not 50% or greater?  Would that not be more equitable to the firms that are responsible for the growth of the country?  Would that not spur greater economic growth across our great country?  If you think that number is out of range, consider HUD whose small business prime contracting goal is 45% and they regularly exceed it?  The Army has a record of 27.2 % of prime awards to small businesses, exceeding their small business prime contracting goals.  In 2001, 35% of that was through the Army Corps of Engineers and now that all Information Technology services contracts have been bundled their achievements will go down substantially.  It is a known fact that the majority of contract bundling occurs within DOD and I consider this particularly reprehensible, since if anyone in the federal government bears a greater responsibility to veteran business owners I think DOD and the Veterans Administration should be held to a higher standard and culpability.  I can say that I have great respect for the substantial challenges and changes that Mr. Scott Denniston has wrought in the Veteran’s Administration. 

Instead, due to contract bundling we have seen a market decrease in the number of small businesses effectively competing in the federal marketplace.  Federal agencies continue to deny that contract bundling is an issue; however, the decreased opportunity for prime contracts for small businesses inhibits their growth.  Federal agencies have felt that increased subcontracting goals on bundled contracts mitigates the damage to the small business market and relieves them from the responsibility of prime contracting with small businesses.  When small businesses are relegated primarily to the role of subcontractors, they do not have the opportunity to control their own destiny or truly add innovation to the federal marketplace.  This is because the federal government’s contract is only with the prime contractor, they do not have privity of contract with the subcontractor.   

Small businesses are responsible for innovation and research much more frequently than large businesses, and as a result of contract bundling those opportunities are decreased and the entire nation, as well as the federal government suffers. 

Multiple Award Contracts (MACs) are subject to FAR clauses that require the contracting officer to allow all awardees fair opportunity to compete on the individual task orders. (2)  The problem with this is that it means that small businesses have to compete head to head with the largest of the federal contractors.  This is just another form of contract bundling although it doesn’t get measured as contract bundling and therefore, has the same negative impact on the small business community.  Forcing a small business to compete toe to toe with large businesses is in direct contradiction with small business contracting rules and standard operating practices.

Another abuse of the small business community is the way GSA schedule contract buys occur that are not set asides.  If a contracting officer sends out an opportunity to be bid to only SDVOSBs on a Schedule 70, they can count the entire award as 100% to a small business.  Now on the surface that sounds great, but since it is not a set aside the 51% rule doesn’t apply.  So the way the game is typically played is that the contracting officer sends out the opportunity to three to four small businesses with the schedule and the socioeconomic credits they want.  They notify the incumbent contractor of who they have sent the opportunity to, they also let them know that it is NOT a set aside and, therefore, set aside prime contracting workshare rules do not apply.  What then happens is the incumbent contractor negotiates with each of the possible bidders and gets the largest workshare they can, up to 100% and also they set the rules about what type of rates can be billed to the government.  This then sets the small business up to be used as a pass through, the small business can do as little as 0% and still the agency will get credit for 100% of the work as small business.  If the contract goes south the firm that gets debarred from government contracting is the prime contractor even though the prime has no control over the contract and they have been put into a squeeze play between the incumbent large and the government.  Is this really the way we should be treating SDVOSBs and other small businesses?  This practice is legal through the rules of the FAR and GSA contracting, these rules must be modified to prevent such atrocities.  My firm has regularly been asked to bid on such opportunities by multiple federal agencies.   

Since Information Technology purchases represents such a large portion of the federal budget it is particularly imperative that attention is paid to this sector.  This represents an area for great improvement in the federal budget for achievement of small business goals.  Unfortunately it also represents an area that is particularly prone to contract bundling.   

Examples of contract bundling:

  • ITCC contract at USSTRATCOM in Nebraska bundled all Information Technology maintenance contracts, many of which had previously been held by small businesses.  The contract value total is a minimum of $550 million over a period of ten years.  Effectively shutting out all opportunities for small business prime contracts in the Information Technology sector at that base for ten years.  In this geographic region, Offutt Air Force Base and the Corps of Engineers are the only federal agencies that use Information Technology contractors.  Therefore, the impact to small business functioning in this area effectively wipes out all opportunities for prime contracts.
  • Corps of Engineers has bundled all of their Information Technology Services contracts.  The net effect of this effort is that all Corps of Engineers I/T opportunities nationwide have shut out thousands of small businesses across the nation. 

Solutions:

  • Do not allow contract bundling if it will prevent a command or agency in a particular geographical region from meeting its small business prime contracting goals.
  • Do not allow contract bundling if it will bundle all requirements for a particular NAICS code at that command or agency in a particular geographical region. 
  • Require GSA schedule buys that are not set asides to only allow the government to count towards their small business goals that percentage of the business that the small business actually executed vice their large business subcontractor. 
  • Change FAR part 16 to allow awardees under a MAC to have restricted small business competitions for any reason post award of the BPA.  Also allow the contracting officer to do direct awards to any small business awardee under the MAC subject to the limitation on small business direct award amounts. 
  • Implement the findings from the OMB report titled “A Strategy for Increasing Federal Contracting Opportunities for Small Business” dated October 29, 2002.

Thank you for holding this hearing today and thank you for giving me the opportunity to share my knowledge and experience with you today.  I am glad that this hearing is being held and I hope that my testimony will help you to develop real solutions to this critical issue.  I appreciate your willingness to listen and receive input from the front lines of small businesses that are dealing with this issue on a daily basis.  I would be happy to answer any questions this committee may have.

Appendix A

1.  Fernando V. Galaviz Testimony Before Senate Committee on Small Business and Entrepreneurship, 22 May 2007

2.  FAR -- Part 16

DFARS 216
(a) All multiple award contractors shall be provided a fair opportunity to be considered for each order in excess of the micro-purchase threshold as defined in FAR 2.101

3. OMB report titled “A Strategy for Increasing Federal Contracting Opportunities for Small Business” dated October 29, 2002

4. Audit of the Contract Bundling Process, Audit Report Number 5-20, dtd May 20, 2005 from SBA – Office of Inspector General.

5. Government Executive, “Bush Advocates Reduction in Contract Bundling”, Amelia Gruber, dtd October 14, 2004.

6.  SBA Small Business Research Summary, “The Impact of Contract Bundling on Small Business, FY 1992- FY 2001 # 221”, Eagle Eye Publishers.

7.  Office of Advocacy, SBA, News release, “Federal Contract Bundling Increases to the Detriment of Small Business”, SBA Number: 02-36 ADVO, John McDowell, dated October 2, 2002.