Chairwoman Sandlin and Ranking Member Boozman and distinguished members of the Committee, thank you for inviting me here today to discuss contract bundling and its impact on veteran-owned small businesses. Contract bundling affects the ability of all small businesses to compete in the Federal procurement arena. I’d like to begin with a brief background and then discuss what the Administration, SBA and federal agencies are doing to mitigate the effects of bundling and how that, in turn, has increased the ability of all small businesses, including veteran-owned small businesses to compete for and be awarded prime federal contracts and subcontracts. Mitigation of unnecessary contract bundling creates and helps sustain jobs in the small business community.
The Small Business Act defines “bundling of contract requirements” as: “… consolidating two or more procurement requirements for goods or services previously provided or performed under separate small contracts into a solicitation of offers for a single contract that is likely to be unsuitable for award to a small business concern due to – diversity, size or specialized nature of the elements of the performance specified; the aggregate dollar value of the anticipated award; the geographical dispersion of the contract performance sites; or any combination of these factors.
In addition, the Small Business Act specifically directs each Federal agency, to the maximum extent practicable, “…to foster the participation of small business concerns as prime contractors, subcontractors, and suppliers; structure its contracting requirements to facilitate competition by and among small business concerns taking all reasonable steps to eliminate obstacles to their participation; and “avoid unnecessary and unjustified bundling of contract requirements that precludes small business participation in procurements as prime contractors.”
When justified, bundling or consolidating contract requirements are an acceptable practice for federal agencies. However, the key is for agencies to document and justify their actions by demonstrating that there are measurably substantial benefits. The benefits may include cost savings and /or price reduction, quality improvements that will save time or improve or enhance performance or efficiency, reduction in acquisition cycle times, better terms and conditions, and any other benefits that individually, in combination or in aggregate would lead to benefits equivalent to 10 percent of the contract or order value where the order is $86 million, or less or $8.6 million where the order or contract exceeds $86 million.
Contracting agencies must balance the need to obtain goods and services with the need to keep the playing field as level as possible to maximize contracting and subcontracting opportunities for small businesses by adhering to the mandate of Congress as promulgated in the Small Business Act and federal procurement regulations.
Early in his Administration, the President recognized that contract bundling posed a serious impediment for small businesses in the federal procurement arena with their ability to compete for and be awarded federal contracts. As a result, the President's 2002 Small Business Agenda directed the Office of Management and Budget (OMB) to develop a strategy for unbundling contracts as a means of expanding small business access to Federal procurements.
In response, the Office of Federal Procurement Policy (OFPP), within OMB, issued the October 2002 Bundling Report, providing a nine-point action plan to hold agencies accountable for eliminating unnecessary contract bundling and for mitigating the effects of necessary contract bundling. Five of the nine action items specifically called for regulatory implementation. They were: 1) clarifying the definition of contract bundling to require bundling reviews of task and delivery orders under multiple award contract vehicles; 2) bundling reviews of agency acquisitions above specific dollar thresholds; 3) mandating the identification of alternative acquisition strategies and justification for bundled procurements above established thresholds; 4) requiring measures to strengthen compliance with subcontracting plans of large business prime contractors; and 5) measures to facilitate small business teaming arrangements.
On January 31, 2003, SBA published a proposed rule to revise its bundling regulations to solicit comments on implementing several recommendations included in OFPPs October 2002 report. SBA published final regulations on October 20, 2003. The regulations, among other things:
- Revises the definition of contract bundling to include multiple award contract vehicles and task and delivery orders competed against those vehicles.
- Requires contract bundling reviews for contracts and orders under multiple award contracts above established thresholds for unnecessary and unjustified bundling ($7 million for DOD, $5 million for GSA, NASA, and DOE, and $2 million for all other agencies).
- Requires procuring activities to coordinate with their small business specialist proposed acquisition strategies for contracts and orders above the established thresholds. Require the small business specialist to coordinate with the OSDBU when those strategies include bundling that is unnecessary and unjustified or not identified.
- Reduces the threshold for substantial bundling (from $10 million annually) to the above established thresholds and revise the documentation to the agency OSDBU.
- Requires agencies to identify alternative strategies that involve less bundling when they contemplate a bundled contract.
- Requires agencies to strengthen compliance with subcontracting plans.
- Requires the Agency Offices of Small and Disadvantaged Business Utilization to perform certain oversight functions and submit a report annually to the Agency Head and the SBA Administrator and conduct periodic reviews to assess:
- the extent to which small businesses are receiving their fair share of Federal procurement;
- the adequacy of contract bundling documentation and justification; and
- the adequacy of actions taken to mitigate the effects of necessary contract bundling on small business (e.g. Review agency oversight of prime contractor subcontracting plan compliance).
SBA assist small businesses in obtaining a larger share of federal procurements through a variety of programs and services. The prime and subcontracting programs benefit small businesses by assisting them to obtain procurement opportunities. In Fiscal Year 2005, Federal agencies spend about $77 billion in prime contract awards to small businesses and in Fiscal Year 2003, the most recent year data is available, about $45.4 billion in subcontracting awards to small businesses. We estimate that each $133,500 dollars spent supports one small business job. Thus, for fiscal year 2005, federal prime contract dollars awarded to small businesses supported approximately 590,000 jobs and subcontract dollars awarded to small businesses by federal prime contractors supported approximately 340,000 small business jobs. From Fiscal Year 2001 to 2005, contract dollars to service-disabled small businesses increased from $550 Million to more than $1.9 Billion dollars.
Through the prime and subcontracting programs, SBA provides policy direction and guidance to Federal agencies and works with them to develop acquisition strategies that will help to increase opportunities for small businesses in Federal procurement. As an example, we recently submitted a request to the Federal Acquisition Regulatory Council to revise federal procurement regulations to address “parity” among SBA’s HUBZone, 8(a) and SDVOSBC programs. The revisions are intended to give agencies discretion in structuring procurements, permit a balanced approach to meeting small business goals, and will enhance federal contract participation for small businesses eligible to participate in each of those programs.
SBA Headquarters staff also negotiates prime contracting and subcontracting goals with Federal agencies, monitors progress and submits reports to the President and Congress. Additionally our responsibilities include providing contract assistance to small businesses, including service-disabled veteran-owned small businesses; managing the Natural Resources Sales Assistance Program; performing formal size determinations on firms in connection with Federal government prime contracts; and administering the Certificate of Competency Program that allows an apparent successful small business to demonstrate that it has the capability to perform on a specific Federal prime government contract.
Our staff of Procurement Center Representatives (PCRs), located at major Federal buying activities are responsible for reviewing all unrestricted and bundled procurements and assisting small businesses to participate in Federal procurements as both prime contractors and subcontractors. PCRs work with the buying activities to mitigate the effects of contract bundling and work with federal buying activities to help identify small business program participants, such as Service-Disabled Veteran-Owned Small Businesses, so agencies can conduct set-aside procurements. We also have a staff of Commercial Market Representatives (CMRs) located in the GC Area Offices, that implement the Subcontracting Assistance Program by conducting compliance reviews of large business prime contractors and various other activities, such as counseling small businesses and matchmaking. CMRs monitor the large prime contractors to ensure that they are meeting the small business goals in their subcontracting plans, and make recommendations to prime contractors on how to strengthen their small business programs.
I’d like to bring to the Committee’s attention to three of the many instances where our PCRs were successful in recommending Federal agencies set-aside procurements for Service-Disabled Veteran-Owned Small Businesses:
The Veterans Administration Boston Healthcare System, Boston, MA, set-aside a procurement for the Replacement of Steam Piping for Service Disabled Veterans. The Contracting Officer agreed with the PCR’s recommendation and issued a solicitation for a SDVOSB set-aside. It has an estimated cost of $1 Million.
Our Philadelphia PCR was successful in convincing the Naval Inventory Control Point in Mechanicsburg, PA, to convert an unrestricted procurement to a Service-Disabled Veteran-Owned Small Business set-aside. The 5-year contract is estimated to be worth $2.7 million.
Our PCR in Philadelphia, PA was successful in convincing a Defense Logistics Agency buying activity to partially set-aside a requirement for Marine Corps Sweat Shirts and Sweat Pants for Service Disabled Veteran Owned (SDVO) firms. The total requirement is estimated at $7.7 million dollars and will be 60% set-aside for small business and 40% set-aside for SDVO firms.
SBA has highlighted the Department of Defense’s “Benefit Analysis Guidebook, A Reference to Assist Department of Defense Acquisition Strategy Teams in Performing a
Benefit Analysis before Bundling Contract Requirements” as an federal agency source reference for Best Practices for mitigating the effects of contract bundling and as a guide on how to perform and document measurably substantial benefits to justify contract bundling. This guidebook is available on SBA’s internet homepage.
SBA continues to work with federal procuring agencies’ small business directors to identify unnecessary contract bundling and develop acquisition strategies that will provide maximum opportunities for small businesses. We are expanding use of technology to help provide broader coverage of our resources to identify increase procurement opportunities for small business.
In conclusion, SBA is committed to the President’s Small Business Agenda and his proposals to create jobs and growth through the small business sector. We must ensure that small businesses including Service Disabled Veteran-Owned Small Business Concerns and Veteran Owned Small Business Concerns receive their fair share of contract opportunities. Increased opportunities for firms will result in savings to the taxpayers, a stronger economy, and a stronger America. This concludes my remarks, and I will be happy to respond to any questions that you may have.