Contract bundling attracts more scrutiny

Small businesses seeking to become federal contractors are continuing to receive help from the government.

Sen. Olympia Snowe (R-Maine), chairwoman of the Senate Small Business and Entrepreneurship Committee, said at a hearing last week that proposed new rules designed to make it harder for agencies to bundle contracts may not go far enough.

Snowe listened to testimony and asked questions about the problems that contract bundling has caused and the efforts under way to reform the process. Bundling is a practice in which agencies combine several small contracts into one large one, which often means that small businesses cannot directly compete for the work and must instead seek a subcontracting role.

However, the rules that govern bundling are about to change. The Office of Federal Procurement Policy (OFPP) and the Small Business Administration published proposed rules in January that would make it harder for agencies to bundle contracts and require greater justification of the decision to do so.

Snowe said she is concerned about OFPP's proposal to lower the threshold at which contracts would be subject to bundling review. Under current rules, a bundled contract worth $10 million or more per year is termed a "substantial bundle" and subject to review. Under the proposed rule, Defense Department contracts are considered substantial if they exceed $7 million. The threshold is $5 million for NASA, the General Services Administration and the Energy Department, and $2 million for all other agencies.

Because most small-business contracts are measured in thousands of dollars, Snowe found the proposed lower thresholds to be unreasonably high. However, Angela Styles, OFPP administrator, said she believes the amounts are appropriate and — perhaps more important — realistic. "We wanted to set thresholds we could actually fulfill," she said.

Small businesses received about $50 billion in federal contracts in 2001, about 22.8 percent of the year's total, said SBA Administrator Hector Barreto. In addition, large contract holders subcontracted about $35.5 billion to small firms.

However, studies show that for every 100 bundled contracts, 106 contracts become unavailable to small businesses, he said. And although the dollar amount spent with small businesses has remained relatively constant in recent years, the number of new contract awards has dropped from 86,243 in 1991 to 34,261 in 2001, he said.

Barreto put some of the blame on multiple-award contracts, which are not subject to consistent reviews for bundling and small-business participation under current rules. Orders under such contracts increased from $21 billion in 1990 to $72 billion in 2001, about 31 percent of total 2001 procurements, he said.