Lawmakers curtail DOD bundling

Proposed 2004 Defense Authorization bill amendment

The Defense Department could be forced to rethink its strategy of combining related, smaller contracts into a single large one after the Senate last week passed a provision limiting the department's use of bundled contracts.

The Senate passed an amendment to the 2004 Defense authorization bill May 21 requiring department, agency or service heads to review all bundled contracts in excess of $5 million before the procurement can move forward. The Senate passed the entire bill, which included the amendment, on May 22.

Critics argue that bundling effectively knocks smaller businesses out of the competition, but supporters say the practice speeds up the procurement process and saves money.

The amendment, introduced by Sen. Susan Collins (R-Maine), calls for DOD "to ensure that the decisions made by that official regarding consolidation of contract requirements...are made with a view to providing small-business concerns with appropriate opportunities to participate in Department of Defense procurements as prime contractors."

"The proliferation of contract bundling, especially at the Department of Defense, has dramatically reduced the government's contractor base," Collins said. "It's a losing situation for everyone — for small businesses, for the government and, ultimately, for the taxpayers."

DOD officials were not available for comment.

"There is a real danger that the anti-bundling push will produce taxpayer rip-offs and hurt agency missions," said Steve Kelman, a professor of public management at Harvard University's Kennedy School and former administrator of the Office of Federal Procurement Policy during the Clinton administration. "Unbundling contracts can produce higher prices by depriving the government of quantity discounts and better vendor service. The government could well end up paying more for computers and other products.

"Unbundling could put the government in the situation of acting as its own systems integrator for [information technology] development work, which from long experience we know is a recipe for disaster," he added.

Bruce McLellan, executive director of the Coalition for Government Procurement, said comprehensive numbers on how bundling affects small businesses don't exist. "I don't think there's been a complete examination of the numbers here," he said. "You can't look at just the number of small businesses getting contracts; it might be better to look at the dollar figure of the contracts awarded. We haven't seen anything to indicate that small businesses aren't bidding on bundled contracts."

According to the Office of Management and Budget, the number of small businesses receiving new contracts fell from about 26,500 in 1991 to 11,500 in 2001. But a Pentagon report issued May 19 indicated that small businesses had won $5 billion more in DOD contracts in fiscal 2002 than they won in fiscal 2001.

Olga Grkavac, an executive vice president with the Information Technology Association of America, said the change proposed in the amendment could be duplicated at other agencies. The Bush administration "is definitely pushing the [bundling] issue," she said. "We were not surprised by the amendment and would not be surprised to see other [agencies] follow suit."

The provision is not the first attempt to limit agencies' bundling practices. OFPP and the Small Business Administration proposed rules in January that would make it harder for agencies to bundle contracts and require greater justification of the decision to do so.

The proposals would amend the Federal Acquisition Regulation and SBA's rules for small-business prime contracting assistance. One proposal includes requiring an agency to coordinate with its small-business specialist for contracts beyond specific dollar-value thresholds, setting a goal of $7 million for DOD.

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DOD bills pass

The House and Senate last week passed their versions of the fiscal 2004 Defense authorization bill. The House version of the bill would reduce the Defense Department's information technology spending by $1.7 billion; the Senate increased IT spending by about the same amount.

Other provisions in the House bill include:

* The Services Acquisition Reform Act, designed to simplify the procurement of services.

* The National Security Personnel System, legislation to reform DOD's civilian personnel system.

* The Human Capital Performance Fund to reward high-performing employees.