House urges White House to protect small businesses

The Clinton administration must work quickly to define strong regulations that will protect small businesses from the increasingly common practice of combining small individual contracts into one large pact, members of a House panel said last week.

Members of the House Small Business Committee told officials from the Small Business Administration and the Office of Federal Procurement Policy to put in place a strong final rule on the practice of so-called contract bundling so that small businesses do not miss out on federal business opportunities. Contract bundling shuts out small businesses, according to small business advocates, because when smaller contracts are combined into a larger one, small businesses typically cannot compete for the larger contract because the businesses lack the resources or capital to adequately meet the contract's demands.

The Small Business Reauthorization Act of 1997 created a process for SBA to appeal an agency decision to bundle contracts and established guidelines to help agencies decide when contract bundling is appropriate. But SBA and OFPP have yet to issue a final rule on the practice. The agencies, which issued a draft rule in January, said the final rule currently is out for agency comment and should be released in the near future.

"Until we get the regulations in place, we can't even track this [practice]," said Rep. Jim Talent (R-Mo.), chairman of the House Small Business Committee, adding that any final rule must have teeth behind it. The current law is too vague, he said, because it allows contract bundling if an agency can demonstrate "measurable substantial benefits" such as cost savings and reduction in acquisition cycle times, but it does not provide a way to quantify those benefits.

"One contracting officer could easily say that even marginal savings or changes in acquisition cycle times were enough, whereas a more conscientious contracting officer might challenge the same contract," Talent said in his opening statement. "What contracting officer is going to want to buck the force of the federal procurement system to say that the benefits aren't substantial enough?"

Richard Hayes, associate deputy administrator for government contracting and minority development at SBA, said during the hearing that SBA is working with OFPP to draft a rule that provides some "quantifiable measures." The challenge, he added, is to decide whether to institute a "one-size-fits-all" approach or a more flexible approach that considers each situation on a case-by-case basis.

Deidre Lee, administrator of OFPP and acting deputy director of management at the Office of Management and Budget, said a one-size-fits-all approach will not work because the size of contracts varies widely, which would make it difficult to compare benefits. "Ten percent of $1 million is very different from 10 percent of $100 million," she said.

Rep. Nydia Velazquez (D-N.Y.) called the government's midyear report card measuring agencies' progress on meeting small business goals "dismal." But Lee testified that current data shows that contract bundling and other acquisition reforms are not "significantly distracting agencies in their efforts to achieve their small business goals."

Meanwhile, Rep. Danny Davis (D-Ill.) questioned whether contract bundling should be allowed at all. "Is bundling simply a way to give big businesses an opportunity to get bigger or rich [businesses] the opportunity to get richer?" he asked. "We really need to take these questions somewhere else because this is a flawed policy."

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At a Glance

Contract bundling

What is it?

A way to combine small individual contracts into one larger contract.

At issue

Small business groups argue that contract bundling tilts the playing field because small businesses do not have the resources to meet larger contracts' obligations.

Current law

Contract officers can bundle contracts if they demonstrate "measurable substantial benefits" but are not required to quantify the benefits.