Small-business advocates release bundling rules

Revised federal purchasing rules took effect Monday to limit "contract bundling," a practice that small-business operators claim keeps them from winning more contracts from the nation's largest buyer—the federal government.

The new rules require government agencies "to avoid unnecessary bundling that precludes small-business participation in the performance of federal contracts."

Bundling is the practice of combining a number of small contracts into a single large one. Although the practice sometimes can cut costs and reduce contract administration chores, it also can reduce competition and make contracts too large for small businesses to tackle.

Small-business operators, including many in information technology, complained about the practice to Congress and the Small Business Administration. In response, the Civilian Agency Acquisition Council and the Defense Acquisition Regulations Council agreed to amend the Federal Acquisition Regulation to rein in bundling. Although the new rules apply to contracts issued on or after Dec. 27, they are interim rules and still may change, an official at the General Services Administration said. The agency will accept public comments on the rules until Feb. 25.

Meanwhile, to bundle contracts, government agencies must perform market research and demonstrate that bundling is justified. They must also assess the impact bundling will have on small businesses and submit proposed bundled contracts for review by the Small Business Administration.

That doesn't mean bundling is banned. Indeed, "bundling may provide substantial benefits to the government," the acquisition councils said. But agencies must prove that it does. If research shows that agencies will derive "measurably substantial benefits," they may bundle contracts, according to the rules.

Measurably substantial benefits are defined as cost savings, price reductions, quality improvements, time savings, improved performance, greater efficiency, shorter acquisition cycles, better terms and conditions, or other benefits.

To be measurably substantial, the benefits must equal 10 percent of the estimated value of contracts worth $75 million or less. For contracts worth more than $75 million, bundling must yield at least a 5 percent benefit if agencies want to bundle the contracts.

SBA endorsed the rules changes last fall. Aida Alvarez, SBA administrator, said small businesses should be protected against contract bundling because the competition they provide helps hold down the cost of government contracts.

Small-business representatives told Congress that 13 percent of all contracts were bundled in 1999, up from about 11 percent in 1992. They said the increase threatened to reduce the share of federal contracts awarded to small businesses. In 1999, SBA estimated that small businesses won $40 billion of government business. Large businesses won contracts worth $140 billion.