DATE: October 30, 2002

SUBJECT: Office of Federal Procurement Policy (OFPP); Contract Bundling: A Strategy for Increasing Federal Contracting Opportunities for Small Business

SOURCE: OFPP Report to the President, October 29, 2002

AGENCIES: Office of Management and Budget (OMB), OFPP

ACTION: Editor's Analysis

SYNOPSIS: In response to President Bush's Small Business Agenda, issued March 19, 2002, part of which directed OMB to prepare a strategy for unbundling contracts, OFPP has submitted a report to the President providing an "aggressive strategy for holding agencies accountable for eliminating unnecessary contract bundling and mitigating the effects of necessary contract bundling."

EDITOR'S NOTE: "Bundling" is defined in Federal Acquisition Regulation (FAR) 2.101, Definitions, as "consolidating two or more requirements for supplies or services, previously provided or performed under separate smaller contracts, into a solicitation for a single contract that is likely to be unsuitable for award to a small business concern due to (1) the diversity, size, or specialized nature of the elements of the performance specified; (2) the aggregate dollar value of the anticipated award; (3) the geographical dispersion of the contract performance sites; or (4) any combination of the factors..." FAR 7.107, Additional Requirements for Acquisitions Involving Bundling, addresses the procedures to be followed when bundling is involved.

For more on the invitation from OMB to provide comments on contract bundling and other aspects of competition practices that affect small businesses, see the May 6, 2002, FEDERAL CONTRACTS DISPATCH "Office of Management and Budget; Competition in Contracting and Contract Bundling."

ANALYSIS: On March 19, 2002, the President issued his Small Business Agenda to "help create an environment in which small businesses can flourish." One of the initiatives was "save taxpayers dollars by ensuring full and open competition to government contracts." Included in the initiative were the following proposals:

On May 6, 2002, OMB published an invitation for interested parties to provide comments on the effect the procurement reforms of the 1990's has had on the ability of small business to obtain federal contracts, such as the micro-purchase authority, the use of the governmentwide purchase card, growing use of electronic commerce in government contracting, and contract bundling. OMB received comments from 27 respondents on these topics. In addition, OMB held a meeting on June 14, 2002, to allow interested parties to express their views, and 14 individuals did so. All the contract bundling related comments were considered in the preparation of the contract bundling report provided to the president and released to the public on October 29, 2002.

According to the report, the reason the contract bundling issue is so important to small businesses is that "for every 100 'bundled' contracts, 106 individual contracts are no longer available to small businesses. For every $100 awarded on a 'bundled' contract, there is a $33 decrease to small businesses...There has been a sharp overall decline in new contract awards...from a high of 86,243 in fiscal year 1991 to a low of 34,261 in fiscal year 2001. We also found that significantly fewer small businesses are receiving federal government contracts...from a high of 26,506 in fiscal year 1991 to a low of 11,651 in fiscal year 2000. The significant reductions in new contract awards and the number of small business contractors receiving contract awards signals an increase in contract bundling and a decline in small business opportunities."

The contract unbundling "strategy" will consist of nine separate actions:

  1. Ensure accountability of senior agency management for improving contracting opportunities for small business. "Senior agency management will be held accountable for eliminating unnecessary contract bundling and mitigating the effects of necessary and justified contract bundling. Agencies will be required to report to OMB...on a periodic basis on the status of agency efforts to address contract bundling issues."

  2. Ensure timely and accurate reporting of contract bundling information through the President's Management Council. "OMB, agencies and the SBA [Small Business Administration] can use this information to monitor contract bundling trends and adjust practices as warranted."

  3. Require contract bundling reviews for task and delivery orders under multiple award contract vehicles. "The definition of contract bundling in the FAR [Federal Acquisition Regulation] and SBA regulations will be clarified to require contract bundling reviews by the agency OSDBU [Office of Small and Disadvantaged Business Utilization] for task and delivery orders under multiple award contract vehicles."

  4. Require agency review of proposed acquisitions above specified thresholds for unnecessary and unjustified contract bundling. "SBA regulations and the FAR will be modified to require contract bundling reviews of proposed acquisitions above agency-specific dollar thresholds. Individual agency review thresholds for acquisitions between $2 million and $7 million should be established based on an agency's volume of contracts and in consultation with the SBA and agency OSDBU."

  5. Require identification of alternative acquisition strategies for the proposed bundling of contracts above specified thresholds and written justification when alternatives involving less bundling are not used. "SBA regulations and the FAR will be modified to require agencies to specifically identify alternative acquisition strategies that involve less bundling when an agency contemplates a bundled contract above a threshold between $2 million and $7 million. Where a bundled contract is used for an acquisition above the specified threshold, a written justification for using a bundled contract should identify these alternative strategies and the rationale for choosing a particular strategy over alternatives that could involve less bundling."

  6. Mitigate the effects of contract bundling by strengthening compliance with subcontracting plans. "To encourage greater small business participation as subcontractors in bundled acquisitions, the FAR will be amended to require agencies to use contractor compliance with subcontracting plans as an evaluation factor for future contract awards. Agencies also will strengthen oversight of contractor efforts to comply with subcontracting plans by establishing procedures that designate personnel responsible for monitoring contractor compliance with subcontracting plans, delineate responsibilities of such personnel, and monitor their performance. These procedures will include specific requirements for agency monitoring of contractor efforts to comply with subcontracting plans for agency multiple award contracts (MACs), multi-agency contracts, governmentwide acquisition contracts (GWACs), and GSA's [General Services Administration's] multiple award schedule program contracts and orders under all of these types of contracts."

  7. Mitigate the effects of contract bundling by facilitating the development of small business teams and joint ventures. "SBA bundling regulations encourage the formation of teams of small business contractors to compete for bundled contracts. However, small businesses face obstacles to forming these teams due to relatively limited time available to respond to agency procurement solicitations, time that could otherwise be used to prepare a proposal in response to the solicitation. Agencies will train and otherwise facilitate early development of teams of small business contractors to compete for upcoming procurements."

  8. Identify best practices for maximizing small business opportunities. "Some agency acquisition plans and justifications for bundling contracts include successful strategies for maximizing prime and subcontracting opportunities for small businesses. In cooperation with department and agency procurement executives and OSDBU directors, SBA will collect and disseminate these examples and incorporate them in appropriate training courses and materials."

  9. Dedicate agency OSDBUs to the president's small business agenda. "Agency OSDBUs are expected to significantly increase reviews of proposed acquisitions for contract bundling as well as monitor contractor compliance with subcontracting plans."

EDITOR'S ANALYSIS: This is a mighty tall order for OSDBUs! They are to conduct contract bundling reviews of task and delivery orders, conduct contract bundling reviews of proposed acquisitions over $2 million to $7 million, ensure compliance with subcontracting plans, conduct training, facilitate small business teams and joint ventures, and generally keep track of everything! OSDBUs typically have few people, and they are not trained to perform the tasks OMB/OFPP have assigned them. Look for it to take a lot longer than the Bush administration expects to get this "strategy" implemented, if it ever gets implemented!

FOR FURTHER INFORMATION CONTACT: Panoptic Enterprises at 703-451-5953 or by e-mail to Panoptic@FedGovContracts.com.

Copyright 2002 by Panoptic Enterprises. All Rights Reserved.

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