Table Of ContentIMPACT OF CONTRACT BUNDLING ON SMALL BUSI-
NESS CONCERNS: RECEIPT OF REPORT FROM
U.S. SMALL BUSINESS ADMINISTRATION ON
CONTRACT BUNDLING
Y4.SI1 1:103-22
Inpact of Contract Bundling on Snal. . . -pTTNJp
BEFORE THE
SUBCOMMITTEE ON PROCUEEMENT, TAXATION, AND
TOUEISM
OF THE
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
WASHINGTON, DC, JUNE 10, 1993
Printed for the use of the Committee on Small Business
Serial No. 103-22
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON 1993
:
ForsalebytheU.S.GovernmentPrintingOffice
SuperintendentofDocuments.CongressionalSalesOffice.Washington,DC 20402
ISBN 0-16-043280-4
\v) ' IMPACT OF CONTRACT BUNDLING ON SMALL BUSI-
NESS CONCERNS: RECEIPT OF REPORT FROM
U.S. SMALL BUSINESS ADMINISTRATION ON
CONTRACT BUNDLING
Y 4.SM 1:103-22
Inpact of Contract Bundling on Snal. . . -pT-vrpi
BEFORE THE
SUBCOMMITTEE ON PROCUEEMENT, TAXATION, AND
TOURISM
OF THE
COMMITTEE ON SMALL BUSINESS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
FIRST SESSION
WASHINGTON, DC, JUNE 10, 1993
Printed for the use of the Committee on Small Business
Serial No. 103-22
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U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON 1993
:
ForsalebytheU.S.GovernmentPrintingOffice
SuperintendentofDocuments.CongressionalSalesOffice.Washington,DC 20402
ISBN 0-16-043280-4
COMMITTEE ON SMALL BUSINESS
JOHN J. LaFALCE, New York, Chairman
NEAL SMITH, Iowa JAN MEYERS, Kansas
IKE SKELTON, Missouri LARRY COMBEST, Texas
ROMANO L. MAZZOLI, Kentucky RICHARD H. BAKER, Louisiana
RON WYDEN, Oregon JOEL HEFLEY, Colorado
NORMAN SISISKY, Virginia RONALD K. MACHTLEY, Rhode Island
JOHN CONYERS, Jr., Michigan JIM RAMSTAD, Minnesota
JAMES H. BILBRAY, Nevada SAM JOHNSON, Texas
KWEISI MFUME, Maryland WILLIAM H. ZELIFF, Jr., New Hampshire
FLOYD H. FLAKE, New York MICHAEL A. "MAC" COLLINS, Georgia
BILL SARPALIUS, Texas SCOTT McINNIS, Colorado
GLENN POSHARD, Illinois MICHAEL HUFFINGTON, California
EVA M. CLAYTON, North Carolina JAMES M. TALENT, Missouri
MARTIN T. MEEHAN, Massachusetts JOE KNOLLENBERG, Michigan
PAT BANNER, Missouri JAY DICKEY, Arkansas
TED STRICKLAND, Ohio JAY KIM, California
NYDIA M. VELAZQUEZ, New York DONALD A. MANZULLO, Illinois
CLEO FIELDS, Louisiana PETER G. TORKILDSEN, Massachusetts
MARJORIE MARGOLIES-MEZVINSKY, ROB PORTMAN, Ohio
Pennsylvania
WALTER R. TUCKER III, California
RON KLINK, Pennsylvania
LUCILLE ROYBAL-ALLARD, California
EARL F. HILLIARD, Alabama
H. MARTIN LANCASTER, North Carolina
THOMAS H. ANDREWS, Maine
MAXINE WATERS, California
Jeanne M. Roslanowick, StaffDirector
Steven Lynch, Minority StaffDirector
Subcommittee on Procurement, Taxation, and Tourism,
JAMES H. BILBRAY, Nevada, Chairman
NORMANSI&ISKY,"Virginia RICHARD H. BAKER, Louisiana
EKWAERILSIF.MHFIULLMIEA,RDM,arAyllaabnadma JSOAEMKJNOOHLNLSEONNB,ETReGx,asMichigan
EVA M. CLAYTON, Nor.th.Carolina
RON KyNK, PjennsyUiania
V\/.'<' John Fadgen, Subcommittee StaffDirector
DuANE Duncan, Minority Subcommittee Professional StaffMember
•!«:*'j/i^''
CONTENTS
Hearingheld on June 10, 1993
WITNESS
Thursday, June 10, 1993
Moffitt, Robert J., Associate Administrator for Procurement Assistance, U.S.
Small Business Administration 3
APPENDIX
Letters submitted for the record to Hon. James H. Bilbray:
Office ofManagement and Budget, Hon. Leon E. Panetta, Director 19
The White House, PresidentWilliam Clinton 18
U.S. Small Business Administration, Erskine B. Bowles, Administrator 20
Moffitt, RobertJ., prepared statement 21
Openingstatements:
Baker, Hon. Richard H 16
Bilbray, Hon. JamesH 14
(III)
IMPACT OF CONTRACT BUNDLING ON SMALL
BUSINESS CONCERNS: RECEIPT OF REPORT
FROM SMALL BUSINESS ADMINISTRA-
U.S.
TION ON CONTRACT BUNDLING
THURSDAY, JUNE 10, 1993
House of Representatives,
Subcommittee on Procurement,
Taxation, and Tourism,
Committee on Small Business,
Washington, DC.
The subcommittee met, pursuant to notice, at 2 p.m., in room
2222, Rayburn House Office Building, Hon. James H. Bilbray
(chairman ofthe subcommittee), presiding.
Chairman Bilbray. The subcommittee is called to order.
Today, the subcommittee embarks on one of the most important
responsibilities, the protection of small business mandates in Fed-
eral procurement. Of particular concern to the subcommittee in
this area has been the practice by a number of Federal agencies of
"bundling" a number of small contracts into one large contract,
contracts that could have traditionally been given to small busi-
nesses.
I have been in recent contact with both President Clinton and
OMB Director Leon Panetta on the issue of protecting small busi-
ness participation in getting these type of contracts. I have re-
ceived extremely direct and committed remarks from both of them
with their support for this issue, and, at this time, I would like to
enter them into the record, ifthere is no objection.
[The information may be found in the appendix.]
Chairman Bilbray. However, despite the White House commit-
ment to the protection, it appears that small businesses are still
being used as the scapegoats for shoddy and irresponsible cost cut-
ting.
In a time of ever-shrinking Federal budgets and streamlining,
small businesses are more aware than most that many contract op-
portunities are in jeopardy. However, it is patently unfair for small
businesses to be denied contracts because Federal procurement offi-
cers are trying to cut corners and not take the time to include
small businesses in solicitations. Let me assure all of you that this
subcommittee will be pursuing this issue very aggressively.
Today, we have Associate Administrator Robert Moffitt of the
Small Business Administration coming before us to present to this
subcommittee the efforts of the SBA to begin the investigation of
(1)
this issue. As Mr. Moffitt headed the team that undertook this
effort, I am very pleased to have him here to present to us his in-
sight into this issue. I do regret that Administrator Bowles was
unable to also join us, but I understand that Mr. Moffitt brings
with him a letter stating the Administrator's deep concern about
this matter and the SBA's desire to lead on this issue.
This report was mandated in last year's Small Business Credit
and Business Opportunity Act of 1992, which became Public Law
102-366. Section 321 of that legislation called upon the SBA to un-
dertake a study of the question of bundling. Unfortunately, due to
lack of data available, this report raises far more questions than it
answers. The one clear conclusion is that a number of agencies
have chosen for years to brush questions regarding this practice
under the rug and have opted to continue a practice that clearly
prohibits small businesses from receiving millions of dollars in con-
tracts. I am also particularly concerned that the two agencies that
account for over 70 percent of the Federal procurement, the De-
partment of Defense and NASA, did not submit information to the
study.
The subcommittee will be asking a number of questions of Mr.
Moffitt in order to try to gain some insight into the work that re-
mains to be done and to truly gain some foothold in the gaps that
are part of this report. The importance of this hearing is also
heightened by ongoing congressional procurement reform efforts in
which this subcommittee is also participating, specifically the sec-
tion 800 report by the Department of Defense and Chairman Con-
yers' bill, H.R. 2238. It is imperative that before any substantial
reform efforts are attempted, the problem of bundling be rectified
and its eradication be an intricate part ofany congressional efforts.
[Chairman Bilbray's statement may be found in the appendix.]
Chairman Bilbray. As I have stated, there are a lot of questions
which remain unanswered in this report, and I trust that Mr. Mof-
fitt's expertise will shed some light on these questions.
Thank you for coming, Mr. Moffitt, and I will turn it over to my
ranking member, Mr. Baker.
Mr. Baker. Thank you, Mr. Chairman. I appreciate your interest
in this matter and calling this hearing. I have a written statement
which I would like to submit for the record and would also want to
make a few brief remarks concerning the scope and direction ofthe
intention of the study as well as the possible effects of bundling on
the military installations. I happen to have a district which has
three such facilities, and, regrettably, the report does not inquire
into the effects of bundling on small business interests as it relates
to the Department of Defense, but have a personal interest in find-
ing out ifthere are future plans to inquire further. Does this report
represent the end conclusion of the process, and what effect might
there be if we had looked at Defense Department acquisitions in
relation to the issue ofbundling?
I have expressed interest in the past in my own legislative effort
simply to better define small business set-asides and to, perhaps,
require an agency spend some disproportionate share of their Fed-
eral funding for procurement within a geographic region in small
business procurement supplier contracts. I don't know how we bal-
ance in our hunt for efficiency and least cost to taxpayers where
often quantity does generate savings as against the opportunity
that small businessmen are deserving as taxpayers to participate in
providing services and goods to Federal agencies. But I am certain-
ly interested in hearing the Assistant Secretary's remarks and
learning more about what can be done to facilitate access to con-
tracting opportunities for businessmen everywhere.
Thank you, Mr. Chairman.
[Mr. Baker's statement may be found in the appendix.]
Chairman Bilbray. Mr. Moffitt.
TESTIMONY OF ROBERT MOFFITT, ASSOCIATE ADMINISTRA-
J.
TOR FOR PROCUREMENT ASSISTANCE, U.S. SMALL BUSINESS
ADMINISTRATION
Mr. Moffitt. Mr. Chairman and members of the subcommittee,
it is my pleasure to be here today. Erskine Bowles, the SBA Ad-
ministrator, asked me to speak on behalf of the agency. He regrets
that he cannot be here. However, he did send a letter with me that
he would like submitted for the record.
Chairman Bilbray. Without objection, it is so entered into the
record.
[The letter may be found in the appendix.]
Mr. Moffitt. Mr. Bowles is very concerned by this event of bun-
dling, and I am here today to discuss SBA's study on the practice.
This practice, also known as consolidation, umbrella contracting, is
widely believed by our small business constituency to be adverse to
their interests.
The Small Business Act clearly states congressional intent that a
fair portion of Federal Government purchases are to be placed with
small business concerns. To encourage successful small business
participation in the Federal acquisition process, the Federal Acqui-
sition Regulation enumerates specific procurement practices which
increase that likelihood. For example, these practices include divid-
ing proposed large acquisitions ofsupplies and services into smaller
portions and planning acquisitions so that more than one small
business concern may perform the work.
Notwithstanding the Federal policy, there has been a lingering
concern about the consolidation or bundling of procurement re-
quirements by Federal departments and agencies into umbrella
contracts. We have speculated that as Federal contracting agencies
down-size their staffs the incidence ofbundling will increase. Inter-
estingly, 76 percent of all study respondents confirmed this opinion
by saying that contract bundling will provide an opportunity to op-
erate more efficiently through acquisition streamlining, economies
of scale, quantity discounts, and the promotion of standardization
ofproducts and services.
Nonetheless, we believe that this anticipated trend does notjusti-
fy or relieve Federal procurement officials of their responsibility to
maximize small business access to contracting opportunities. SBA
realizes that in some cases bundling is a wise decision when to do
so would likely be significantly less costly or the only practical way
to satisfy a procurement need.
SBA developed a study plan which was published in the Federal
Register on November 25, 1992, and in the Commerce Business
Daily on December 2, 1992. On February 8, 1993, 0MB approved
the questionnaire which was crafted by SBA to solicit comments on
six specific issues. The target audience consisted of SBA personnel,
including our procurement center representatives, 17 Federal Gov-
ernment officials, 127 national small business and trade councils
and associations with a small business constituency, and 370 ran-
domly selected small businesses. Additional sources of data includ-
ed GAO reports, Comptroller General decisions, and the Federal
Procurement Data Center statistics. They were also reviewed and
considered.
The study resulted in the following findings of the study issues:
The impact of bundling is twofold. First, 76 percent of the study
respondents speculated that contract bundling would give the Fed-
eral procurement activities an opportunity to operate more effi-
ciently.
Second, and conversely, 24 percent of the respondents indicated
that contract bundling may also have a negative effect on procure-
ment activities in the Federal Government by diminishing competi-
tion, especially small business participation.
Of the study respondents, 97 percent stated that contract bun-
dling would adversely affect small business concerns by restricting
small business competition. The study did not reveal any benefits
for small businesses as a result of bundling. The Small Business
Act, section 15(a), includes a requirement that review of proposed
bundled acquisitions by SBA procurement center representatives
be made. The Federal Acquisition Regulation requires contracting
activities to submit all proposed bundling requirements to the PCR
at least 30 days prior to the issuance of the solicitation if the pro-
posed acquisition is for supplies or services which are currently
being provided by small businesses.
Buying activities construe bundling as applicable only to those
cases in which there is already a small business participation. Fur-
ther, new and/or modified requirements are not considered bun-
dling because they do not have an incumbent contractor. There-
fore, these actions are not submitted for the PCR for review. This
supports our recommendation for a more generic definition of con-
tract bundling. It is important to note that the Federal Govern-
ment has not developed a statistical data bank for bundling data.
In response to the question of the extent to which procuring ac-
tivities have been combining requirements of goods, services, and
construction into single solicitations, 73 percent of the respondents
indicated that Federal activities only moderately bundled require-
ments. However, many of the Government respondents indicated
that within the current Federal environment of do more with less,
contract bundling can be expected to increase at a rapid rate.
Based on the study findings, SBA concluded its report by present-
ing for congressional consideration the following 5 recommenda-
tions:
One, a single definition of bundling be adopted and used in all
discussions on contract bundling.
Two, a mechanism be developed and imposed on Federal contract
activities to collect data regarding the use ofbundling.
Three, Congress consider committing financial and other re-
sources, including sufficient time for SBA to confirm assertions
