Trying to Loosen Big Companies’ Grip on Government Contracts

Small business won a little-noticed victory last week when Congress, rushing to a close, approved an anti-bundling measure as part of the Small Business Administration’s reauthorization package.

Contract “bundling” may be a foreign term to many small-business owners. But the effect of consolidating a number of small purchases into single, large contracts is easily understandable: Only big companies need apply.

Begun in the late 1980s, bundling has accelerated over the last three years as a cost-saving measure. In the process, an estimated 7,000 small businesses have been banished, in effect, from the federal marketplace. Thousands of other small companies have found themselves shut out from bidding on state and local government projects.

And even companies that never seek government work have found jobs in the private sector drying up as corporations pursue “vendor reduction,” the private-side version of bundling.

“When you bundle contracts, you’re only going to deal with larger companies, and larger companies will control everything,” said Lynne Joy Rogers, director of the Ron Brown Information and Technology Center in Los Angeles. “It has serious implications for our free-enterprise system.”

Although big companies may subcontract with small firms, the big firms remain in the driver’s seat, Rogers said.

“If larger contractors are controlling all the subcontract dollars, they are literally controlling the future of smaller businesses to be competitive with them,” Rogers said. “They can control small-firm growth and profitability; they can literally control how much money you can make.”

In the private sector, the trend has accelerated as accounting firms have advised clients to reduce costs by decreasing the number of vendors, Rogers said.

But those initial savings may be false savings, say small-business advocates, who argue that small businesses with lower overhead can actually provide real and longer-term cost savings with economical products and services and not just an initial reduction in administration costs.

So serious is the problem that the SBA’s Office of Advocacy commissioned a study of federal bundled contracts from fiscal 1991 to fiscal 1995. The report concluded that with an 8.7% decline in federal contract spending during that time (from $196.6 billion to $179.4 billion), small businesses, specifically nonminority-owned firms, were being harmed.

Federal spending decreased, but the number of large contracts (those equal to or greater than $100,000) grew. In 1995, large contracts made up 48% of total federal contracts, compared with 40% five years earlier.

Industries that have been hard hit by bundling, the report said, include ship repair, architecture and engineering services, hospital and pharmaceutical supplies, construction-renovation and food service.

In the hospital-supply sector, large firms dominate sales and contract counts. In food service, contracts to nonminority-owned businesses have declined by 21% and to minority-owned businesses by 12%, the report said.

These declines may be even greater now, according to the report, because of ongoing federal reforms. Under the Federal Acquisitions Streamlining Act of 1994 and the Federal Acquisition Reform Act of 1996, the Clinton administration has been aggressively ridding itself of thousands of federal procurement officers. Those left behind have tried to reduce their workload by consolidating contracts and extending them longer.

Although the SBA administrator has had the authority to challenge contract bundling by federal agencies since 1989, the SBA has had to rely on complaints from businesses. Thus, the SBA wasn’t always aware when contracts were being bundled. Further, agencies would consolidate contracts but deny they were bundling them.

The new measure, written by Sen. Christopher S. Bond (R-Mo.), chairman of the Senate Committee on Small Business, would require that federal procurement officers use a new definition of bundling. Bundled contracts would be evaluated for their real cost-savings and for any harm they might cause small business.

In addition, bundled contracts would be tracked by the government, small businesses would be encouraged to form teams to go after larger contracts and priority would be given to large contractors who provide subcontracting opportunities for small firms.

The measures will go into effect if President Clinton signs the reauthorization measure in the next week, as expected, paving the way for written regulations to be issued in six months to a year.

A second measure approved as part of the SBA reauthorization package would create federal contracting opportunities for small companies located in designated low-income rural and urban areas. By 2003, at least 3% of all federal procurement dollars would go to companies in these zones that hire 35% of their work force from the area.

The reauthorization and appropriation measures approved by Congress last week also set aside $716 million in fiscal 1998 for the SBA. Of that, $161 million was slotted for the 7(a) lending program, the agency’s largest lending program. With carry-over funds from the last year, the total 7(a) amount should reach $196.7 million, guaranteeing $9.6 billion in small-business loans nationwide. That compares with $9.5 billion and 45,288 loans in 1997.

And $20.2 million was approved for the Small Business Investment Companies program, a venture capital lending program that will guarantee $1.2 billion in loans. Congress also provided $75.8 million for the Small Business Development Centers, $3.5 million for the Service Corps of Retired Executives and $4 million for the Women’s Demonstration Project.

For more information on contract bundling or to register a bundling complaint on the Internet, go to the SBA government contracting Web page at https://www.sba.gov/GC/index.html

*

Vicki Torres can be reached at (213) 237-6553 or by e-mail at [email protected]