Contract bundling, strategic sourcing hurting small businesses

Small businesses are a crucial part in the government contracting marketplace, but regulations and initiatives pushing contract bundling and strategic sourcing can negatively impact the small business industrial base.

And industry leaders and small business executives were on Capitol Hill today, trying to make legislators aware of the dark side of these initiatives.

Speaking at a hearing of the House Small Business subcommittee on contracting and workforce, industry representatives spoke about problems related to contract bundling, consolidation and strategic sourcing in addition to other topics affecting small businesses in today’s market.

In his written testimony, Damien Specht of the law firm Jenner & Block LLP, described how consolidated contracting, “whether through bundling or strategic sourcing, reduces competition and necessarily limits the number of small businesses in the federal marketplace.”

He used the example of facilities operation contractors who he has heard complain that “general maintenance services have been bundled with logistics and food services and hardware contractors have been exclude from competitions when a series of additional items were added to the contract requirements.”

The government does not have reliable data on where the bundling is occurring, how many contractors are being affected by it, and the impact that bundling is having on the small business community at large, Specht said.

He supported the idea of requiring that agencies publish bundling justifications along with solicitations.

He also noted that bundling protests are, for the most part, not successful, mainly because the Government Accountability Office gives agencies significant deference and requires only that the agency give “a reasonable basis for its contention that bundling is necessary."

Specht went on to argue that strategic sourcing, although not technically bundling (but rather, consolidation), can still have the same effect of weakening the small business government contracting base.

Robert Burton of the law firm Venable LLP, agreed with Specht, saying that “while consolidation and bundling regulations establish a comprehensive means of protecting small business, a number of factors have diminished the effective implementation of such regulations in practice, which, in turn, has reduced the overall small business participation rate in federal procurements.”

One such disadvantage to bundling, according to Joe Wynn, president of the small business VETS Group Inc., is that “many government requirements that could be set aside for small businesses are bundled together with other contract requirements and awarded to large companies.”

Alan Chvotkin, executive vice president and counsel at the Professional Services Council, agreed with his other panelists and added additional commentary on strategic sourcing.

Chvotkin honored strategic sourcing’s advantages, but also highlighted its negative consequences, including how it can result in less competition at the task order level. “While this is a benefit to those companies that have a ‘seat’ on the master contract, the diminished competition could hamper the government’s ability to quickly access innovative solutions,” he said.

Strategic sourcing also impacts the industrial base as fewer companies are awarded contracts and the rest are potentially shut off from competing for work under the contract for years, Chvotkin said.

Another issue, he added, is that as larger task orders are set aside for smaller firms, the performance risk for the companies and the government increases.

Finally, Chvotkin said in his testimony, there is uncertainty regarding how the federal government manages its strategic sourcing initiatives in a way that recognizes and complies with existing contracting consolidation and bundling laws and regulations.

Subcommittee chairman Richard Hanna (R-N.Y.) said the committee will continue to track the issue and take possible action.