Infotech and the Law: Proposed unbundling rules give small business some hope

Jonathan Cain

Reforms enacted in the mid-1990s promised faster, more efficient procurements. One documented side effect of those reforms, however, was a sharp decline in opportunities for small businesses to bid on government contracts.

Last October, the Office of Management and Budget reported that while total government procurement expenditures increased, the number of new contracts of more than $25,000 awarded in 2001 was only one-third the total awarded 10 years earlier. The number of small businesses receiving government contracts during the same period fell by more than half. Both figures demonstrate a dramatic decline in the opportunities for small business as a prime contractor to the government.

The OMB report also made it clear that the growth of large, multi-award, government-wide contracts and other forms of bundling into single large contracts was taking its toll on small business. Spending under existing multi-award contracts nearly quadrupled during the 1990s and now represents about one-third of all procurement spending.

The Bush administration came to town promising a better break for small business, starting with more opportunities for government sales. OMB proposed a number of steps to achieve this goal. OMB's report recommended:

* Adding bundling reviews to task and delivery orders under multiple-award contracts;

* Reducing the thresholds above which bundling reviews of proposed acquisitions would be required;

*Mandating written justifications when bundling reviews are not performed;

* Stricter enforcement of the performance of small business subcontracting plans made by large businesses under FAR Subpart 19.7

Proposed regulations implementing these recommendations were published Jan. 31. Under the rules, Defense Department acquisitions of $7 million or more must be reviewed to determine if the requirements could be unbundled. The thresholds are lower for civilian agencies: $5 million for the General Services Administration and NASA, and $2 million for other agencies.

Even more significant, the rules require that task or purchase orders under multi-award, Federal Supply Schedule or other existing contracts, as well as new contracts, be subject to the same review process and requirements for justifying a bundled award.

The OMB report also acknowledged what the General Accounting Office had concluded in 2001 and many small businesses had known for a long time: Agency oversight and enforcement of subcontracting plans performed by large prime contractors had been inconsistent, at best. The proposed rules attempt to treat this problem by requiring that evaluation of an offer by a large business would have to include review of that offeror's past compliance with its small business subcontracting obligations.

Whether any of these regulatory changes improve the opportunities available to small IT businesses is an open question. Without a doubt, requiring that new task orders under existing multi-award and Federal Supply Schedule contracts be evaluated for bundling has the potential to bring a significant number of new business opportunities under review.

What is not clear is how frequently procurement officials will avoid the bundling review process on grounds of expediency, cost or other factors. For large businesses, additional attention should be paid to evaluating the obligations in small business subcontracting plans.

Agency demands for targets in these plans are all too frequently simply accepted, rather than negotiated as additional business points. That strategy posed acceptable risks when enforcement was infrequent. Evaluation of subcontracting plan compliance as part of a past performance review on new awards may require that this strategy be re-evaluated.

Comments on the proposed rules may be made through April 1.

Jonathan Cain is a member of the law firm Mintz Levin Cohn Ferris Glovsky & Popeo PC in Reston, Va. The opinions expressed in this article are his. He can be reached by e-mail at jcain@mintz.com.

About the Author

Jonathan Cain is a member of law firm Mintz Levin.

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