[Congressional Record Volume 148, Number 56 (Tuesday, May 7, 2002)]
[Senate]
[Pages S3957-S3959]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. KERRY (for himself, Mr. Bond, Mrs. Carnahan, and Ms. 
        Collins):
  S. 2466. A bill to modify the contract consolidation requirements in 
the Small Business Act, and for other purposes; to the Committee on 
Small Business and Entrepreneurship.
  Mr. KERRY. Madam President, I am pleased today to be introducing 
legislation, the Small Business Federal Contractor Safeguard Act, 
designed to protect the interests of small businesses in the Federal 
marketplace.
  As the Chairman of the Senate Committee on Small Business and 
Entrepreneurship, I have focused a considerable amount of energy 
promoting the interests of small businesses in the Federal marketplace. 
The legislation being introducing today marks a critical step forward 
in this process.
  It is no secret that the Committee on Small Business and 
Entrepreneurship places a great deal of importance on moving 
legislation forward in a bipartisan manner, the members of my Committee 
understand we represent the interests of all of our Nation's small 
businesses, the most important and dynamic segment of our economy. And 
nowhere is the bipartisan consensus stronger than in the area of 
Federal procurement and ensuring that our Nation's small businesses 
receive their fair share of procurement opportunities. I am pleased to 
once again be introducing bipartisan legislation with the Committee's 
ranking member, Senator Kit Bond. Regardless of who has chaired the 
Committee during our tenure together, we have both worked hard to 
improve small business Federal procurement opportunities.
  I am also pleased to be joined by Senator Jean Carnahan, a member of 
the Committee on Small Business and Entrepreneurship and the Senate 
Armed Services Committee and Senator Susan Collins, also a member of 
the Senate Armed Services Committee. While small business participation 
in procurement activities is important throughout the Federal 
Government, nowhere is it more important than at the Department of 
Defense, which is responsible for over 63 percent of the goods and 
services purchased by the Federal government. The support of Senator 
Carnahan and Senator Collins will help ensure the success of this 
legislation.
  The legislation we are introducing today has one ultimate purpose, to 
prevent Federal agencies from circumventing small business protections 
with regard to the practice known as contract bundling. Few issues have 
so strongly galvanized the small businesses contracting community as 
the practice of contract bundling, which occurs when procurement 
contracts are combined to form large contracts, often spread over large 
geographic areas, resulting in minimal or no small business 
participation.
  Many supporters of the practice of contract bundling point to its 
cost savings. They claim it saves the taxpayer money to lump contracts 
together. Unfortunately, there is little evidence supporting this 
claim, and too many contracts are bundled without the required economic 
research designed to determine if a bundled contract will actually 
result in a cost savings.
  The Small Business Administration's, SBA, Office of Advocacy, an 
independent body within the SBA, estimated that for every increase of 
100 bundled contracts, there was a decrease of over 106 individual 
contracts issued to small firms. Additionally, for every $100 awarded 
on a bundled contract, there was a decrease of $33 to small business. 
The Office of Advocacy arrived at these conclusions using a 
conservative definition of what constitutes a bundled contract. 
Therefore, the negative impact on small businesses from contract 
bundling is likely more severe.

  While seemingly an efficient and cost effective means for Federal 
agencies to conduct business, bundled contracts, are anti-competitive. 
When a Federal agency bundles contracts, it limits small businesses' 
ability to bid for the new bundled contract, thus limiting competition. 
Small businesses are consistently touted as more innovative, providing 
better and cheaper services then their larger counterparts. But when 
forced to bid for mega-contracts, at times across large geographic 
areas, few, if any, small businesses can be expected to compete. By 
driving small

[[Page S3958]]

business from the Federal marketplace, contract bundling will actually 
drive up the costs of goods and services purchased by the Federal 
Government because competition will be limited and our economy will be 
deprived of possible innovations brought about by small businesses.
  Although there is current law in place intended to require Federal 
agencies to conduct market research before bundling a contract, 
loopholes in the current definition of a bundled contract allow them to 
often skirt these safeguards.
  Our legislation changes the name ``bundled contract'' to consolidated 
contract, strengthens the definition of a consolidated contract, and 
closes the loopholes in the existing definition to prevent Federal 
agencies from circumventing statutory safeguards intended to ensure 
that separate contracts are consolidated for economic reasons, not 
administrative expediency.
  The new definition relies on a simple premise: if you combine 
contracts, be it new contracts, existing contracts or a combination 
thereof, you are consolidating them and would need to take the 
necessary steps to ensure it is justified economically before 
proceeding.
  Our legislation also alters the current Small Business Act 
requirements regarding procurement strategies when a contract is 
consolidated to include a threshold level for triggering the economic 
research requirements.
  Previously, any consolidated contract would trigger the economic 
research requirements, something considered onerous by many Federal 
agencies and often cited as the reason for circumventing the law. The 
new procurement strategies section of the Small Business Act would 
require a statement of benefits and a justification for any 
consolidated contract over $2 million and a more extensive analysis, 
corresponding to current requirements for any consolidated contract, 
for consolidations over $5 million.
  In order to move forward with a consolidated contract over $2 
million, the agency must put forth the benefits anticipated from the 
contract, identify alternatives that would involve a lesser degree of 
consolidation and include a specific determination that the 
consolidation is necessary and justified. The determination that a 
consolidation is necessary and justified may be determined simply 
through administrative and personnel savings, but their must be actual 
savings.
  In order to move forward with a consolidated contract over $5 
million, an agency must, in addition to the above: conduct current 
market research to demonstrate that the consolidation will result in 
costs savings, quality improvements, reduction in acquisition times, or 
better terms and conditions; include an assessment as to the specific 
impediments to small business participation resulting from the 
consolidation; and specify actions designed to maximize small business 
participation as subcontractors and suppliers for the consolidated 
contract. The determination that a consolidation is necessary and 
justified may not be determined through administrative and personnel 
savings alone unless those savings will be substantial for these larger 
contracts.
  By establishing this dual threshold system, we have placed the 
emphasis for the economic research on contracts more likely to preclude 
small business participation, while not ceding smaller contracts to the 
whims of a Federal agency. This change, coupled with a clear definition 
of a consolidated contract should be enough to garner compliance. 
However, if Federal agencies continue to consolidate contracts when 
there is no justification, fail to conduct the required economic 
research, or fail to provide procurement opportunities to small 
businesses, I would see little choice but to support legislative 
changes requiring punitive measures for these Federal agencies. This is 
a step I have been reluctant to take in the past. However, I am 
optimistic that such a step will not be necessary and that the fair and 
reasonable system established under this legislation will be effective.
  I would once again like to thank my fellow sponsors, Senators Bond, 
Carnahan, and Collins for their support on this issue. I hope all of my 
colleagues will join us in supporting this bill. I ask unanimous 
consent that the text of the legislation be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2466

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Small Business Federal 
     Contractor Safeguard Act''.

     SEC. 2. CONTRACT CONSOLIDATION.

       (a) Definitions.--Section 3(o) of the Small Business Act 
     (15 U.S.C. 632(o)) is amended to read as follows:
       ``(o) Definitions.--In this Act the following definitions 
     shall apply:
       ``(1) Consolidated contract; consolidation.--The term 
     `consolidated contract' or `consolidation' means a multiple 
     award contract or a contract for goods or services with a 
     Federal agency that--
       ``(A) combines discrete procurement requirements from not 
     less than 2 existing contracts;
       ``(B) adds new, discrete procurement requirements to an 
     existing contract; or
       ``(C) includes 2 or more discrete procurement requirements.
       ``(2) Multiple award contract.--The term `multiple award 
     contract' means--
       ``(A) a contract that is entered into by the Administrator 
     of General Services under the multiple award schedule program 
     referred to in section 2302(2)(C) of title 10, United States 
     Code;
       ``(B) a multiple award task order contract or delivery 
     order contract that is entered into under the authority of 
     sections 2304a through 2304d of title 10, United States Code, 
     or sections 303H through 303K of the Federal Property and 
     Administrative Services Act of 1949 (41 U.S.C. 253h through 
     253k); and
       ``(C) any other indefinite delivery or indefinite quantity 
     contract that is entered into by the head of a Federal agency 
     with 2 or more sources pursuant to the same solicitation.''.
       (b) Procurement Strategies.--Section 15(e) of the Small 
     Business Act (15 U.S.C. 644(e)) is amended to read as 
     follows:
       ``(e) Procurement Strategies; Contract Consolidation.--
       ``(1) In general.--To the maximum extent practicable, 
     procurement strategies used by the various agencies having 
     contracting authority shall facilitate the maximum 
     participation of small business concerns as--
       ``(A) prime contractors;
       ``(B) subcontractors; and
       ``(C) suppliers.
       ``(2) Procurement strategy requirements when the value of a 
     consolidated contract is greater than $2,000,000.--
       ``(A) In general.--An agency official may not execute a 
     procurement strategy that includes a consolidated contract 
     valued at more than $2,000,000 unless the proposed 
     procurement strategy--
       ``(i) specifically identifies the benefits anticipated from 
     consolidation;
       ``(ii) identifies any alternative contracting approaches 
     that would involve a lesser degree of contract consolidation; 
     and
       ``(iii) includes a specific determination that the proposed 
     consolidation is necessary and the anticipated benefits of 
     such consolidation justify its use.
       ``(B) Necessary and justified.--The head of an agency may 
     determine that a procurement strategy under subparagraph 
     (A)(iii) is necessary and justified if the monetary benefits 
     of the procurement strategy, including administrative and 
     personnel costs, substantially exceed the monetary benefits 
     of each of the possible alternative contracting approaches 
     identified under subparagraph (A)(ii).
       ``(C) Additional requirements when the value of a 
     consolidated contract is greater than $5,000,000.--In 
     addition to meeting the requirements under paragraph (A), a 
     procurement strategy that includes a consolidated contract 
     valued at more than $5,000,000--
       ``(i) shall be supported by current market research that 
     demonstrates that the consolidated contract will result in--

       ``(I) cost savings;
       ``(II) quality improvements;
       ``(III) reduction in acquisition cycle times; or
       ``(IV) better terms and conditions;

       ``(ii) shall include an assessment of the specific 
     impediments to participation by small business concerns as 
     prime contractors that result from contract consolidation;
       ``(iii) shall specify actions designed to maximize small 
     business participation as subcontractors, including 
     suppliers, at various tiers under the consolidated contract; 
     and
       ``(iv) shall not be justified under paragraph (A)(iii) by 
     savings in administrative or personnel costs, unless the 
     total amount of the cost savings is expected to be 
     substantial in relation to the total cost of the procurement.
       ``(3) Contract teaming.--
       ``(A) In general.--If the head of an agency solicits offers 
     for a consolidated contract, a small business concern may 
     submit an offer that provides for the use of a particular 
     team of subcontractors for the performance of the contract 
     (referred to in this paragraph as `teaming').
       ``(B) Evaluation of offer.--The head of the agency shall 
     evaluate an offer submitted

[[Page S3959]]

     by a small business concern under subparagraph (A) in the 
     same manner as other offers, with due consideration to the 
     capabilities of all of the proposed subcontractors.
       ``(C) No effect on status as a small business concern.--If 
     a small business concern engages in teaming under 
     subparagraph (A), its status as a small business concern 
     shall not be affected for any other purpose.''.
       (c) Conforming Amendments.--
       (1) Conforming amendment to the small business 
     reauthorization act of 1997.--Section 414 of the Small 
     Business Reauthorization Act of 1997 (41 U.S.C. 405 note) is 
     repealed.
       (2) Conforming amendments to the small business act.--The 
     Small Business Act (15 U.S.C. 631 et seq.) is amended--
       (A) in section 2(j)--
       (i) by striking the subsection heading and inserting the 
     following:
       ``(j) Contract Consolidation.--''; and
       (ii) in paragraph (3), by striking ``bundling of contract 
     requirements'' and inserting ``contract consolidation'';
       (B) in section 8(d)(4)(G), by striking ``a bundled 
     contract'' and inserting ``a consolidated contract'';
       (C) in section 15(a)--
       (i) by striking ``bundling of contract requirements'' and 
     inserting ``contract consolidation''; and
       (ii) by striking ``the bundled contract'' and inserting 
     ``the consolidated contract''; and
       (D) in section 15(k)(5)--
       (i) by striking ``significant bundling of contract 
     requirements'' and inserting ``consolidated contracts valued 
     at more than $2,000,000''; and
       (ii) by striking ``bundled contract'' and inserting 
     ``consolidated contract''.

  Mr. BOND. Madam President, today I join the Senator from 
Massachusetts, Mr. Kerry, in introducing this important legislation on 
an issue of vital concern to small businesses. This bill, a truly 
bipartisan effort, represents one of the best opportunities in a long 
time to remove the current logjam on controlling contract bundling.
  We often say around here that, in some cases, all that is necessary 
to help small business is for government policy to stop visiting harm 
upon them. Contract bundling is one of those harmful policies. It 
eliminates small businesses from competing for contracts to sell the 
government some of the $200 billion in goods and services it buys every 
year.
  The Small Business Act says that small firms shall have the maximum 
practicable opportunity to compete for Federal contracts. This is good 
for small business, good for the purchasing agencies, and good for the 
taxpayer who pays the bills.
  Small business benefits from having access to a stable revenue stream 
while they get up-and-running. The Small Business Act recognizes how 
government contracting can contribute to business development and 
economic renewal. For example, my HUBZone program provides contracting 
incentives for small firms to locate in blighted neighborhoods, helping 
them win Federal contracts and stabilize their revenues while they 
develop a nongovernmental customer base.
  Federal agencies also benefit from small firms in Federal 
procurement. Many of the most innovative solutions to our problems, 
such as new technologies in defense readiness, come from small firms. 
Large business can be just as bureaucratic as the worst Federal 
agencies.
  Complex chains of command, the need to consult with the corporate 
headquarters, and repetitive sign-offs on a new idea that have to be 
cleared with Accounting, Marketing, and Human Resources can stifle 
innovation and creativity. The absence of all these structures can make 
small business able to ``turn on a dime,'' deliver new innovative 
products at lower cost, and clobber their big competitors. Agencies 
trying to carry out their governmental functions can take advantage of 
these innovations and deliver better quality services to our 
constituents.
  Finally, the taxpayer wins when small business competes for 
contracts. The more competition, the lower the prices and the higher 
the quality.
  But contract bundling gets in the way of all those benefits. To 
simplify the contracting process, agencies will take a bunch of small 
contracts and roll them into one massive contract. The result is a 
contract that a small business could not perform, due to its complexity 
or its obligation to do work in widely disparate geographic locations. 
A small business owner says, ``I could not perform the contract, even 
if I won it. So I won't even bid.'' When that happens, we all lose.
  During my tenure as Chairman of the Senate Small Business Committee, 
we took a stab at trying to control bundling. At that time, no 
statutory definition of bundling existed. It was like the Supreme Court 
trying to deal with pornography, we know it when we see it. In the 
Small Business Reauthorization Act of 1997, I pushed for a specific 
definition of bundling and created an administrative process to review 
instances of bundling. Agencies were supposed to make a determination 
whether a proposed bundle was ``necessary and justified.''
  Since that time, we have seen agencies poke holes in that definition. 
For example, they say that a proposed contract represents a new 
requirement. Since it is new, it was never issued previously as 
separate smaller contracts, so it isn't bundling, they say. Now they 
don't have to do the ``necessary and justified'' determination.
  Or, they will point to another phrase in the current definition of 
bundling. Currently, a bundle involves consolidating contracts in a way 
that makes small business participation unlikely. If they structure a 
tiny piece of the contract so that a small business somewhere, someday 
might be able to win that piece, the rest of the massive contract isn't 
technically bundling. Therefore, the agency doesn't have to do the 
determination.
  This bill will close those kinds of loopholes. It builds upon some 
very positive language introduced in last year's Defense Authorization 
bill when the Senator from Michigan, Mr. Levin, proposed a draft during 
markup in the Senate Armed Services Committee. The Senator from 
Michigan noticed that it doesn't make sense for Federal agencies to 
avoid the ``necessary and justified'' determination. The goal of that 
process is to ask, does a proposed bundle make sense? Is it good value 
to the taxpayer and to the agency? Does it help or harm the vendor base 
that would be available to the agency in the future?

  My colleague from Michigan decided it was time to make Defense 
agencies complete these bundling studies, to make sure we weren't doing 
harm to our defense readiness through these acquisition policies. I 
think we need to do the studies to make sure the Small Business Act is 
not cast aside and ignored. Suddenly, after a long impasse on this 
issue, the Senators from Michigan and Massachusetts and I found we had 
common ground on this issue.
  Unfortunately, we were unable to get these positive provisions 
included in last year's Defense bill. That's why we are trying again. 
The Bush Administration sought to have a single governmentwide policy 
apply to all Federal agencies, not just the Defense establishment. This 
is a sound approach, but it would have required making changes to the 
governmentwide bundling policy in the Small Business Act. We were ready 
to agree to such a change, but our counterparts in the other body 
objected, citing jurisdictional claims about using an Armed Services 
bill to make changes in Small Business Committee jurisdiction.
  The bill we offer today should overcome these problems. It would make 
a uniform governmentwide policy, through the Small Business Act. It is 
a stand-alone bill. It builds upon an approach suggested by the Armed 
Services Committee as a reasonable one.
  I thank the Senator from Massachusetts for his work on this issue and 
I am pleased to have been at the table with him in crafting this 
proposal. I look forward to its enactment.
                                 ______