[House Report 106-858]
[From the U.S. Government Publishing Office]



106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     106-858

======================================================================



 
          SMALL BUSINESS COMPETITION PRESERVATION ACT OF 2000

                                _______
                                

 September 18, 2000.--Committed to the Committee of the Whole House on 
            the State of the Union and ordered to be printed

                                _______
                                

    Mr. Talent, from the Committee on Small Business, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 4945]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Small Business, to whom was referred the 
bill (H.R. 4945) to amend the Small Business Act to strengthen 
existing protections for small business participation in the 
Federal procurement contracting process, and for other 
purposes, having considered the same, report favorably thereon 
without amendment and recommend that the bill do pass.

                                Purpose

    The purpose of H.R. 4945, the ``Small Business Competition 
Preservation Act of 2000,'' is to ensure that the United States 
Small Business Administration (SBA) and Congress have 
sufficient information concerning the impact of contract 
consolidation on small business participation in the federal 
procurement process. Access to adequate data is necessary so 
that federal agencies can determine whether they should adjust 
their procurement strategies in order to meet the small 
business participation goals set forth in section 15 of the 
Small Business Act,
    The bill mandates that the Administrator of the SBA develop 
a database of bundled contracts. The Administrator is then 
required to assess whether contracts whose terms have expired 
but will be recompeted as part of bundled contracts have 
achieved the savings or improvements in quality that the 
procuring agency anticipated when it consolidated the contract 
requirements initially. This analysis also will be used by the 
Administrator in determining the number of small businesses 
that have been displaced as prime contractors as a result of 
contract bundling. All of this information will be reported on 
an annual basis to the House and Senate Small Business 
Committees.

                          Need for Legislation

    Contract bundling is one of the most important issues 
facing small business today. The federal government spends 
nearly 200 billion dollars a year procuring goods and services. 
Although Congress has made it a goal for federal agencies to 
spend at least 20 percent of their procurement dollars with 
small businesses, the federal government has not met that 
objective. Federal government procurement policies apparently 
place a greater premium on efficiency and the reduction of 
workload for contracting officers than the goals of a diverse, 
competitive industrial base. The ultimate losers will be the 
American taxpayer who will face the long-term prospect of 
procuring lower quality goods and services at higher prices.
    Bundling of contracts is performed by all federal agencies 
but one agency, the Department of Defense, stands out as the 
agency with the most adverse impact on small business 
participation as prime contractors. To the extent that the 
Department actually achieves substantial cost savings or 
significant improvements in the quality of goods and services 
procured, bundling is at least defensible. However, the 
Committee has examined a number of contracts and has not found 
supportable justifications for these contracts.
    For example, the Department of Defense issued a contract 
for the provision of telecommunication services to the three 
largest long-distance carriers in the United States who would 
provide, on a competitively-bid task order arrangement, 
interstate interexchange (long-distance) circuits for the 
transmission of voice and data between various Department 
installations. Ostensibly, the limitation on the number of 
firms eligible to bid was necessitated by security concerns. 
However, an examination of the task order requests reveals that 
the need for security was not an issue in many of the task 
orders. Thus, the Department, at substantial expense to the 
taxpayers (competition under the prior system was significantly 
greater resulting in substantially lower prices for 
telecommunication services), bundled a contract without any 
clear need to do so.
    The Committee also examined the consolidation of Marine 
Corps mess hall services. The Department of Navy currently 
provides mess hall services on a base-by-base contract. Many 
current providers are small businesses. Despite evidence that 
demonstrates improvements in quality of both the food and the 
service, the Department of Navy decided to consolidate these 
mess hall contracts into two large regions utilizing central 
kitchen preparation techniques known as ``cook and chill.'' The 
Department of Navy has not been able to justify that the 
contract will save money or provide higher quality meals to 
Marine Corps personnel.
    Numerous other examples of bundling exist both at the 
Department of Defense and with other government agencies. At a 
Committee hearing on the Department of Defense's bundling 
policies, the Principal Deputy Under Secretary for Acquisition, 
Mr. David Oliver, promised that he would commission a study of 
the effects of bundling on small business. Some months later, 
Mr. Oliver admitted that the Department lacked the data needed 
to conduct an appropriate study of bundling.
    The absence of data on bundling also affects the 
Administrator's ability to implement the Small Business 
Reauthorization Act of 1997. That legislation required federal 
agencies not to bundle contracts unless the procuring agency 
could demonstrate that the bundle would result in measurably 
substantial benefits, such as cost savings, quality 
improvements, reduction in acquisition cycle times, or better 
terms and conditions. The procuring agency then must identify 
those benefits to be derived from contract bundling and that 
the anticipated benefits of the proposed bundled contract 
justify the use of bundling. Should the Administrator of the 
SBA disagree with the conclusions of the procuring agency, the 
Administrator is entitled to file an appeal contesting the 
procuring agency's bundle to the head of the agency. The 
Administrator has never won such an appeal. The bill would 
require the Administrator to perform its own assessment of 
these measurably substantial benefits on any bundled contract 
which will be recompeted as a bundled contract. In addition, 
the Administrator will be required to determine the number of 
small businesses that will be displaced as prime contractors as 
a result of contract bundling.
    The need for this legislation is great. Federal agencies 
contend that contract bundling saves taxpayers money while 
improving the quality of goods and services provided to the 
government. None of this has been substantiated. The database, 
analyses and reports to Congress in this bill will ensure that 
adequate data exists concerning the benefits and costs of 
contract bundling. This will enable federal agencies to 
reconfigure their procurement strategies to meet statutory 
goals for small business participation. Furthermore, Congress 
will have information needed to modify federal procurement 
legislation if agencies are bundling without obtaining 
concomitant benefits.

                            Committee Action

    The Committee on Small Business held no separate hearings 
on H.R. 4945. During the 106th Congress, the committee held the 
following hearings on contract bundling: (1) the Department of 
Defense's Contract Bundling Policy (Nov. 4, 1999); and (2) 
Contract Bundling and Federal Procurement Problems Facing Small 
Businesses (Aug. 4, 1999). Both hearings provided substantial 
anecdotal evidence concerning the adverse impact of contract 
bundling on the ability of small businesses to maintain their 
status as prime contractors. The hearings also revealed the 
absence of adequate data within the government on contract 
bundling.

                       Consideration of H.R. 4945

    At 11:30 a.m. on July 27, 2000, the Committee on Business 
met to consider and report H.R. 4945. Following brief opening 
statements by the Chairman and Ranking Democratic Member, the 
Chairman declared the bill open for amendment.
    No amendments were offered. Chairman Talent then moved the 
bill be reported, and at 11:50 a.m., by unanimous voice vote, a 
quorum being present, the Committee passed H.R. 4945 and 
ordered it reported.

                      Section-by-Section Analysis


Section 1. Short title

    Designate the bill as the ``Small Business Competition 
Preservation Act of 2000.''

Section 2. Database, analysis, and annual report with respect to 
        bundled contracts

    This section amends section 15 of the Small Business Act by 
adding a new subsection (p) to establish the requirements for 
maintenance of a contract bundling database, analysis of 
bundled contracts, and reporting requirements to the House and 
Senate Small Business Committees.
    Paragraph (1) defines the term bundled contract. In the 
Small Business Reauthorization Act of 1997, the term ``bundled 
contract'' was defined as a contract that consolidated existing 
contract requirements. It is unclear whether this definition 
includes new contract requirements that permit bundling 
although the Committee believes that the definition should be 
that inclusive. Furthermore, the regulations promulgated by the 
Administrator of the United States Small Business 
Administration implementing the Small Business Reauthorization 
Act of 1997 inappropriately exclude contracts for which a 
procuring agency performed an analysis mandated by Circular A-
76 issued by the Office of Management and Budget (``OMB''). 
Paragraph (1) would clarify the definition of ``bundled 
contract'' for purposes of the maintenance of the database and 
analysis performed under this new subsection of section 15 of 
the Small Business Act.
    Paragraph (1) amends the definition of contract bundle as 
set forth in section 3(o) of the Small Business Act by 
including contracts for which an agency performed a study of 
the effects of the contract on civilian or military personnel. 
The definition broadens the scope of the database maintained by 
the Administrator to include contracts for which an agency has 
performed an analysis pursuant to OMB Circular A-76. The 
modification does not have any legal effect on the definition 
of bundled contract in section 3(o) of the Small Business Act.
    Paragraph (1) also modifies the definition of contract 
bundling, for purposes of this subsection, by including any new 
contract requirements that permit the consolidation of 2 or 
more procurement requirements. This ensures that the 
Administrator's database will include all bundled contracts 
irrespective of whether the bundled contract constitutes a new 
requirement.
    Paragraph (2) mandates that the Administrator establish a 
database no later than 180 days after the effective date of the 
statute. The database will contain information on each bundled 
contract awarded by a federal agency as defined in paragraph 
(1) and the number of small businesses that used to provide 
services as prime contractors but are no longer doing so as a 
result of the bundled contract. The Committee expects that the 
Administrator will receive data from its Procurement Center 
Representatives as well as the Directors of the Office of Small 
and Disadvantaged Business Utilization. Furthermore, the 
Committee expects that the Administrator will construct this 
database with already existing funds and does not believe that 
a separate authorization or appropriation is needed to maintain 
this database because maintenance of the database constitutes a 
vital adjunct to the Administrator's responsibilities under 
subsection (a) of section 15.
    Paragraph (3) requires that the Administrator analyze 
bundled contracts that are recompeted as bundles when their 
initial terms expire. The Committee expects that the 
Administrator will use the database of bundled contracts 
established in paragraph (2) to determine which contracts need 
to be analyzed pursuant to this paragraph. However, if a 
recompeted bundle somehow is not included in the database 
established pursuant to paragraph (2), the Committee expects 
that the Administrator will undertake the analysis mandated by 
this paragraph.
    For each contract recompeted as a bundled contract, the 
Administrator will be required to calculate the amount of 
savings and benefits from the bundled contract. The 
Administrator also will be required to estimate whether the 
savings and benefits will continue and whether such savings and 
benefits would be greater if the contract was divided into 
separate solicitations more suitable for award to small 
businesses. The Committee expects that the Administrator will 
utilize this analysis in pursuing any appeal of a bundled 
contract as set forth in subsection (a) of section 15.
    Paragraph (4) requires the Administrator to file an annual 
report on contract bundling with the House and Senate Small 
Business Committees. The report is required to contain data on 
the number of small businesses displaced as prime contractors 
as a result of contract bundling sorted by industrial 
classification. The Committee expects that the report will 
utilize the new North American Industrial Classification rather 
than the old Standard Industrial Classification.
    The report also shall contain a description of the bundling 
activity for each federal agency during the preceding fiscal 
year including the number of contracts bundled, the total 
dollar value of the bundled contracts, the justification for 
each bundled contract, the cost savings realized by the 
contract, the Administrator's estimate of the whether the 
savings will continue for any recompeted bundled contract, the 
extent to which the bundled contract complied with agency's 
subcontracting plan, the total dollar value awarded to small 
business subcontractors, the total dollar value previously 
awarded to small business prime contractors prior to the 
bundling of the contract, the impact that bundling has on the 
ability of small business to compete as prime contractors, and 
the effect that has on the industry, including the decretion of 
small businesses in the particular industrial classification. 
The Committee expects that the reports will use the new 
industrial classification system. Further, the Committee 
intends that the Administrator translate existing Standard 
Industrial Classifications to the new system when submitting 
its reports with the House and Senate.

                                     U.S. Congress,
                               Congressional Budget Office,
                                 Washington, DC, September 8, 2000.
Hon. James M. Talent,
Chairman, Committee on Small Business,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4945, the Small 
Business Competition Preservation Act of 2000.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is John R. 
Righter.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 4945--Small Business Competition Preservation Act of 2000

    H.R. 4945 would amend the Small Business Act to require the 
Small Business Administration (SBA) to study and report each 
year on the effect on small businesses of federal agencies 
combining, or bundling, together multiple contracts into a 
single procurement contract. Specifically, SBA would report on 
the number and type of small businesses that were displaced as 
prime contractors as a result of implementing such larger, 
combined contracts and the number and total dollar amount of 
such contracts. In addition, for each bundled contract, the 
report would include the agency's justification for combining 
the contracts, whether the combined contract was consistent 
with the agency's small business subcontracting plan, any 
estimated savings for combining contracts, and the extent to 
which SBA expects such savings would continue.
    The annual cost of implementing H.R. 4945 is uncertain 
because no data exist about the number of contracts that 
agencies bundle together each year. Agencies, however, are 
already required to produce much of the information that SBA 
would collect under H.R. 4945 for all of their contracts. In 
addition, agencies are beginning to submit some of that data to 
the Federal Procurement Data System, a database of procurement 
actions that is maintained by the General Services 
Administration. CBO estimates that implementing H.R. 4945 would 
cost SBA less than $500,000 a year, subject to the availability 
of appropriated funds, to develop and maintain such a database, 
as well as report annually to the Congress.
    In addition to SBA's costs, implementing the bill would 
increase costs for federal agencies to estimate the accumulated 
costs of savings each year for each bundled contract. Because 
we expect agencies would base such estimates on the market 
research they already perform under current law, CBO estimates 
that the annual increase in costs for other agencies would also 
be less than $500,000 subject to the availability of 
appropriated funds. In total, CBO estimates that implementing 
H.R. 4945 would cost around $500,000 a year.
    Because the bill would not affect direct spending or 
receipts, pay-as-you-go procedures would not apply. H.R. 4945 
contains no intergovernmental or private-sector mandates as 
defined in the Unfunded Mandates Reform Act and would not 
affect state, local, or tribal governments.
    The CBO staff contact is John R. Righter. This estimate was 
approved by Peter H. Fontaine, Deputy Assistant Director for 
Budget Analysis.

                      Committee Estimate of Costs

    Pursuant to the Congressional Budget Act of 1974, the 
Committee estimates that the amendments to the Small Business 
Act contained in H.R. 4945 will not significantly increase 
discretionary spending over the next five fiscal years. The 
Committee also estimates that H.R. 4945 will not affect direct 
spending. These estimates concur with Congressional Budget 
Office (CBO) estimates.
    Furthermore, pursuant to clause 3(d)(2)(A) of rule XIII of 
the Rules of the House of Representatives, the Committee 
estimates that implementation of H.R. 4945 will not 
significantly increase other administrative costs.

                           Oversight Findings

    In accordance with clause 4(c)(2) of rule X of the Rules of 
the House of Representatives, the Committee states that no 
oversight findings or recommendations have been made by the 
Committee on Government Reform with respect to the subject 
matter contained in H.R. 4945.
    In accordance with clause (2)(b)(1) of rule X of the Rules 
of the House of Representatives, the oversight findings and 
recommendations of the Committee on Small Business with respect 
to the subject matter contained in H.R. 4945 are incorporated 
into the descriptive portions of this report.

                 Statement of Constitutional Authority

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in Article I, Section 8, clause 18, of the 
Constitution of the United States.

                       Compliance with P.L. 104-4

    H.R. 4945 contains no unfunded mandates.

                    Congressional Accountability Act

    H.R. 4945 does not relate to the terms and conditions of 
employment or access to public services or accommodations 
within the meaning of section 102(b)(3) of P.L. 104-1.

                  Federal Advisory Committee Statement

    This legislation does not establish or authorize the 
establishment of any new advisory committees.

         Changes in Existing Law Made by the Bill, as Reported

    In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

                  SECTION 15 OF THE SMALL BUSINESS ACT

  Sec. 15. (a) * * *

           *       *       *       *       *       *       *

  (p) Database, Analysis, and Annual Report With Respect to 
Bundled Contracts.--
          (1) Bundled contract defined.--In this subsection, 
        the term ``bundled contract'' includes--
                  (A) each contract that meets the definition 
                set forth in section 3(o) regardless of whether 
                the contracting agency has conducted a study of 
                the effects of the solicitation for the 
                contract on civilian or military personnel of 
                the United States; and
                  (B) each new procurement requirement that 
                permits the consolidation of 2 or more 
                procurement requirements.
          (2) Database.--
                  (A) In general.--Not later than 180 days 
                after the date of enactment of this subsection, 
                the Administrator of the Small Business 
                Administration shall develop and shall 
                thereafter maintain a database containing data 
                and information regarding--
                          (i) each bundled contract awarded by 
                        a Federal agency; and
                          (ii) each small business concern that 
                        has been displaced as a prime 
                        contractor as a result of the award of 
                        such a contract.
          (3) Analysis.--For each bundled contract that is to 
        be recompeted as a bundled contract, the Administrator 
        shall determine--
                  (A) the amount of savings and benefits (in 
                accordance with subsection (e)) achieved under 
                the bundling of contract requirements; and
                  (B) whether such savings and benefits will 
                continue to be realized if the contract remains 
                bundled, and whether such savings and benefits 
                would be greater if the procurement 
                requirements were divided into separate 
                solicitations suitable for award to small 
                business concerns.
          (4) Annual report on contract bundling.--
                  (A) In general.--Not later than 1 year after 
                the date of enactment of this paragraph, and 
                annually in March thereafter, the 
                Administration shall transmit a report on 
                contract bundling to the Committees on Small 
                Business of the House of Representatives and 
                the Senate.
                  (B) Contents.--Each report transmitted under 
                subparagraph (A) shall include--
                          (i) data on the number, arranged by 
                        industrial classification, of small 
                        business concerns displaced as prime 
                        contractors as a result of the award of 
                        bundled contracts by Federal agencies; 
                        and
                          (ii) a description of the activities 
                        with respect to previously bundled 
                        contracts of each Federal agency during 
                        the preceding year, including--
                                  (I) data on the number and 
                                total dollar amount of all 
                                contract requirements that were 
                                bundled; and
                                  (II) with respect to each 
                                bundled contract, data or 
                                information on--
                                          (aa) the 
                                        justification for the 
                                        bundling of contract 
                                        requirements;
                                          (bb) the cost savings 
                                        realized by bundling 
                                        the contract 
                                        requirements over the 
                                        life of the contract;
                                          (cc) the extent to 
                                        which maintaining the 
                                        bundled status of 
                                        contract requirements 
                                        is projected to result 
                                        in continued cost 
                                        savings;
                                          (dd) the extent to 
                                        which the bundling of 
                                        contract requirements 
                                        complied with the 
                                        contracting agency's 
                                        small business 
                                        subcontracting plan, 
                                        including the total 
                                        dollar value awarded to 
                                        small business concerns 
                                        as subcontractors and 
                                        the total dollar value 
                                        previously awarded to 
                                        small business concerns 
                                        as prime contractors; 
                                        and
                                          (ee) the impact of 
                                        the bundling of 
                                        contract requirements 
                                        on small business 
                                        concerns unable to 
                                        compete as prime 
                                        contractors for the 
                                        consolidated 
                                        requirements and on the 
                                        industries of such 
                                        small business 
                                        concerns, including a 
                                        description of any 
                                        changes to the 
                                        proportion of any such 
                                        industry that is 
                                        composed of small 
                                        business concerns.

                                  
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