[Senate Report 107-306]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 694
107th Congress                                                   Report
                                 SENATE
 2d Session                                                     107-306

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



 
            SMALL BUSINESS FEDERAL CONTRACTOR SAFEGUARD ACT

                                _______
                                

                October 8, 2002.--Ordered to be printed

                                _______
                                

 Mr. Kerry, from the Committee on Small Business and Entrepreneurship, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 2466]

    The Committee on Small Business and Entrepreneurship, to 
which was referred the bill (S. 2466) having considered the 
same, reports favorably thereon with amendments and recommends 
that the bill (as amended) do pass.
    On July 24, 2002, the Committee on Small Business and 
Entrepreneurship considered S. 2466, the ``Small Business 
Federal Contractor Safeguard Act.'' S. 2466 seeks to change the 
term ``bundled contract'' to ``consolidated contract,'' and 
strengthen the definition of the term to close the current 
loopholes whereby Federal agencies circumvent statutory 
safeguards intended to ensure that separate contracts are 
consolidated only after the conscious consideration of economic 
impact. The legislation also establishes a two-tiered system 
whereby Federal agencies are required to conduct a threshold 
level of economic analysis on consolidated contracts over $2 
million and more in-depth economic research for contracts over 
$5 million. Having considered S. 2466, the Committee reports 
favorably thereon without further amendment and recommends that 
the bill do pass.

                            I. INTRODUCTION

    Few issues have so strongly galvanized the anger of the 
small business contracting community as the practice of 
contract bundling, which occurs when separate, smaller 
contracts are combined to form mega-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-saving potential as reason for its use. 
Unfortunately, little evidence supports this claim, and too 
many contracts are bundled without the required economic 
research designed to determine if a bundled contract will 
actually result in real 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 tend to 
be 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 than 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 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 cost-saving and other innovations brought 
about by small businesses.
    Public Law 105-135, the ``Small Business Reauthorization 
Act of 1997'' established a definition of a bundled contract 
and procedures to force agencies to examine their decisions to 
pursue bundled contracts. The law also set forth procedures 
requiring Federal agencies to conduct market research on all 
acquisition strategies that could result in a bundled contract 
to ensure any bundling is necessary and justified.
    Although this law was intended to require Federal agencies 
to conduct market research before proceeding with a bundled 
contract, loopholes in the current definition of a bundled 
contract have allowed Federal agencies to skirt the law and 
bundle contracts without a conscious and deliberative review. 
Some Federal agencies have also used the term ``consolidated 
contract'' to create an artificial distinction to differentiate 
their actions from bundled contracts. There has been a means of 
avoiding the economic research required under the Small 
Business Act and proceeding with a bundled contract even though 
it may not be necessary and justified.
    The Committee believes that the current definition has had 
implementation problems because it does not account for all 
circumstances in which contracts can be bundled together. 
Furthermore, the current law definition of ``bundled 
contract'', by stating that a bundled contract must be 
unsuitable for award to a small business concern, has provided 
a ready means for Federal agencies to avoid the economic 
research by claiming that as long as a small business can bid 
on a contract, it is suitable for award to a small business. 
Although the Committee does not believe Federal agencies should 
be seeking loopholes to avoid complying with the intent of the 
Congress, it has become apparent that the definition of a 
bundled contract needs to be strengthened if the statute is to 
achieve its intended purpose of ensuring small businesses are 
protected from unnecessary and unjustified contract bundling.
    The Committee believes S. 2466 contains the necessary 
changes to strengthen the definition of a bundled contract, 
referred to as a consolidated contract under this legislation, 
and to compel Federal agencies to perform the required economic 
research with respect to whether a proposed consolidated 
contract is necessary and justified, if the dollar value of the 
consolidation exceeds certain thresholds.

                        II. LEGISLATIVE HISTORY

    S. 2466, the ``Small Business Federal Contractor Safeguard 
Act,'' was introduced by Senator John F. Kerry on May 7, 2002. 
Senators Christopher S. Bond, Jean Carnahan, Susan Collins, Max 
Cleland and Mary L. Landrieu are cosponsors. The Committee held 
a roundtable on June 19, 2002, titled, ``Are Government 
Purchasing Policies Hurting Small Business?'' During the 
roundtable, S. 2466 was a topic of discussion. The Committee 
also held roundtables on the topic of contract bundling in 
Federal procurement during the 106th Congress on May 20,1999, 
titled ``Small Business Procurement'' and on September 13, 2000 titled, 
``What is Contract Bundling?''
    Small business advocates that participated in the June 19, 
2002, roundtable strongly supported S. 2466 and the concept of 
strengthening the definition of a bundled contract.
    Language similar to S. 2466 was included in the National 
Defense Authorization as reported by the Senate Armed Services 
Committee during the first session of the 107th Congress. The 
Senate Armed Services Committee legislation applied only to the 
Department of Defense. Negotiation to create a uniform 
Governmentwide standard failed in conference when 
jurisdictional objections were raised by the House Committee on 
Small Business.
    During consideration of S. 2466, the Committee considered 
no amendments to the legislation.

   III. ANALYSIS OF S. 2466, THE ``SMALL BUSINESS FEDERAL CONTRACTOR 
                            SAFEGUARD ACT''

Purpose

    S. 2466, the ``Small Business Federal Contractor Safeguard 
Act,'' seeks to change the term ``bundled contract'' to 
``consolidated contract,'' and to strengthen the definition of 
the term to close the current loopholes whereby Federal 
agencies circumvent statutory safeguards intended to ensure 
that separate contracts are consolidated only after conscious 
consideration of economic impact. The legislation also 
establishes a two-tiered system whereby Federal agencies are 
required to conduct a threshold level of economic analysis on 
consolidated contracts over $2 million and more in-depth 
economic research for contacts over $5 million.

New definition of a bundled/consolidated contract

    Under S. 2466, the term ``bundled contract'' and its 
definition would be eliminated. A new term, ``consolidated 
contract'', and accompanying definition would take its place.
    Under this legislation, the term ``consolidated contract'' 
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. The Committee believes this definition 
        clarifies the previous definition, which left room for 
        interpretation by the Federal agencies, and closes the 
        loopholes in the current definition pertaining to new 
        contract requirements and multiple award contracts.

Procurement strategies

    The procurement strategies section of the Small Business 
Act would now 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.

            Consolidated contracts over $2 million

    Under the legislation, in order for a Federal agency to 
move forward with a consolidated contract over $2 million, the 
agency must describe in writing the benefits anticipated from 
the consolidated 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 through administrative and 
personnel savings alone.

            Consolidated contracts over $5 million

    Under the legislation, in order for a Federal agency to 
move forward with a consolidated contract over $5 million, an 
agency must, in addition to requirements above, conduct current 
market research to demonstrate that the consolidation will 
result in cost savings, quality improvements, reduction in 
acquisition times or better terms and conditions; include an 
assessment of 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.
    Unlike consolidations between $2 million and $5 million, 
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.

Conforming amendments

    The legislation also makes the necessary conforming 
amendments to the Small Business Reauthorization Act of 1997 
and the Small Business Act, striking ``bundled contract'' and 
inserting ``consolidated contract'' where necessary.

                           IV. COMMITTEE VOTE

    In compliance with rule XXVI(7)(b) of the Standing Rules of 
the Senate, the following votes were recorded on July 24, 2002. 
A motion by Senator Kerry to adopt S. 2466, the ``Small 
Business Federal Contractor Safeguard Act,'' was approved by a 
19-0 recorded vote, with the following Senators voting in the 
affirmative: Kerry, Bond, Levin, Harkin, Lieberman, 
Wellstone,Cleland, Landrieu, Edwards, Cantwell, Carnahan, Burns, 
Bennett, Snowe, Enzi, Fitzgerald, Crapo, Allen and Ensign. No Senator 
voted in the negative.

                   V. EVALUATION OF REGULATORY IMPACT

    In compliance with rule XXVI(11)(b) of the Standing Rules 
of the Senate, it is the opinion of the Committee that no 
significant additional regulatory impact will be incurred in 
carrying out the provisions of this legislation. There will be 
no additional impact on the personal privacy of companies or 
individuals who make use of the services provided.

                      VI. CHANGES IN EXISTING LAW

    In the opinion of the Committee, it is necessary to 
dispense with the requirement of rule XXVI (12) of the Standing 
Rules of the Senate in order to expedite the business of the 
Senate.

                           VII. COST ESTIMATE

    In compliance with rule XXVI(11)(a)(1) of the Standing 
Rules of the Senate, the Committee estimates the cost of the 
legislation will be equal to the amounts indicated by the 
Congressional Budget Office in the following letter.

                                     U.S. Congress,
                               Congressional Budget Office,
                                Washington, DC, September 17, 2002.
Hon. John F. Kerry,
Chairman, Committee on Small Business and Entrepreneurship, U.S. 
        Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 2466, the Small 
Business Federal Contractor Safeguard Act.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Matthew 
Pickford.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

S. 2466--Small Business Federal Contractor Safeguard Act

    S. 2466 would restrict the ability of agencies to combine 
different procurement contracts for goods and services. Under 
current law, federal agencies may combine small procurement 
contracts into larger, ``bundled contracts'' under certain 
conditions. S. 2466 would limit the circumstances when small 
contracts maybe combined. Instead of ``bundled'' contracts, the 
bill would allow ``consolidated'' contracts that combine small 
procurement contracts for economic reasons. The bill would 
require agencies to prepare a written justification for any 
consolidated contract valued at over $2 million and conduct a 
more extensive analysis of the benefits of any consolidated of 
contracts valued at over $5 million.
    CBO estimates that implementing S. 2466 would cost about 
$500,000 a year, subject to the availability of appropriated 
funds. The bill would not affect direct spending or receipts, 
so pay-as-you-go procedures would not apply. S. 2466 contains 
no intergovernmental or private-sector mandates as defined in 
the Unfunded Mandates Reform Act and would not affect the 
budgets of state, local, or tribal governments.
    Based on information from the Small Business Administration 
and the Office of Federal Procurement Policy, CBO does not 
expect that the change in the requirements to combine contracts 
would lead to significant increased costs for procuring 
agencies. However, agencies could incur additional costs to 
implement the bill's new reporting requirements. CBO estimates 
that the additional workload associated with the analyses of 
consolidated contracts valued at over $2 million would cost 
about $500,000 a year, assuming the appropriation of the 
necessary amounts.
    The CBO staff contact for this estimate is Matthew 
Pickford. This estimate was approved by Peter H. Fontaine, 
Deputy Assistant Director for Budget Analysis.

               VIII. SECTION-BY-SECTION ANALYSIS, S. 2466

Section 1. Short Title

    This Act is titled the ``Small Business Federal Contractor 
Safeguard Act.''

Section 2.

    (a) Amends Section 3(o) of the Small Business Act to insert 
the definition of ``consolidated contract'' and a ``multiple 
award contract''.
    (b) Amends Section 15(e) of the Small Business Act to 
establish the two-tiered system for determining if a 
consolidated contract is necessary and justified.
    (c) Makes Conforming Amendments by Amending the Small 
Business Act in the following sections:
          (1) In Section 2(j)(3), strikes the subsection 
        heading and inserts ``(j) Contract Consolidation.--'' 
        and in paragraph (3) strikes ``bundling of contract 
        requirements'' and inserts ``contract consolidation'';
          (2) In Section 8(d)(4)(G), strikes ``bundled 
        contract'' and inserts ``consolidated contract'';
          (3) In Section 15(a), strikes ``bundling of contract 
        requirements'' and inserts ``contract consolidation'' 
        and strikes ``bundled contract'' and inserts ``the 
        consolidated contract''; and
          (4) In Section 15(k)(5), strikes ``significant 
        bundling of contract requirements'' and inserts 
        ``consolidated contracts valued at more than 
        $2,000,000'' and strikes ``bundled contract'' and 
        inserts ``consolidated contract''.

                                
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