[Senate Report 107-306]
[From the U.S. Government Publishing Office]
Calendar No. 694
107th Congress Report
SENATE
2d Session 107-306
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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''.