Contract Management: Impact of Strategy to Mitigate Effects of
Contract Bundling on Small Business is Uncertain (27-MAY-04,
GAO-04-454).
To achieve efficiencies and respond to procurement reforms,
agencies have consolidated their procurement contracts--that is,
combined existing smaller contracts into fewer larger contracts.
To ensure contract bundling--a subset of contract
consolidation--does not unfairly disadvantage small businesses,
the President tasked the Office of Management and Budget (OMB) to
develop a strategy that would hold agencies accountable for
contract bundling practices. In October 2002, the Office of
Federal Procurement Policy (OFPP) within OMB issued its strategy.
This report discusses the extent to which contracts were bundled
in fiscal year 2002 and assesses the potential effectiveness of
regulatory changes that have recently resulted from OFPP's
strategy.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-454
ACCNO: A10277
TITLE: Contract Management: Impact of Strategy to Mitigate
Effects of Contract Bundling on Small Business is Uncertain
DATE: 05/27/2004
SUBJECT: Contract administration
Federal procurement
Small business contracts
Procurement practices
Accountability
Federal procurement policy
Contract bundling
Federal Procurement Data System
******************************************************************
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GAO-04-454
United States General Accounting Office
GAO Report to the Chairman and Ranking Minority Member, Committee on Small
Business, House of Representatives
May 2004
CONTRACT MANAGEMENT
Impact of Strategy to Mitigate Effects of Contract Bundling on Small Business Is
Uncertain
a
GAO-04-454
Highlights of GAO-04-454, a report to the Committee on Small Business,
House of Representatives
To achieve efficiencies and respond to procurement reforms, agencies have
consolidated their procurement contracts-that is, combined existing
smaller contracts into fewer larger contracts. To ensure contract
bundling-a subset of contract consolidation-does not unfairly disadvantage
small businesses, the President tasked the Office of Management and Budget
(OMB) to develop a strategy that would hold agencies accountable for
contract bundling practices.
In October 2002, the Office of Federal Procurement Policy (OFPP) within
OMB issued its strategy.
This report discusses the extent to which contracts were bundled in fiscal
year 2002 and assesses the potential effectiveness of regulatory changes
that have recently resulted from OFPP's strategy.
GAO recommends that OMB (1) ensure agencies report uniform and reliable
contract bundling data and (2) establish contract bundling metrics. OMB
concurred with the first recommendation, but not the second. GAO believes
metrics are needed to help determine how bundling affects small
businesses. GAO also recommends that SBA disseminate best practices to
maximize small business contracting opportunities, as required by the OFPP
strategy. SBA concurred.
www.gao.gov/cgi-bin/getrpt?GAO-04-454.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact David Cooper at
(202)512-4125 or [email protected].
May 2004
CONTRACT MANAGEMENT
Impact of Strategy to Mitigate Effects of Contract Bundling Strategy on Small
Business Is Uncertain
In contrast to data captured in the Federal Procurement Data System
(FPDS), only 4 of the 23 agencies held accountable by OFPP's strategy
reported a total of 24 bundled contracts in fiscal year 2002-far fewer
than the 928 contracts identified as bundled in FPDS. Agency officials,
after researching their contracts, determined that the bundling data in
FPDS were miscoded due to confusion about the statutory definition of
contract bundling, inadequate verification of information, and ineffective
controls in the FPDS reporting process. For example, about 33 percent of
FPDS contract actions identified as bundled were miscoded, because they
were awarded to small businesses. By definition, a small business is
essentially precluded from being awarded a bundled contract. The
Department of Defense, which reported the second largest number of bundled
contracts, determined that only 8 of the 109 contracts identified as
bundled in FPDS met the statutory definition of a bundled contract.
Although the actual number of bundled contracts reported by agencies is
small, concerns about the effect of contract bundling on small businesses
remain. According to OFPP, the primary goal of its strategy-and the
resulting regulatory changes-is to increase small business federal
contracting opportunities. Because new regulations have only recently been
established, it is too early to determine whether agencies are achieving
this goal. In addition, part of OFPP's strategy-to identify and
disseminate best practices for maximizing small business contract
opportunities-has not been implemented. Yet even with time and guidance,
it could be difficult to assess the effect of the recent regulations, in
part because any increases in small business contracting opportunities
could be attributed to other factors. For example, the largest procuring
agencies have a history of seeking opportunities to increase small
business contracting, and according to the General Services
Administration, nearly 80 percent of Federal Supply Schedule contracts are
awarded to small businesses. Further, because the regulations primarily
relate to contract bundling-an activity most agencies report they do not
engage in-the regulations may have little impact on increasing small
business contracting opportunities.
Nevertheless, certain regulatory changes-especially those related to
oversight-have the potential to promote greater small business
opportunities. For example, the new regulations require agencies to
annually assess the extent to which small businesses receive a fair share
of federal procurements, the adequacy of contract bundling documentation
and justifications, and actions taken to mitigate the effects on small
businesses of necessary and justified contract bundling. However, the new
regulations do not establish metrics to measure agency accountability, and
past data on bundling and its effects on small businesses have been
limited and unreliable. Without metrics and reliable data, it will be
difficult to gauge agency efforts to identify and eliminate contracts that
are unnecessarily bundled.
Contents
Letter
Results in Brief
Background
Agency Data Are Inconsistent with FPDS Data
Effect of Regulatory Changes on Small Business Contracting
Opportunities Will Be Difficult to Gauge, Although Certain Changes May
Yield Increases Regulatory Changes Do Not Establish Metrics and
Information to
Monitor Contract Bundling Trends and Effects Conclusions Recommendations
for Executive Action Agency Comments and Our Evaluation Scope and
Methodology
1
2 4 6
7
11 12 12 12 13
Appendix I Status of Nine Action Items Contained in OFPP's Report
Appendix II Summary of Agency Responses to OFPP-Directed Metrics
Appendix III Summary of Contract Bundling Rule Changes
Appendix IV Comments from the Office of Management and Budget
Related GAO Products 22
Tables
Table 1: Status of Action Items Contained in OFPP's Contract Bundling
Strategy 16 Table 2: Summary of Agency Responses to OFPP-Directed Metrics
for Fiscal Year 2002 17
Table 3: Bundling Regulations, before and after Amendments 19
Abbreviations
AID Agency for International Development
DHS Department of Homeland Security
DOD Department of Defense
DOE Department of Energy
EPA Environment Protection Agency
FAR Federal Acquisition Regulation
FPDS Federal Procurement Data System
GSA General Services Administration
HHS Health and Human Services
HUD Housing and Urban Development
NASA National Aeronautics and Space Administration
NSF National Science Foundation
OFPP Office of Federal Procurement Policy
OMB Office of Management and Budget
OSDBU Office of Small and Disadvantaged Business Utilization
PMC President's Management Council
SBA Small Business Administration
SSA Social Security Administration
VA Veteran's Administration
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reproduce this material separately.
United States General Accounting Office Washington, DC 20548
May 27, 2004
The Honorable Donald A. Manzullo
Chairman
The Honorable Nydia M. Velazquez
Ranking Minority Member
Committee on Small Business
House of Representatives
Each year, the federal government spends billions of dollars to
procure goods and services ranging from paper clips to the development
of complex space vehicles. To achieve efficiencies while responding
to significant procurement reforms and acquisition workforce
reductions, agencies have increasingly consolidated their procurement
contracts-that is, combine existing smaller contracts into fewer
larger contracts. However, concerns have been raised that contract
bundling-consolidating contracts to such an extent that they may
preclude small businesses from competing-unnecessarily limits federal
contracting opportunities for small businesses.
To ensure contract bundling does not unfairly disadvantage small
businesses, the President tasked the Office of Management and Budget
(OMB) to develop a strategy that would hold agencies accountable for
contract bundling practices. In October 2002, OMB's Office of Federal
Procurement Policy (OFPP) issued "Contract Bundling: A Strategy for
Increasing Federal Contracting Opportunities for Small Business." The
strategy contains action items designed to change contract bundling
regulations, hold 23 agencies accountable for eliminating unnecessary
contract bundling, mitigate the effects of necessary bundling, and
increase
small business contracting opportunities. OFPP also required each agency
to submit quarterly reports through October 31, 2003, documenting their
progress in implementing the strategy.
To provide a better understanding of the extent to which contract
bundling occurs and the effect of OFPP's strategy on small business
federal contracting opportunities, you asked us to (1) identify the number
of contracts the 23 accountable agencies reported as bundled in fiscal
year
2002, and (2) assess the potential effectiveness of the regulatory changes
to increase small business contracting opportunities.
To identify the number of bundled contracts, we reviewed agency data
submitted to OFPP, as required by the OFPP strategy, and data in the
Federal Procurement Data System (FPDS), the federal repository for
contracting data.1 When discrepancies surfaced between the two sets of
data, we asked agency officials for an explanation. To assess the
potential effectiveness of regulatory changes to increase small business
contracting opportunities, we reviewed OFPP-strategy-required reports and
obtained the views of officials from agencies that, collectively,
accounted for over 85 percent of the fiscal year 2002 federal procurement
expenditures. A more detailed discussion of our scope and methodology is
at the end of this letter.
We conducted our review from April 2003 to February 2004 in accordance
with generally accepted government auditing standards.
Results in Brief
Four of the 23 agencies held accountable by OFPP's strategy reported a
total of 24 bundled contracts in fiscal year 2002; of the remaining 19
agencies, 16 reported no bundled contracts, and 32 did not provide
information on the number of bundled contracts. The small number of
agency-reported bundled contracts is inconsistent with the 928 contracts3
identified as bundled in the FPDS. Agency officials, after researching
their contracts, determined that the bundling data in FPDS were miscoded
due to confusion about the definition of contract bundling, inadequate
verification of information, and ineffective controls in the FPDS
reporting process.4 For example, about 33 percent of the FPDS fiscal year
2002 contract actions shown as being bundled were awarded to small
1 FPDS contains detailed information on contract actions over $25,000 and
summary data
on procurements of less than $25,000. The system is intended to identify
who bought what,
from whom, for how much, when, and where. On October 1, 2003, the
successor system to
FPDS-FPDS Next Generation-became operational.
2 The Agency for International Development and the Department of Justice
did not report.
In addition, the Department of Homeland Security, established by law in
November 2002
(Pub. L. 107-296, Nov. 25, 2002), did not have fiscal year 2002 FPDS data.
3 The 928 bundled contracts in FPDS represent contracts associated with
2,404 contract
actions coded as bundled in fiscal year 2002. A fiscal year 2002 contract
action could have
been associated with a contract awarded in fiscal year 2002, or a prior
fiscal year.
4 We have previously reported on FPDS data inaccuracies, most recently in
December 2003.
See Reliability of Federal Procurement Data, GAO-04-295R (Washington,
D.C.:
Dec. 30, 2003).
businesses, an unlikely occurrence, since a small business, by definition,
is essentially precluded from being awarded a bundled contract.
Despite the limited number of bundled contracts reported by agencies,
concerns that small businesses may be losing federal contracting
opportunities remain. According to OFPP, the primary goal of its
strategy-and the resulting regulatory changes-is to increase small
business federal contracting opportunities. Because the new regulations
have only recently been established, it is too early to determine whether
agencies are achieving this goal. In addition, the Small Business
Administration (SBA), as of February 25, 2004, has not identified and
disseminated best practices-as required by OFPP's strategy-to help
agencies maximize small business contract opportunities. However, even
with time and guidance, it will likely be difficult to assess the effect
of the recent changes to the regulations, in part because any increases in
small business contracting opportunities could be attributed to factors
other than regulatory changes. For example, we found that the largest
procuring agencies have a history of seeking opportunities to increase
small business contracting opportunities, which could explain any future
increases. Further, because the regulations primarily relate to contract
bundling and agency-reported data show that bundling is limited, the
regulations' impact on increasing small business contracting opportunities
may also be limited.
Nevertheless, certain regulatory changes-especially those related to
oversight-have the potential to promote greater small business
opportunities. For example, the regulations now require agencies' Office
of Small and Disadvantaged Business Utilization (OSDBU)-an agency's
advocate for small business-to conduct annual assessments of (1) the
extent to which small businesses receive a fair share of federal
procurements, (2) the adequacy of contract bundling documentation and
justifications, and (3) the adequacy of actions taken to mitigate the
effects on small businesses of necessary and justified contract bundling.
However, the regulations do not establish metrics to measure the extent to
which contract bundling is occurring, or the extent to which bundling
impacts small business contracting opportunities. Consequently, it will be
difficult to gauge agency efforts to identify and eliminate contracts that
are unnecessarily bundled and, thereby, increase small business federal
contracting opportunities. This weakness is not new; past data on
bundling and the effects of consolidating requirements on small businesses
have been limited and unreliable.5
To improve the oversight of contract bundling, we are recommending that
the Director, Office of Management and Budget, (1) ensure that FPDS and
agency reporting processes provide uniform and reliable contract bundling
information and (2) direct the Administrator, OFPP, to establish metrics
to measure contract bundling and the extent to which contract bundling
impacts small business federal contracting opportunities. In commenting on
a draft of this report, OMB concurred with the first recommendation, but
not the second. The basis of OMB's non-concurrence is their concern that
implementation of the recommendation envisions new government-wide
reporting and record keeping requirements outside of FPDS, which is
duplicative and possibly labor-intensive. OMB suggested, in place of our
recommendation, that it work with the SBA to explore possible inclusion of
new reporting requirements in FPDS that would track the impact of bundling
on contracting opportunities for small businesses. The purpose of our
recommendation is to establish metrics, not a new reporting and record
keeping system outside of FPDS. OMB's position, that it work with SBA to
explore possible inclusion of new reporting requirements in FPDS, does not
address the need for metrics. We believe metrics are needed to help
determine how bundling affects small businesses. Without metrics to
measure contract bundling and its impact, the information needed to ensure
agency accountability to eliminate unnecessary contract bundling, mitigate
the effects of necessary bundling, and increase small business contracting
opportunities will be limited or unknown.
We are also recommending that the SBA Administrator expedite dissemination
of best practices for maximizing small business contract opportunities.
SBA concurred with this recommendation.
Background Over the last decade, changes in procurement practices,
acquisition workforce reductions, and legislative changes have challenged
agencies to create efficiencies in their acquisition processes. By
consolidating contracts-that is, combining existing requirements into
fewer contracts- agencies can streamline the procurement process and
thereby reduce acquisition and administrative complexity and cost. A
subset of contract
5 Small Businesses: Limited Information Available on Contract Bundling's
Extent and Effects, GAO/GGD-00-82 (Washington, D.C.: Mar. 31, 2000).
consolidation is contract bundling. The Small Business Reauthorization Act
of 1997 defines a bundled contract as one that consolidates two or more
procurement requirements that previously were provided or performed under
separate, smaller contracts into a solicitation for offers for a single
contract that is likely to be unsuitable for award to a small business.
For example, a small business might be able to perform certain maintenance
tasks, such as plumbing and carpentry at a single government facility.
However, if a solicitation were to add paving and electrical repairs and
also expand the performance site to more than one regional area, such a
solicitation may be beyond the capability of any small business.6 In sum,
a consolidated contract can be suitable for award to a small business and
a bundled contract is not.
To help ensure that contract bundling does not unnecessarily disadvantage
small businesses, the Small Business Reauthorization Act of 1997 requires
that to the maximum extent practicable, agencies are to avoid contract
bundling unless they can demonstrate "measurably substantial benefits,"
such as cost savings,7 quality improvement, reduction in acquisition cycle
times, or better terms and conditions.
OFPP's strategy to address contract bundling and increase federal
contracting opportunities for small businesses contains nine action items
designed to change contract bundling regulations, hold 23 agencies
accountable to eliminate unnecessary contract bundling, mitigate the
effects of necessary bundling, and increase small business contracting
opportunities. Most action items were incorporated into Federal
6 The Small Business Reauthorization Act of 1997 lists several factors
that may result in a contract being unsuitable for award to a small
business: (1) the diversity, size, or specialized nature of the elements
of the performance specified; (2) the aggregate dollar value of the
anticipated award; (3) geographical dispersion of the contract performance
sites; and (4) any combination of the above. Pub.L. 105-135, section 412.
7 The regulations implementing the act stated that for contracts of $75
million or less, benefits were equivalent to 10 percent of the contract
value (including options); for contracts over $75 million, benefits were
equivalent to 5 percent of contract value (including options) or $7.5
million, whichever is greater. Further, agencies were required to justify
"substantial bundling," defined as any bundled contract valued at $10
million or more, by also (1) identifying the specific benefits anticipated
to be derived from bundling; (2) including an assessment of the specific
impediments to small business participation that result from bundling, (3)
specifying actions designed to maximize small business participation as
contractors, (4) specifying actions designed to maximize small business
participation as subcontractors, and (5) including a specific
determination that the anticipated benefits of the proposed bundled
contract justify its use. FAR 7.107(b), (e); 13 C.F.R. 125.2 (d)(5), (7).
Acquisition Regulation (FAR) and SBA regulations on October 20, 2003. The
nine action items and their status are described in appendix I.
As part of implementing its strategy, OFPP also required OSDBUs from the
23 agencies to report quarterly on their implementation of the nine action
items. OSDBUs have a central role in monitoring contract bundling
activity. They are responsible for overseeing their agency's functions and
duties related to the awarding of contracts and subcontracts to various
types of small businesses. Moreover, the Congress intended that OSDBU
directors serve in their respective agencies as advocates for these
businesses.
Agency Data Are Inconsistent with FPDS Data
In their reports to OFPP, only 4 of the 23 accountable agencies reported
that they had bundled contracts for fiscal year 2002. Further, the four
agencies reported only a total of 24 bundled contracts-far fewer than the
928 contracts reported as bundled in FPDS. Of the remaining 19 agencies,
16 reported no bundled contracts, and 3 did not provide contract bundling
information. (See app. II for details on contract bundling activity
reported by agencies.)
Through our review of FPDS bundling data, we found that much of the data
are inaccurate, causing FPDS to record more bundled contracts and actions
than reported by the agencies to OFPP. For example, about 33 percent of
FPDS-coded bundled contract actions were also shown as being awarded to
small businesses. By definition, a small business is essentially precluded
from being awarded a bundled contract. According to OSDBU officials at the
Departments of Defense (DOD), Veterans Affairs, Interior, Health and Human
Services, and Transportation-the five agencies with the largest number of
FPDS-reported bundled actions in fiscal year 2002-the inaccuracies in FPDS
were coding errors made as the result of confusion about the statutory
definition of contract bundling, inadequate verification of data, and
ineffective controls in the FPDS reporting process. For example, through a
review of Interior's 80 contracting offices, Interior's OSDBU found that
all had erroneously coded contracts as bundled. Interior's OSDBU
attributed the coding errors to confusion over the statutory definition of
a bundled contract. DOD similarly had its military departments and defense
agencies review the 109 contracts originally identified as bundled, and
they determined that only 8 out of the 109 contracts met the statutory
definition of a bundled contract. The 101 miscoded contracts were
primarily the result of confusion about the definition of bundling and
lack of controls and oversight in the FPDS reporting system.
Inaccuracies in FPDS data are a long-standing problem, which we have
previously reported on-most recently on December 30, 2003, when we issued
a letter to OMB expressing our concern that continuing problems with the
reliability of FPDS data could adversely impact decision-making and
oversight of the federal procurement system.8 We identified a number of
examples where poor data limited our ability to assess procurement
programs and found that many of the FPDS data problems, including
inaccurate data on bundling activity, were the result of confusion over
information requirements, which led to data entry mistakes by agency
contracting officials. We made recommendations to improve the reliability
of FPDS data. OMB generally concurred with our recommendations and, as of
March 25, 2004, are considering actions to respond to them.
Effect of Regulatory Changes on Small Business Contracting Opportunities Will
Be Difficult to Gauge, Although Certain Changes May Yield Increases
According to OFPP, the primary goal of its strategy-and the recent FAR
changes-is to increase small business federal contracting opportunities.
However, it will be difficult to determine whether any increases in small
business opportunities are the result of the recent regulatory changes or
other factors, such as continuing agency efforts. While some aspects of
the changes have the potential to help achieve desired goals, the new
regulations do not provide for metrics to measure agency accountability
for improving small business participation in federal procurement.
Despite OFPP's stated goal for its strategy-to increase small business
federal contracting opportunities-several factors will make it difficult
to assess the effect of the regulatory changes on such opportunities.
First, because contract bundling FAR and SBA rules were not amended until
October 2003, it is too early to determine whether the regulations have
achieved desired outcomes. Further, SBA has yet to disseminate best
practices to agencies-an action item in OFPP's strategy. One key purpose
of the best practices is for agencies to incorporate them into training
courses and materials. In January 2003, SBA requested agency senior
procurement executives to provide proven best practices to optimize prime
and subcontracting opportunities for small businesses. According to SBA
officials, that input has been received and a best practices guide has
been drafted. SBA, however, has not established a schedule to disseminate
the guide, and until such time, agencies can do little to respond to this
OFPP strategy action item.
8 See GAO-04-295R.
Second, it will be difficult to determine whether any increased
opportunities are the result of the regulatory changes or other factors,
such as continuing agency efforts to address bundling. DOD, the Department
of Energy (DOE), the National Aeronautics and Space Administration (NASA),
and the General Services Administration (GSA)-which together procured
about 80 percent of the federal government's goods and services in fiscal
year 2002-each have a history of seeking opportunities to increase small
business contracting opportunities. Since 1982, DOD has issued five policy
memoranda on small business participation in consolidated and bundled
contracts. The first memorandum directed that functions currently
performed by small businesses should not be consolidated and that, unless
there were overriding national security interests, future solicitations
should be packaged so as not to preclude performance by small businesses.
The most recent policy memorandum, dated January 17, 2002, requires (1)
review of multiple award indefinite-delivery, indefinite-quantity
contracts to avoid unnecessary bundling9 and (2) consideration of small
business participation from acquisition planning through program
execution. A benefit analysis guidebook was disseminated with the January
2002 memorandum that includes guidance on avoiding contract bundling,
outlines how to perform a benefit analysis to justify necessary bundling,
and addresses how to mitigate the impact on small businesses when a
bundled contract has been determined to be necessary and justified.
Further, the National Defense Authorization Act for Fiscal Year 200410
imposes additional requirements on senior procurement executives to ensure
that small businesses are given appropriate opportunities to participate
in consolidated acquisitions in excess of $5 million-a threshold that is
$2 million lower than the substantial bundling threshold established in
the new regulations.
The other three agencies also have a history of efforts to address
contract bundling and increase small business contracting opportunities.
For example, in 1992, NASA put a policy in place that required its
contracting offices contemplating contract consolidation to get
concurrence from the NASA Chief of Staff at Headquarters, who was required
to seek advice
9 Indefinite delivery, indefinite quantity contracts are used when an
agency does not know the precise quantity of supplies or services to be
provided under a contract. As the agency identifies a specific need for
goods or services, it issues orders for individual requirements, which
cannot exceed the maximum amount specified in the contract.
10 Pub. L. 108-136, section 801.
from the NASA OSDBU. In 2000, NASA required contract bundling
justification, review, and approval of orders from Federal Supply Schedule
contracts,11 governmentwide acquisition contracts, or other
indefinite-delivery contracts. NASA further imposed the substantial
bundling documentation requirements, as well as Headquarters Office of
Procurement review, on each proposed bundling activity expected to exceed
$5 million in total value-half the substantial bundling threshold of $10
million in effect at that time.12 DOE's procurement executive has
similarly issued acquisition letters dating back to April 2000 that
focused on how to maximize small business opportunities in federal
contracting. According to GSA officials, GSA's Multiple Award Schedule
Program has, for several years, allowed Federal Supply Schedule
contractors to team up to deliver a total solution to customer agencies
from multiple industries.13 Such arrangements have the potential to
enhance the ability of small businesses to capture all or a portion of a
customer's total requirement. Further, the Federal Supply Schedule, which
GSA administers, also contains a strong small business presence, with
approximately 78 percent of Federal Supply Schedule contracts awarded to
small businesses, according to GSA.
Finally, the recent regulations relate primarily to contract bundling-an
activity most agencies report they do not engage in. The regulations, for
example, are designed to require agency officials to review proposed
acquisitions to preclude unnecessary bundling and mitigate the effects of
necessary contract bundling. However, because 16 of the 23 agencies14
held accountable by the OFPP strategy reported that they had no bundled
contracts in fiscal year 2002 and the bundling that was reported was
limited, it is unclear to what extent the regulations will help increase
small business contracting opportunities at these agencies.
11 The Federal Supply Schedule, administered by GSA, is designed to
provide federal agencies with a simplified process for obtaining millions
of commonly used commercial supplies and services at prices associated
with volume buying. The program consists of single award schedules with
one supplier and multiple award schedules, in which GSA awards contracts
to multiple companies supplying comparable services and products.
12 The new bundling regulations lowered the substantial bundling threshold
for NASA to $5 million.
13 Schedule contractors may propose a team solution or customer agencies
may solicit for a team solution.
14 The Agency for International Development and Justice did not report. In
addition, the Department of Homeland Security, established by law in
November 2002 (Pub. L. 107-296, Nov. 25, 2002), did not have fiscal year
2002 FPDS data.
Despite the uncertainties regarding the effect of the recent regulatory
changes on small business contracting opportunities, certain changes in
the FAR and SBA regulations15 have the potential to increase such
opportunities-specifically those related to mandatory coordination of
agency officials and increased oversight. These regulatory changes were
designed to preclude unnecessary contract bundling and mitigate the
effects of justified bundling on small contractors. For example, the FAR
now requires OSDBUs to conduct periodic reviews to assess (1) the extent
to which small businesses are receiving their fair share of federal
procurements under the Small Business Act, (2) the adequacy of contract
bundling documentation and justification, and (3) the actions taken to
mitigate the effects of necessary and justified bundling on small
businesses. OSDBUs are required to submit their assessments to the head of
their agency and the SBA Administrator.
The FAR and SBA regulations now require agencies to assess contractor
performance against small business goals identified in subcontracting
plans in contracts that require a subcontracting plan.16 This action
requires agencies to systematically review contracts of $500,000 for
products or services and contracts of $1 million for construction and
ensure they comply with required small business subcontracting plans.
Further, the new regulations established agency-specific dollar thresholds
to invoke mandatory coordination with agency small business specialists.17
The new thresholds are $7 million for DOD; $5 million for DOE, GSA, and
NASA; and $2 million for all other agencies. The regulations also specify
that multiple award indefinite quantity contracts and orders placed
against Federal Supply Schedule contracts and governmentwide acquisition
contracts are now subject to bundling requirements and restrictions.
Finally, SBA now requires SBA procurement center representatives18 to
ensure that small business participation is maximized through teaming
arrangements by working with agency small business specialists and
15 See appendix III for table summarizing regulatory changes.
16 FAR 42.1502; 13 CFR 125.2(e)(1)(iii).
17 Small business specialists are agency personnel that assist small
businesses with federal contracting.
18 Procurement center representatives are SBA personnel whose duties
include assisting small businesses in obtaining federal contracts and
monitoring acquisitions to ensure compliance with small business
requirements. These representatives are located at various SBA procurement
area offices and federal buying centers around the country.
OSDBUs, as early in the acquisition process as practical. The new SBA
regulation is designed to (1) allow small business teams to compete for
acquisitions when contract bundling is determined to be necessary, and
hence, unsuitable for individual small businesses to perform and (2)
remove obstacles small businesses face in forming teams, such as the
relatively limited time available to respond to solicitations.
Regulatory Changes Do Not Establish Metrics and Information to Monitor
Contract Bundling Trends and Effects
Over the last several years, we have been asked to review acquisition
reforms and initiatives to determine whether they are achieving desired
outcomes. Determining whether desired outcomes are being achieved is
dependent on metrics and reliable information. However, as we testified in
March 2003 before the Senate Committee on Small Business and
Entrepreneurship,19 agencies often lack metrics and reliable information
to enable the Congress and the President to ensure agency accountability
for improving small business participation in federal procurement. Despite
our findings, the new contract bundling regulatory changes do not
establish metrics or identify the information needed to determine the
extent to which agencies bundle contracts and measure the impact of
bundling on small businesses-a weakness exacerbated by the fact that past
data on bundling has been limited and unreliable.20
Recording and distributing timely and accurate information on contract
bundling is key to ensuring accountability, monitoring contract bundling
trends, and adjusting practices as warranted. Although agency OSDBUs must
now submit annual reports to assess the small business share of federal
procurements, the adequacy of bundling documentation, and actions taken to
mitigate the effects of bundling to their agency head and the SBA
Administrator, there is no requirement for metrics or specific
bundling-related information. Without metrics and information to measure
contract bundling and its impact, annual assessments will likely be
process oriented, citing, for example, senior executive memos stressing
commitment to eliminate unnecessary contract bundling and identifying who
is accountable to optimize contracting opportunities for small businesses.
Potential metrics and information OSDBUs could use in their required
annual reports to monitor contract bundling trends and impacts include (1)
the number and dollar value of bundled contract actions and
19 See Small Business Contracting: Concerns About the Administration's
Plan to Address Contract Bundling Issues, GAO-03-559T (Washington, D.C.:
Mar. 18, 2003).
20 See Small Businesses: Limited Information Available on Contract
Bundling's Extent and Effects, GAO/GGD-00-82 (Washington, D.C.: Mar. 31,
2000).
contracts, (2) benefit analyses (dollars saved) to justify why contracts
are bundled, (3) the number of small businesses losing federal contracts
because of bundling, (4) how bundled contracts complied with agencies
subcontracting plans, and (5) how mitigation actions, such as teaming
arrangements, provided increased contracting opportunities to small
businesses.
Conclusions As we have reported over the past several years, a lack of
reliable data on contract bundling activity at federal agencies has
limited the Congress' and the President's ability to accurately assess the
extent of contract bundling governmentwide and its effect on small
business contracting opportunities. Although the most recent regulatory
changes have the potential to increase contracting opportunities for small
businesses, until such time that OFPP takes action to improve FPDS data
reliability and establish metrics to measure contract bundling activity,
the extent to which contract bundling impacts small business federal
contracting opportunities will continue to be limited or unknown.
Recommendations for Executive Action
We are recommending that the Director, Office of Management and Budget,
o ensure that planned FPDS reliability improvements include accurate
agency reporting to provide uniform and reliable contract bundling
information and
o direct the Administrator, OFPP, to establish metrics to measure
contract bundling and the extent to which contract bundling impacts
contracting opportunities for small businesses.
We are also recommending that the Administrator, SBA, expedite the
dissemination of best practices to maximize small business contract
opportunities for incorporation into agencies' training courses, as
required by the OFPP strategy.
Agency Comments In March 2004, we requested comments on a draft of this
report from the Director of OMB and from the Administrator, SBA.
and Our Evaluation In written comments, OMB concurred with the first
recommendation, but not the second. OMB expressed concern with our
recommendation that OFPP be directed to establish metrics to measure
contract bundling and the extent to which contract bundling impacts
contracting opportunities for small businesses. OMB is concerned that our
recommendation
envisions that OMB establish new, governmentwide reporting and
record-keeping requirements outside of FPDS, which is duplicative and
possibly labor-intensive. In addition, OMB suggested that the our
recommendation be revised to require OFPP to work with SBA to explore
possible inclusion of new reporting requirements in FPDS that would track
the impact of bundling on contracting opportunities for small businesses.
We believe OMB's concern is unfounded. The purpose of our recommendation
is to establish contract bundling metrics, not a new reporting and
record-keeping system outside of FPDS. The establishment of bundling
metrics, together with the implementation of our recommendation that OMB
ensure that its planned FPDS reliability improvements include accurate
agency reporting of contract bundling information, does not require a new
reporting and record-keeping system outside of FPDS.
We believe OMB's suggestion that our recommendation be revised to explore
possible inclusion of new reporting requirements to track the impact of
bundling on small businesses will not provide the Congress sufficient
information to understand the effects of bundling on small businesses,
unless metrics are established. As stated in our report, determining
whether acquisition reforms and initiatives are being achieved is
dependent on metrics. Without metrics to measure contract bundling and its
impact, the information needed to ensure agency accountability to
eliminate unnecessary contract bundling, mitigate the effects of necessary
bundling, and increase small business contracting opportunities will be
limited or unknown.
In official oral comments on the report, staff from SBA concurred with the
SBA recommendation and had no other comments on the report.
Scope and Methodology
To identify the number of contracts agencies reported as bundled in fiscal
year 2002, we reviewed the data submitted by agencies in their reports to
OFPP. We also analyzed fiscal year 2002 contract actions coded as bundled
in FPDS to compare information reported by the agencies. Where large
discrepancies existed between agency and FPDS data, we contacted agency
OSDBU officials to obtain an explanation. Those agencies were the Veterans
Administration and the Departments of Defense, Health and Human Services,
Interior, and Transportation. We did not verify the agency-reported data
used in this report. Its reliability is dependent on OSDBU review of their
agency contracts. We believe the data OSDBUs
reported to OFPP to be generally reliable because OSDBUs (1) have a
central role in monitoring contract bundling activity, (2) are responsible
to oversee their agency's functions and duties related to the awarding of
contracts and subcontracts to various types of small businesses, and (3)
researched and then explained the difference between the bundling data
they reported to OFPP and what is in FPDS.
To assess the potential effectiveness of the OFPP strategy and the
regulatory changes resulting from it, we reviewed the four required
quarterly reports submitted by the agencies to OFPP. Those reports were to
describe agency efforts to implement the strategy. In addition, we met
with procurement and OSDBU officials from five federal agencies-DOD, DOE,
GSA, NASA, and the Veterans Administration-that collectively spent over 85
percent of the total procurement dollars in fiscal year 2002. We obtained
their views on the impact of the strategy and subsequent regulatory
changes. We also contacted officials from the OSDBUs of the remaining 18
agencies held accountable by the strategy to obtain their views on its
implementation. Finally, we met with officials from OFPP and SBA to gain a
better understanding of the objectives of the strategy, as well as a
governmentwide perspective on contract bundling and its effect on small
business opportunities within the federal procurement community.
We also reviewed applicable contract bundling laws, policies, and
regulations.
As agreed, unless you publicly announce its contents earlier, we plan no
further distribution of this report until 30 days after the date of this
letter. At that time, we will send copies of this report to the
Administrators of the OFPP and SBA, and the heads of the 23 executive
agencies held accountable by OFPP's strategy. We will also provide copies
to others on request. In addition, the report will be available at no
charge on the GAO Web site at http://www.gao.gov.
If you or your staff have questions concerning this report, please
contact me at (202) 512-4841 or by e-mail at [email protected], or
James Fuquay at (937) 258-7963. Key contributors to this report were
Johnetta Gatlin-Brown, Daniel Hauser, Julia Kennon, Mary Jo Lewnard,
Sylvia Schatz, and Karen Sloan.
David E. Cooper
Director
Acquisition and Sourcing Management
Appendix I: Status of Nine Action Items Contained in OFPP's Report
In October 2002 in response to the President's tasking to develop a
strategy to hold agencies accountable for contract bundling practices, the
Office of Federal Procurement Policy (OFPP) issued "Contract
Bundling: A Strategy for Increasing Federal Contracting Opportunities
for Small Business." The status of the strategy's nine action items, as of
February 25, 2004, is presented below.
Table 1: Status of Action Items Contained in OFPP's Contract Bundling Strategy
Action item Status
Ensure accountability of senior agency management for Twenty-three
agencies were required to report to the Office of Management
improving contracting opportunities for small business
and Budget's (OMB) Deputy Director for Management on the status of their
efforts to address contract bundling issues on a quarterly basis from
January 31, 2003, until October 31, 2003. Quarterly reports are no longer
required.
Ensure timely and accurate reporting of contract PMC, composed of deputy
secretaries and administrators from the major bundling information through
the President's agencies, was tasked with assisting OMB with monitoring
the status of Management Council (PMC) agency efforts to address contract
bundling. We did not obtain access to
PMC documentation.
Require contract bundling reviews for task and delivery The Federal
Acquisition Regulation (FAR) and Small Business orders under multiple
award contract vehicles Administration (SBA) regulations were amended on
October 20, 2003.
Require agency review of proposed acquisitions above The FAR and SBA
regulations were amended on October 20, 2003.
specified dollar thresholds for unnecessary and
unjustified contract bundling
Require identification of alternative acquisition The FAR and SBA
regulations were amended on October 20, 2003.
strategies for the proposed bundling of contracts above
specified thresholds and written justification when
alternatives involving less bundling are not used
Mitigate the effects of contract bundling by The FAR and SBA regulations
were amended on October 20, 2003. strengthening compliance with
subcontracting plans
Mitigate the effects of contract bundling by facilitating the development
of small business teams and joint ventures
SBA regulations were amended on October 20, 2003. Identify best practices for
maximizing small business In January 2003, SBA requested agencies to provide
proven "best practices"
opportunities to optimize prime and subcontracting opportunities for small
businesses. The intent of this action item was to disseminate best
practices for incorporation into agencies training courses. On February
25, 2004, SBA advised us that a draft Best Practices Guide had not been
approved and a schedule for its approval had not been established.
Dedicate agencies' Offices of Small and Disadvantaged OSDBUs must now
submit annual bundling justification reports to their
Business Utilization (OSDBU) to the President's Small agency head and the
SBA Administrator.
Business Agenda
Source: GAO analysis of OFPP contract bundling strategy and regulations.
Appendix II: Summary of Agency Responses to OFPP-Directed Metrics
OFPP required OSDBUs from 23 agencies to report quarterly on
implementation of OFPP's contract bundling strategy. Table 2 summarizes
agency responses to the OFPP-directed metrics for fiscal year 2002.
Table 2: Summary of Agency Responses to OFPP-Directed Metrics for Fiscal Year
2002
Dollars in millions
Contracts/orders at or above agency specific dollar thresholdsa Review by OSDBU
Review by SBSb
Agency
Number of bundled contracts
Total number
Total dollars
Percentage of total
agency
procurement dollars
for
FY 2002 Number Percent Number Percent
Agriculture 0 308 $1,400.0 35.60 59 19 205
AID N/R 56 410.5 38.75 45 c 0n 0n
Commerce 0 89 436.5 27.00 24 27 65
DHS N/A N/A N/A N/A N/A N/A N/A N/A
DOD 8 3,397 131,018.2 72.50 d d 3,319 98e
Education 0 24 79.0 7.50 21 88 21
Energy 0 7 61.8 0.16 0f 0 0f
EPA 0 109 1,800.0 10.60 77 71 32
GSA 0 70 1,294.2 13.74 14 20 14
HHS 2 1,141 1,268.9 21.00 d d 244g
HUD 0 16 72.8 7.70 16 100 16 100
Interior 0 34 125.0 5.20 0 0 34 100
Justice N/R N/R N/R N/R N/R N/R N/R N/R
Labor 0 25 176.3 10.70 8h h 8h h
NASA 0 68 4,553.8 34.20 15i 22 68j 100
NSF 0 1 131.8 69.40 1 100 1 100
OPM 0 7 23.9 7.30 7 100 7 100
SBA 0 5 17.2 38.00 5 100 5 100
SSA 0 26 89.7 14.00 12 46 12k 46
Appendix II: Summary of Agency Responses to OFPP-Directed Metrics
Dollars in millions
Contracts/orders at or above agency specific dollar thresholdsa
Review by SBSb
Review by OSDBU
Number of bundled contracts
Percentage of total agency procurement dollars for FY 2002 Number Percent
Number Percent
Total number
Total dollarsAgency
State 0 0 0 0 0 0 0
Transportation 3 260 2,820.7 80.00 3 0m 260 100
Treasury 0 121 1,747.0 57.82 33 27 33
VA 11 240 2,811.7 47.14 l l Unknown Unknown
Total 24
Source: GAO analysis of agency reported OFPP required metrics.
Legend:
N/R = not reported, N/A = not applicable
a DOD = $7M; Energy, GSA, and NASA = $5M; all other agencies = $2M.
b Small Business Specialist.
c Cannot be calculated. Review of contracts is not correlated to OFPP
threshold requirements.
d The OSDBU gets involved on a case-by-case basis, when needed.
e DOD orders off Federal Supply Schedules (FSS) are not required to be
reviewed (with a Form 2579), but may actually be reviewed by a SBS. As a
result, this is a "floor" amount and may actually be higher because the
number excludes all 78 orders off FSS.
f OSDBU and SBSs only review new contracts, not orders against existing
contracts.
g Contract actions above $100,000 are reviewed by SBSs.
h Breakdown of contract/orders: 2 were solo source; 9 were unilaterally
small business set-asides; 8 were contracts open market contract awards
reviewed by OSDBU and SBS; 4 were orders to large business off GSA
Schedules; and 2 were orders to small businesses off GSA schedules.
i NASA OSDBU reviews any contract/order over $50M. Fifteen fell into this
category.
j NASA SB specialists review all procurement expected to exceed $100,000.
All 68 fit this category.
k OSDBU serves in the capacity of a SBS.
l VA's OSDBU does not review contracts and/or purchase orders. It does
review the VA Form 2268 for specific requirements at specific thresholds.
OSDBU records reveal that 168 forms were reviewed in fiscal year 2002.
m Actual percentage is 0.15.
n No SBSs.
Appendix III: Summary of Contract Bundling Rule Changes
The FAR Council and Small Business Administration issued final rules in
2003 amending the bundling requirements in the FAR and SBA regulations
(effective October 20, 2003). These amendments implemented recommendations
in the Office of Management and Budget's October 2002 report "Contract
Bundling: A Strategy for Increasing Federal Contracting Opportunities for
Small Business." The following table summarizes the changes and new
mandates incorporated in the amendments.
Table 3: Bundling Regulations, before and after Amendments
Before amendments After amendments
Applicability
An agency was required to conduct market research to determine Clarified
that it also applies to: (1) multiple award indefinite whether bundling
was necessary and justified. FAR 7.107(a); quantity contracts; and
13 C.F.R. 125.2(d)(3). (2) orders placed against an indefinite quantity
contract under:
-a Federal Supply Schedule contract; or
-a task/delivery order contract awarded by another agency- i.e.,
governmentwide acquisition contract or multi-agency contract. FAR 2.101;
FAR 7.107(a); 13 C.F.R. 125.2(d)(1)(iii)(iv).
Justification of "measurably substantial" benefits
To justify contract bundling, an agency was required to Clarified that it
also applies to orders.
demonstrate "measurably substantial" benefits, which included:
(1) costs savings, (2) price reduction, (3) quality improvements,
(4) reduction in acquisition cycle times, (5) better terms and
condition, or (6) any other benefits.
Quantification of benefits: Same quantification of benefits analysis, but
clarified it also
These benefits were required to be quantified as: (1) 10 percent of
applies to orders. FAR 2.101; FAR 7.107(b); 13 C.F.R.
the contract's value (including options) if the contract was
125.2(d)(1)(iv); 125.2(d)(5)(i).
$75 million or less; or (2) 5 percent of the contract's value
(including options) or $7.5 million, whichever is greater, if the
contract was over $75 million. FAR 7.107(b); 13 C.F.R.
125.2(d)(5)(i).
Threshold-substantial bundling
Substantial bundling threshold was defined as a contract worth Threshold
lowered to: (1) $7 million for the Department of
$10 million or more. FAR 7.107(e); 13 C.F.R. 125.2(d)(1)(iii). Defense;
(2) $5 million for the Department of Energy, the General Services
Administration, and National Aeronautics and Space Administration; and (3)
$2 million for all other agencies. FAR 7.107(e); FAR 7.104(d)(2); 13
C.F.R. 125.2(b)(2)(i)(ii) and 125.2(d)(1)(iv).
Appendix III: Summary of Contract Bundling Rule Changes
Before amendments After amendments Justification-substantial bundling
To justify "substantial bundling," agency must, in the Added a sixth
requirement: identify alternative strategies that
documentation of that strategy: (1) identify the specific benefits would
reduce or minimize the scope of the bundling and the
anticipated to be derived from bundling; (2) include an assessment
rationale for not choosing those alternatives. FAR 7.107(e)(6);
of the specific impediments to small business participation that 13 C.F.R.
125.2(d)(7)(E).
result from bundling; (3) specify actions designed to maximize Clarified
that these six requirements applied to orders. FAR
small business participation as contractors; (4) specify actions 7.107(e).
designed to maximize small business participation as
subcontractors; and (5) include a specific determination that the
anticipated benefits of the proposed bundled contract justify its use.
FAR 7.107(e)(1)-(5); 13 C.F.R. 125.2(d)(7).
New mandates
Not applicable Agency must coordinate acquisition strategies with agency
Small Business Specialist (SBS) when the acquisition meets the applicable
new threshold and is not set aside for small business;
SBS must then notify agency OSDBU if the strategy involves bundling that
is unnecessary, unjustified, or not identified as bundling by the agency;
and
SBS must identify alternative strategies that would reduce bundling. (FAR
7.104(d)(1); 13 C.F.R. 125.2(b)(2)).
Not applicable Agency OSDBU must:
conduct annual reviews to assess small business share of federal
procurements, the adequacy of bundling documentation, and actions taken to
mitigate the effects; and
submit assessment to the agency head and SBA Administrator. (FAR
19.201(d)(11)(12); 13 C.F.R. 125.2(e)).
Agency must:
for any bundling, provide all information about the bundling
justification, including the acquisition strategy, to the SBA procurement
center representative 30 days before solicitation issuance; and
for substantial bundling, also provide substantial bundling justification
documentation to procurement center representative and submit all
information to agency OSDBU. (FAR 19.2021(e)(1)(iii); 13 C.F.R.
125.2(b)(3) and (d)(7)(E)(ii)).
Source: GAO analysis of regulations.
Appendix IV: Comments from the Office of Management and Budget
Related GAO Products
Contract Management: DOD Needs Measures for Small Business Subcontracting
Program and Better Data on Foreign Subcontracts.
GAO-04-381. Washington, D.C.: April 5, 2004.
Small and Disadvantaged Businesses: Most Agency Advocates View Their Roles
Similarly. GAO-04-451. Washington, D.C.: March 22, 2004.
Reliability Federal Procurement Data. GAO-04-295R. Washington, D.C.:
December 30, 2003.
Small Business Contracting: Concerns About the Administration's Plan to
Address Contract Bundling Issues. GAO-03-559T. Washington, D.C.: March 18,
2003.
Small Business: Trends in Federal Procurement in the 1990s.
GAO-01-119. Washington, D.C.: January 18, 2001.
Small Business Subcontracting Report Validation Can Be Improved.
GAO-02-166R. Washington, D.C.: December 13, 2001.
Small Business: Limited Information Available on Contract Bundling's
Extent and Effects. GAO/GGD-00-82. Washington, D.C.: March 31, 2000.
How Selected DOD Consolidation Efforts Affected Small Business
Opportunities. GAO/NSIAD-83-30. Washington, D.C.: August 12, 1983.
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