[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]
BUNGLING BUNDLING: HOW CONTRACT BUNDLING AND CONSOLIDATION REMAIN
CHALLENGES TO SMALL BUSINESS SUCCESS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON CONTRACTING AND TECHNOLOGY
OF THE
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
OCTOBER 10, 2013
__________
[GRAPHIC] [TIFF OMITTED]
Small Business Committee Document Number 113-041
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HOUSE COMMITTEE ON SMALL BUSINESS
SAM GRAVES, Missouri, Chairman
STEVE CHABOT, Ohio
STEVE KING, Iowa
MIKE COFFMAN, Colorado
BLAINE LUETKEMER, Missouri
MICK MULVANEY, South Carolina
SCOTT TIPTON, Colorado
JAIME HERRERA BEUTLER, Washington
RICHARD HANNA, New York
TIM HUELSKAMP, Kansas
DAVID SCHWEIKERT, Arizona
KERRY BENTIVOLIO, Michigan
CHRIS COLLINS, New York
TOM RICE, South Carolina
NYDIA VELAZQUEZ, New York, Ranking Member
KURT SCHRADER, Oregon
YVETTE CLARKE, New York
JUDY CHU, California
JANICE HAHN, California
DONALD PAYNE, JR., New Jersey
GRACE MENG, New York
BRAD SCHNEIDER, Illinois
RON BARBER, Arizona
ANN McLANE KUSTER, New Hampshire
PATRICK MURPHY, Florida
Lori Salley, Staff Director
Paul Sass, Deputy Staff Director
Barry Pineles, Chief Counsel
Michael Day, Minority Staff Director
C O N T E N T S
OPENING STATEMENTS
Page
Hon. Richard Hanna............................................... 1
Hon. Grace Meng.................................................. 2
WITNESSES
Juanita Beauford, President, Association of Procurement Technical
Assistance Centers, Newark, DE................................. 4
Robert A. Burton, Senior Partner, Venable LLP, Washington, DC.... 6
Gloria Larkin, President, TargetGov, Baltimore, MD, testifying on
behalf of Women Impacting Public Policy........................ 8
Margot Dorfman, CEO, U.S. Women's Chamber of Commerce,
Washington, DC................................................. 10
APPENDIX
Prepared Statements:
Juanita Beauford, President, Association of Procurement
Technical Assistance Centers, Newark, DE................... 25
Robert A. Burton, Senior Partner, Venable LLP, Washington, DC 30
Gloria Larkin, President, TargetGov, Baltimore, MD,
testifying on behalf of Women Impacting Public Policy...... 43
Margot Dorfman, CEO, U.S. Women's Chamber of Commerce,
Washington, DC............................................. 51
Questions for the Record:
None.
Answers for the Record:
None.
Additional Material for the Record:
Associated General Contractors of America - AGC.............. 54
National Association of Surety Bond Producers - NASBP........ 64
BUNGLING BUNDLING: HOW CONTRACT
BUNDLING AND CONSOLIDATION REMAIN CHALLENGES TO
SMALL BUSINESS SUCCESS
----------
THURSDAY, OCTOBER 10, 2013
House of Representatives,
Committee on Small Business,
Subcommittee on Contracting and Technology,
Washington, DC.
The Subcommittee met, pursuant to call, at 11:31 a.m., in
Room 2360, Rayburn House Office Building, Hon. Richard Hanna
[chairman of the Subcommittee] presiding.
Present: Representatives Hanna, Bentivolio, Meng, Chu, and
Clarke.
Chairman Hanna. Thank you, everyone, for being here. This
morning we are here to talk about contract bundling and what
consolidation means for small business, specifically what
unjustified consolidation means for small business. In this
Subcommittee we look at a lot of different procurement tools
and have always been careful to say that no one type of
contracting methodology is inherently good or bad. But that it
is how government uses a tool that matters. In no case is it
truer than in bundling and in consolidation.
In the Small Business Act, Congress tells agencies how to
determine whether bundling and consolidation--whether or not
they are being appropriately used. The law provides definitions
of the methodologies, explains what benefits would justify the
use of the strategy, and requires agencies to mitigate
justified bundling and consolidation and prohibits unjustified
bundling and consolidation.
When bundling and consolidation are justified, they deliver
real benefits for the taxpayer. However, unjustified bundling
unnecessarily excludes small businesses from competing for
Federal contracts, which results in higher prices for
taxpayers. Thus, this system only works if agencies correctly
identified contracts as bundled and consolidated.
While we don't have all of the data yet, agencies are
reporting bundling of 38 contracts, worth $2.8 billion in
fiscal year 2013, and consolidating another 98 contracts worth
$29 billion. This would mean that about 6 percent of the
dollars we spend are bundled or consolidated, and that amounts
to 136 of 10 million-plus contracts awarded that were actually
bundled.
Unfortunately, we know this number is significantly
underreported. For example, during our June hearing on
strategic sourcing we heard that agencies are turning more and
more to consolidating and bundling contracts for goods and
services normally procured from small businesses. However, the
strategic sourcing contracts are not being reported as bundled
or consolidated.
Likewise, while agencies did not award all of the top 20
contracts predicted for fiscal year 2013, of those awarded none
included a bundling or consolidation. None included a bundling
or consolidation justification, even though these contracts
were expected to exceed $105 billion.
While it is easy to point out large omissions, it is often
the smaller contracts, those in tens or hundreds of millions of
dollars that represent the greatest loss of opportunity for
small business. I hope to hear from our witnesses today on how
large this problem is, what we can do about it, and frankly, at
this time to see what consequences we might apply to the
agencies and how we can correct this circumstance.
Further, I am concerned other aspects of the law are not
being enforced. For example, after a bundling contract is
awarded, the government is supposed to report back on the
anticipated savings or benefits that justified the bundling and
explains what those benefits were. To date, not one, not one
such report has been completed.
I am hoping our witnesses today will help us understand the
scope of the problem, what we need to do to get reliable data
on bundling and consolidation. I am also looking for their
ideas to hold agencies accountable for unjustified bundling and
consolidation since the current statutory provisions are being
observed in the breach. Finally, I am seeking their opinions on
other ways we can improve the law to ensure that small
businesses have a piece of this pie.
At a time when we are focused on the financial health of
the country, I believe that part of the solution is to find
ways to improve competition, and thereby reduce prices. Small
businesses are a critical part of that solution since their
participation in competition creates jobs and encourages
innovation. I look forward to your testimony, and thank you all
again for being here today.
I turn to my friend, Ms. Meng, Grace Meng, ranking member
for her opening comments.
Ms. Meng. Thank you, Mr. Chairman. Thank you to our
witnesses for being here today.
Today small businesses are looking for opportunities to
expand and to grow stronger. As the catalyst for nearly two-
thirds of employment gains, small business expansion is
essential for the economy.
One way Congress can increase the job-creating power of
small firms is through the Federal procurement marketplace. In
fact, during the last decade the government has doubled its
contracting efforts to more than $500 billion per year. This
makes the U.S. Government one of the largest single buyers of
goods and services in the world.
In order to ensure that small firms successfully compete
for these Federal contracts, several tools and resources have
been put in place. This includes the 23 percent small business
procurement goal, as well as protections that help level the
playing field for smaller enterprises.
Programs at the Small Business Administration provide a
foundation for many entrepreneurs to enter the Federal
marketplace and provide a springboard for growth. Together,
these goals, policies, and programs have encouraged agencies to
recognize that small businesses can provide high-quality goods
and services at a competitive price to the taxpayer.
For many small firms, however, these resources are simply
not enough to overcome one of the biggest hurdles they face:
contract bundling. Although we must be cognizant of the cost to
Federal agencies, we must ensure that bundling does not limit
the accessibility of small businesses to Federal contracts,
especially while the government is falling short of its 23
percent goal.
Last year, more than $50 billion or 10 percent of total
contracting dollars was awarded through bundled or consolidated
contracts. As a result of bundling, small businesses missed out
on contracting opportunities worth more than $15 billion. By
bundling large contracts such as these, the government
effectively shuts out many smaller companies from competing for
work that they have the skills and the expertise to perform.
Splitting these megacontracts into smaller pieces would
enable more small businesses to compete for Federal agency
work. By doing so, the government would be able to increase
competition, accessing qualified companies and the high-quality
service they bring to the table.
At the forefront of this battle are procurement center
representatives, small business specialists, and procurement
technical assistance centers, whose already depleted ranks have
been further reduced by sequestration. Unfortunately, they are
fighting an uphill battle. Last year, SBA's CCR challenged just
28 bundled contracts out of more than 17 million contracting
actions and only 6 were actually unbundled. This is simply not
enough oversight to make a difference. Ensuring that these
bundled and consolidated contracts are more thoroughly examined
is critical to giving small businesses an equal opportunity in
this marketplace.
These challenges, while significant, pale in comparison to
the impact that the shutdown is having on small business
contractors. With the government typically spending $1.4
billion on contracts per day, the shutdown is causing severe
disruption and confusion for small businesses. For many firms
it is unclear when they will be paid for their work, which in
turn is causing uncertainty for their employees.
In 2012, my district received an average of $117,000 a day,
or $2 million a month, in loans from the SBA. These loans are
not being processed. As a result, small businesses are left
without access to the opportunities and resources they have
come to depend on for their livelihood.
Given the shutdown, I am not only looking forward to
testimony about contract bundling today, but also concerning
the impact that the government's closure is having on our small
firms. I am hopeful that we can reopen the government and in
the future take steps to reduce the prevalence of bundling
across Federal agencies.
With that said, I want to thank all of the witnesses in
advance of their testimony again and their input on these
important issues. Thank you Mr. Chairman. I yield back.
Chairman Hanna. Thank you.
It is my job to explain the lights. It is a little like
your stewardess explaining how the seat belts work. So red is
bad, green is good. We are pretty flexible, so we want to hear
what have you to say.
In any event, our first witness today is Juanita Beauford,
president, Association of Procurement and Technical Assistance
Centers, called PTACs, and director of the University of
Delaware PTAC program. There are currently 94 PTAC programs
across the country operating at 300 locations, and these
individuals assist small businesses with Federal contracting as
Ms. Beauford is uniquely situated to speak to the experience of
small contract bundling and small businesses and consolidation.
Ms. Beauford, thanks for being here, and you may begin.
STATEMENTS OF JUANITA BEAUFORD, PRESIDENT, ASSOCIATION OF
PROCUREMENT TECHNICAL ASSISTANCE CENTERS, NEWARK, DE; ROBERT A.
BURTON, SENIOR PARTNER, VENABLE LLP, WASHINGTON, DC; GLORIA
LARKIN, PRESIDENT, TARGETGOV, BALTIMORE, MD, TESTIFYING ON
BEHALF OF WOMEN IMPACTING PUBLIC POLICY; AND MARGOT DORFMAN,
CEO, U.S. WOMEN'S CHAMBER OF COMMERCE, WASHINGTON, DC
STATEMENT OF JUANITA BEAUFORD
Ms. Beauford. Thank you, Chairman Hanna, Ranking Member
Meng, and distinguished members of the Subcommittee. Thank you
for the opportunity to testify here today. I am honored to
speak before you on behalf of the Association of Procurement
Technical Assistance Centers, APTAC, and the small businesses
we serve, and to express our gratitude for your leadership on
their behalf. As you said, my name is Juanita Beauford,
president of APTAC and the professional organization of now 97
procurement centers nationwide.
Created by Congress in 1985, PTACs assist local businesses
at little or no cost by preparing them to become capable
government contractors, believing that a broad base of small
business suppliers provide the highest quality and best value
to our government while creating a strong and vibrant economic
base for our communities. Last year we helped over 70,000 small
businesses win more than 112,000 government contracts, valued
at over $14.1 billion.
We applaud your efforts to reexamine the issue of bundling
and consolidation. Many of our members report frustration about
dwindling bid opportunities as agencies increasingly rely on
large acquisition mechanism such as strategic sourcing,
government-wide acquisition contracts, multi-agency contracts,
omnibus ``single solution'' contracts, and multiple year
indefinite delivery indefinite quantity contracts, as well as
bundling and consolidation.
There is a clear perception that the number of
solicitations appropriate for small businesses is shrinking
significantly, while small businesses are additionally
disadvantaged by the lack of access to contracting officers and
the trend away from Best Value tradeoffs and towards lowest
price technically acceptable.
We cannot quantify the extent to which perceptions are
accurate. As you know, the data is incomplete and difficult to
find. And we hear little about efforts to challenge or mitigate
consolidation practices. Agencies strive to be good stewards
over tax dollars, often with underfunded acquisition offices.
Streamlined vehicles are attractive because they are easy and
promise cost savings.
I suspect there is confusion both about what constitutes
bundling and that there are requirements to make solicitations
accessible to small businesses. Enforcement of such
requirements is simply not happening in many cases. Simplifying
definitions could be an important place to start. Having
different definitions for bundling and consolidation is itself
difficult. Select one term and define it simply; for example,
two or more requirements that would reasonably be provided or
performed under two or more separate contracts.
To bring this under the umbrella, all vehicles that present
barriers to small businesses while making communication about
and measurement of the issue easier, then define the criteria
under which consolidated contracts may be appropriate or
require review or justification. This would make clear the
newer mechanisms, such as Strategic Sourcing, GWACs, et cetera,
indeed constitute consolidated solicitation, which is the first
step in determining their prevalence and impact. Simplifying
the reporting process and identifying a better platform for
making the information available to TCRs and the public could
also be helpful, and we have included an example in our
addendum to our written testimony.
Also intended to provide accountability, it appears that
requirements are often sidestepped. This information must be
tracked and analyzed so that effective strategies for
protecting the ability of small businesses to participate in
the Federal marketplace can be developed and implemented. But
finding realistic enforcement triggers and providing adequate
resources to implement them is also critical. The fact that
enforcement actions are rare undermines existing regulations.
But the real challenge is to convince government buyers
that their interests can be well served by small businesses. To
this extent, we encourage the Subcommittee to consider
initiatives to educate agency acquisition staff about statutory
and regulatory provisions with regards to bundling and
consolidation, while emphasizing the importance of a robust
base of small business suppliers and the specific benefits
small businesses can bring to agency requirements.
Contracting officers may not be aware of these benefits,
much less best practices for accessible contract vehicles and
small business outreach. There are success stories out here.
Highlighting them while training contracting officers on how
and why to contract with small businesses could be critical to
overcoming the trend towards consolidation. Buying from small
businesses must be seen as an appealing option.
To the extent that APTAC or the PTACs can help, please call
upon us. PTACs are proud to collaborate with local Federal
offices, and APTAC has partnered with agencies for national
outreach. We would gladly work with additional agencies to open
more opportunities to small businesses. Thank you.
Chairman Hanna. Thank you.
Our second witness is Robert A. Burton. Mr. Burton is a
senior partner in Venable LLP in Washington, D.C., where he is
a nationally recognized Federal procurement attorney. Prior to
joining Venable, Mr. Burton spent 7 years at the Office of
Federal Procurement serving as Deputy Administrator, as well as
Acting Administrator for 2 years.
Mr. Burton, thank you for being here.
STATEMENT OF ROBERT A. BURTON
Mr. Burton. Chairman Hanna, Ranking Member Meng, and
members of the Subcommittee, I very much appreciate the
opportunity to testify today and discuss how contract bundling
and consolidation remain difficult challenges for small
businesses and why increased congressional oversight is needed.
Prior to joining the Venable law firm in 2008, I did serve
as the Deputy Administrator of the Office of Federal
Procurement Policy, oftentimes referred to as OFPP. While
serving in this capacity I worked on initiatives to increase
contracting opportunities for small businesses and assisted
with the development of the 2002 Office of Management and
Budget report on contract bundling, which ultimately resulted
in amendments to the Federal Acquisition Regulation and the
regulations issued by the Small Business Administration.
The bundling report was part of the President's small
business agenda and focused on increasing agency reporting on
bundled contracts and mitigating the negative effects of
justified bundling on small businesses.
The 2002 report also resulted in the regulatory requirement
for bundling reviews of task orders under the GSA schedules and
other multiple award contract vehicles, which was a significant
step forward because the majority of our Federal procurement
dollars are actually awarded through task orders under umbrella
contracts.
In my testimony today, Mr. Chairman, I would like to focus
on three factors that in my view have undermined the
effectiveness of the regulations and the laws passed by
Congress that were intended to mitigate the effects of contract
bundling and contract consolidation. And these three factors
are, one, the lack of accurate and reliable data on bundled and
consolidated contracts; two, the lack of agency accountability
for not following applicable laws and regulations on this
subject; and three, the lack of recourse for small businesses
harmed by unjustified contract bundling or consolidation.
With respect to the first issue, the unavailability of
accurate data, it appears that agencies simply have failed to
report their use of bundled requirements as required under the
procurement regulations. Indeed, the SBA Web site that tracks
agencies' bundling reports which must be filed on an annual
basis does not provide any reports for fiscal year 2010.
Further, many agency Web sites do not maintain a list of
bundled procurements as required under the 2010 Small Business
Act amendments.
And finally, by statute, the Federal Procurement Data
System, otherwise known as FPDS, must collect data regarding
bundling of contract requirements when the contract price
exceeds $5 million, including all options. However, the FPDS
data is unreliable and incomplete, primarily because of lack of
agency reporting and differing agency interpretations and
applications of the word bundling.
The second factor is the agency's failure to comply with
the bundling and consolidation regulations. This failure is
nowhere more apparent than in agencies' failure to prepare the
required written justification for both contract bundling and
consolidation as mandated by law.
For example, just recently I had a client who was one of
five small businesses that provided a specific set of services
to a Federal agency. The agency decided to recompete their
contract and converted a multiple-award contract into a single-
award contract. All five incumbents lost the recompete, which
has had a significant negative impact on their financial
health.
The agency's justification for the single-award
consolidated contract was requested, but my understanding is
the agency never prepared a justification analyzing the
potential negative impact the consolidation might have on small
businesses. In similar consolidation cases that I have
personally worked on, the agencies have simply been unable to
provide the required written justification for the bundling or
consolidated procurement.
Finally, I would like to address the third factor that in
my opinion has hindered the implementation of the bundling and
consolidation regulations. This is the lack of recourse for
small businesses that have been negatively impacted by agency
noncompliance with the applicable regulations. In this regard,
I recommend that Congress provide for an independent review of
agency contract bundling and consolidation actions. This review
should be conducted by an independent review board or office
within the government which does not have any incentive to
justify unsupported agency contract consolidations.
Arguably, the Government Accountability Office, GAO, may be
in the best position to provide this type of unbiased and
independent review. This administrative review should be
separate from the formal bid protest reviews currently
conducted by GAO, and should be housed in a different GAO
office. At a minimum, third-party independent reviews will
highlight the fact that most agencies are not preparing the
required justifications for bundled or consolidated
procurements. Moreover, this type of review is critical in the
face of the growing trend toward consolidation through new
government-wide strategic sourcing contracts and related
initiatives.
In conclusion, I think it is evident that agency
noncompliance with the bundling and consolidation laws and
regulations will simply require increased congressional
oversight. This is critical to ensure that small business
participation in the Federal procurement process is protected
and that agencies justify the growing number of contract
consolidations.
Mr. Chairman, this concludes my statement, and I will be
pleased to answer any questions that you or members of the
Subcommittee may have. Thank you.
Chairman Hanna. Thank you, thank you.
Our third witness today is Ms. Gloria Berthold Larkin,
testifying on behalf of Women Impacting Public Policy, or WIPP,
where she serves as Educational Foundation vice chair. WIPP is
a nationally nonpartisan public policy organization advocating
on behalf of its coalition of 4.7 million businesswomen. Ms.
Larkin is also president of TargetGov, a company that helps
small businesses sell to government customers.
Ms. Larkin, thanks for being here and you may begin.
STATEMENT OF GLORIA LARKIN
Ms. Larkin. Thank you, Chairman Hanna and Ranking Member
Meng and distinguished members of the Subcommittee. I
appreciate this opportunity to testify this morning. My name is
Gloria Larkin, and I am president of TargetGov. And I also
serve as the vice chair of the Educational Foundation of Women
Impacting Public Policy.
I have been in business since 1997, and my firm helps
companies of all types pursue, propose, and win Federal
Government contracts. As a result, we do have specific
experience in the challenging world of bundled and consolidated
contracts.
I am here today representing Women Impacting Public Policy,
or WIPP, a national, nonpartisan public policy organization
advocating on behalf of its coalition of 4.7 million
businesswomen nationwide, including 75 business organizations.
WIPP plays a key role in developing women-owned businesses into
successful government contractors through our Give Me 5 and
ChallengeHER programs.
In our view, bundling and consolidation continues to hamper
small business in the Federal marketplace. We believe that
contracts that can be serviced by small business should not be
subject to any form of consolidation.
It is our recommendation the following actions be taken to
minimize unnecessary and unjustified consolidation. First, we
would like to improve the collection of statutorily required
data on consolidation. Second, complete the related regulatory
actions. And three, increase training and outreach to small
business vendors.
What are these actual barriers to success? According to
WIPP members, these are the key reasons that they are wary of
pursuing these large contracts.
First, it is the time and cost required. It is not unusual
for large businesses to invest nearly $250,000 in preparation
to win these government contracts. The timeline is equally
large. Vendors must enter the market 12 to 18 months ahead of
time before the contract is actually competed. At that same
time, small businesses must choose between going to vendor
outreach or industry days or making money on their existing
contracts so that they can simply pay their employees.
Second, size and bonding questions are major concerns. As
an example, let's take an engineering firm with a size standard
of under $14 million in annual revenue. Let's say they are
pursuing a consolidated contract worth $100 million as a prime
contractor. They are unlikely to win because the Federal
Government requires that they show past performance of a
similar size contract. If they could do a $100 million
contract, they would not be small business.
Bonding requirements present similar barriers. As these
consolidated contracts increase in size, far exceeding the size
standard for small business, there is only one real alternative
to competition, and that is teaming. But teaming itself is
fraught with cost, risk, and dangers to all parties. The costs
involved in teaming must be borne directly by the small
business, and those costs are not allowable in the contract
accounting process.
And third, winning does not mean that you have actually won
anything. Should a business or a team be successful and
actually win a bundled contract, it is only the first step. No
money is actually paid on products or services until each
awardee further pursues individual task orders on a competitive
basis. Therefore, the winners have simply won the right to
compete over and over and over again with other winners.
The growth of consolidated contracts essentially force
small businesses to form complicated teaming agreements with a
wide variety of partners. All told, these enormous bundled
contracts inherently limit small business from competing.
I will wrap up with WIPP's following recommendations to the
Committee. Number one, improve the collection and sharing of
bundled data. It seems to be a common thread here. To be the
honest, I don't think we actually know how much bundling and
consolidation is really happening, and that can't be good for
anyone.
Let's complete the regulatory process for bundling
regulation. We do applaud SBA's recent October 2nd final rule,
but my understanding is that it could take years to implement
even after FAR Council adoption.
And number three, let's increase education efforts of small
business vendors regarding the consolidation and bundling
process. More partnerships are needed between agencies and our
business community. As new rules and regulations are released,
small businesses need to understand the consolidation process,
as well as the appeal and protest processes for possibly
unjustified or unnecessary consolidation or bundling.
It is our hope that our identification of these barriers
and recommendations are helpful to your efforts to assist small
businesses to become successful Federal contractors, thereby
supporting the economy with the jobs across the Nation that we
desperately need right now. Thank you, and I am very happy to
answer questions.
Chairman Hanna. Thank you.
I will now yield to Ranking Member Meng to introduce the
minority witness.
Ms. Meng. Thank you. It is my pleasure to introduce Ms.
Margot Dorfman. Ms. Dorfman is the founder and CEO of the U.S.
Women's Chamber of Commerce. The Women's Chamber represents
500,000 members, three-quarters of whom are small business
owners and Federal contractors. Through her leadership this
organization has championed opportunities to increase women's
business, career, and leadership advancement. Additionally, Ms.
Dorfman has extensive background in business, including over 10
years in executive positions with General Mills and other
Fortune 500 firms.
Welcome, Ms. Dorfman.
STATEMENT OF MARGOT DORFMAN
Ms. Dorfman. Thank you. And Chairman Hanna, Ranking Member
Meng, and members of the Subcommittee, I greatly appreciate
being here today, and I am here to testify on behalf of the
U.S. Women's Chamber of Commerce and of the millions of women
that we represent across the United States, along with our
500,000 members, three-quarters of whom are American small
business owners and Federal contractors.
Whenever I am asked to provide testimony on key issues
impacting business, I first go directly to our members to
receive boots-on-the-ground input. Here is what I heard this
week. From Eileen Pannetier, Comprehensive Environmental: The
Air Force periodically puts out worldwide environmental
contracts encompassing almost all of their environmental work.
Given the size of these bundled solicitation they are
unattainable for small business.
Jennifer Dickerson of EnRep: The Department of Energy
continues to bundle scopes of work stating they do not have the
resources to manage smaller contracts and that the risk is too
great. If smaller scope of work is not segregated out DOE will
continue to receive an F grade from the SBA in meeting their
small business goals. There is not accountability by the SBA,
the DOE, the primes, and unfortunately, the small business
contractors suffer.
Cheryl London with Cherco: Because of bundling we have been
precluded from any profitable business that the government has
for our type of work. The jobs are contracted out by agency and
facility and cover any aspects of construction at those
facilities, often for years.
Lynn Sutton of Advantage Building Contractors: The project
we choose to pursue is the most important decision we can make
for our business. This economy has left few standing. Bundling
contracts is an extreme hardship, especially for the
construction industry.
And I have another member: Contract bundling is more
expensive than direct contracting. Fee, G&A, and engineering
hours are added to the prime's contract to, quote/unquote,
``manage the sub.'' The sub was working independently and
directly with the government prior to the bundling at a lower
total cost.
While this Committee has been active in seeking to
eradicate bundling and consolidation of Federal contracts, our
members make it clear. The issues of bundling, consolidation,
and the ever-popular euphemism strategic sourcing are alive and
well in the Federal marketplace due in part to the following.
One, there was a systematic lack of accountability in
Federal contracting. Year after year, the Federal Government
misses the required 23 percent mark and also the paltry 5
percent goal for women-owned firms and does nothing to end the
charade of what acquisitions get counted as eligible for small
business target, underfunds the procurement center
representatives, and fails to hold senior acquisition and
agency leaders accountable for the systemic failures.
Two, congressional leaders fail to understand that bundling
and consolidation actually represent decreased competition as
many competitive vendors are left out due to the size and scope
of single competition.
Three, now we have legislation and rulemaking that claims
to be the solution for ending bundling and consolidation, but
when we look at it from our view, these rules simply detail the
basis for providing a legal paper trail to justify bundling and
consolidation.
And four, posting an agency's intent to bundle or
consolidate 30 days ahead of publishing the offer may look like
transparency and may make for a nice rebuttal to complaints,
but if you are trying to be a small business keeping up with
yet another Federal Web site, taking on an agency at the last
minute, potentially incurring legal fees and potentially
running agency-level relationships--or ruining them--then when
agency acquisition leaders have made their strategic plans
long, long ago, this is simply just not feasible.
If you truly want to prevent bundling and consolidation,
then just say no rather than provide the blueprint for how to
justify it. Increase the number of and clout of the procurement
center representatives, get more influence at the agency's
strategic planning stage, require the SBA to provide annual
reporting that goes much further than the woefully inadequate
small business goaling reports, and last but certainly not
least, stop shutting down the government.
I guarantee you the sudden stops and starts, the lack of
certainty in agency funding, and the lack of accountability
that follows this sort of mess will absolutely lead acquisition
professionals to do whatever they can to just let out contracts
as fast as possible to all the big businesses lined up at their
doors ready to take our tax dollars as fast as possible.
And while I am on the subject of shutdowns, you need to
stop this nonsense. You are killing our businesses. Our members
were just getting their feet on the ground, and you pulled the
rug out again. My members have started laying off employees
already. They have no way to recover the cost of the lost
revenues from the shutdown. You are hurting their businesses.
You are hurting their families. You are hurting their
employees, their employees' families, and you are hurting
ultimately their local economies. I ask that you stand down and
open the government today. Thank you.
Chairman Hanna. Thank you, and I appreciate your frankness.
Now, we have almost unanimity here, so that is also nice. I
am going to give Mr. Bentivolio first crack at this, and you
may begin.
Mr. Bentivolio. Thank you very much, Mr. Chairman.
And thank you all for being here today. This is very
important, specifically since I went back to my district not
long ago and talked to some businessmen who--business folks--
who said that the government gave a big contract to an
organization and they couldn't bid on that even though they
originally were part of the bidding process, but they were shut
out. And then they had a product that they could make cheaper,
better quality, but they weren't authorized because the general
contractor didn't--I guess they didn't meet those
qualifications for that general contractor.
And my question is, I guess, does the general contractor
get to pick and choose who he wants basically? I mean, we like
to think they go to the lowest bidder, but that is not always
the case. It would naive to think so, right?
So what I am asking I guess is, the government has
protocols for giving minorities preference, veterans
preference, those kinds of things, but when it goes to a
general contractor are they still obligated or can they follow
their own rules, make up their own rules? Anybody?
Ms. Dorfman. I could speak to our members and their
experience in this. Essentially what often happens is the prime
contractor has to come up with a subcontracting plan to include
the women, minorities, whatever the goals are. Once they go get
the contract, they come back, they often take that work in-
house and do not use the firms that they had go through a very
expensive process of providing them a quote of how much the
work would go.
Mr. Bentivolio. Wow, I can see your point. I can see your
point. It is pretty unfair.
Mr. Burton, I had a question for you, but I can't remember
exactly what it is, but I got the impression, somebody said
something about strategic sourcing, and, Mr. Burton, have you
noticed anything in the process where a government bureaucrat,
for instance, you know, likes to pick and choose winners and
losers, or something along those lines? I am trying to think
something you said. I made a note here, but I can't remember
exactly the rest of the note.
Mr. Burton. Well, strategic sourcing is clearly a very
popular initiative right now, and there is nothing wrong with
strategic sourcing. When I was in the government I led an
initiative on strategic sourcing back in the 2005 timeframe.
The problem is, I think the government is pressing rather
aggressively to do everything in a consolidated fashion. It may
have short-term savings, and that is appealing, but I am
convinced that strategic sourcing, if it is not done correctly,
will actually result in higher prices for the taxpayers in the
long run.
For example, there are many vehicles that are being used
right now where the small business participation rate will
decrease dramatically once the contracts are consolidated. In
the long run, I think there will be fewer small business
participants and less competition when these contracts are
recompeted, say 5 years from now. And I think, as you know,
less competition usually results in higher prices.
So I think in the long run, the strategic sourcing effort
taken to the degree it is being taken will actually increase
costs for the American taxpayers and less opportunities for
small businesses.
Mr. Bentivolio. Okay. And I do remember now. You found some
abuses in the program. And there are protocols to remedy when
somebody hollers foul, there was something you said about a
limit on finding justice in the system, I guess.
Mr. Burton. Well, small businesses really have no recourse.
And yes, agencies are simply not following the rules. I was
actually, when I moved to the private sector, rather startled
by how much noncompliance there is. And when I asked for
written justifications from agencies that they need to do by
law to support their consolidated procurements, they were
unable to provide those justifications. They don't exist. And I
think this is rampant throughout all of the agencies. That is
disturbing.
Second, small businesses when confronted with that type of
situation really have no choice but perhaps to file a pre-award
bid protest, which is very expensive, and oftentimes they don't
want to do it. They feel like it is going to irritate the
agency. They probably, if they irritate the agency, won't get
the award in the final analysis. So they don't really want to
do a pre-award bid protest.
That leaves them without any recourse. And I do think there
needs to be some type of more informal independent review
available just to look at whether or not the consolidated
procurement is justified and whether or not it has a negative
and unjustifiable impact on small businesses.
That review could be limited, fairly narrow in scope, where
the GAO bid protests usually get involved in a number of
different issues. And quite frankly, the pre-award bid protest
usually results in a negative finding for contractors in
situations such as this.
Mr. Bentivolio. Thank you very much.
I see my time has expired, Mr. Chairman. Thank you.
Chairman Hanna. Ms. Chu.
Ms. Chu. Thank you, Mr. Chair.
I want to commend all of the panelists because you gave a
very clear picture of a system that seems to have broken down.
And, Mr. Burton, I wanted to follow up on some of the
things that you said about lack of reliable data and lack of an
enforcement mechanism. You said that there was a lack of
reliable data on how much bundling and consolidation is going
on and that the agencies are not even giving their
justification for bundling, and it is hard to even fix the
problem when we don't even know how much of it is going on.
So moving forward, how can we incentivize agencies to
accurately report the data? Is self-reporting the best way to
do it? How can we accurately measure the extent of bundling and
consolidation that has occurred in the last 15 years?
Mr. Burton. I think it is a very difficult challenge. The
data in FPDS has always not been terribly accurate. What
strikes me on this topic is that there is in many cases no
data, and I think as far as data is concerned, this area has
some of the worst data of anything in the Federal Procurement
Data System. So we are dealing with a very significant problem.
FPDS probably will never have 100 percent accurate data, but
the problem here is the total disregard for the requirements to
report bundling.
And I think, first, we need to have the responsibility and
accountability in agencies centralized in one office. I would
recommend that be the senior procurement executive. Right now,
there are different people in the agencies responsible for
bundling versus consolidated procurements. It makes no sense
whatsoever.
So I would recommend, A, just one definition. I don't think
we need two definitions of bundling and consolidated
procurement. And then I think that you need to centralize
within the agency somebody to be accountable. And what we did
in some instances was actually hold their feet to the fire and
have this as an element of their performance appraisal. In some
instances that did get attention.
And I think this is serious enough that I would actually be
that prescriptive if I were Congress, I would be that
prescriptive with respect to holding accountable officials.
First of all, having someone that is a single point of contact,
and if it is not the senior procurement executive, it still
should be a very high-level official within the government. And
then to have that official responsible to report to Congress,
to have that official maybe judged by their performance in this
area for purposes of their performance appraisal.
I think that is certainly a place to start. I will say that
I think this is going to be a very difficult problem to
correct, though, no matter what oversight Congress exercises.
But the need for oversight I think is very clear.
Ms. Chu. And what is really evident is that there is really
no enforcement mechanism whatsoever at this point. That is what
I understand, right? And what kind of enforcement mechanism
would there be to ensure that agencies comply on this?
Mr. Burton. You know, one thing I think is a real
challenge, and I noticed this when I was in the government.
Certain agencies don't necessarily like to say that other
agencies are doing a poor job. And I found that true with the
Small Business Administration, which is actually, as you know,
headed by a political appointee, and the other agencies in the
Federal Government are headed by political appointees. And one
thing I found that was very difficult was to get agency
political appointees to criticize agencies headed by other
political appointees.
That is why I am recommending that the review and the
identification of problems in this area be housed somewhere
else. And I think you need to get it out of SBA in the final
analysis, and I think it needs to go, and I can't think of any
other organization that is viewed as independent and as
objective as GAO. And that is why I think GAO needs to set up a
separate office to actually conduct these reviews and in
appropriate cases hold the agencies accountable. They do a
pretty good job on them.
Ms. Chu. And I was also shocked by the fact that small
businesses have so little ability to appeal these actions or to
challenge any decision; that they have to demonstrate. It is
hard to demonstrate standing or protest in a timely fashion or
have a lack of jurisdiction on the part of the protest. Could
you expand on that, on how we could fix this?
Mr. Burton. That is very true. Your points are very well
taken. And really the only recourse that is available to a
small business would be what is called a pre-award bid protest.
But oftentimes in that situation the small business does not
have a lot of information necessarily to challenge the agency
decision to consolidate the procurement. Some people will tell
you, though, well, they do have recourse. They can take it to
GAO in a pre-award bid protest. These tend to be very
expensive. As I mentioned, small businesses are reluctant that,
you know, they are worried that there might be some type of
retribution if they did file such a formal procedure, which is
very public. And it is very expensive.
And what is really disturbing is that the cases that I am
familiar with have resulted in negative decisions for small
businesses because an extraordinary amount of discretion is
afforded the agencies in making these determinations whether to
consolidate or not. And even if the agency can show savings,
and they might be able to show savings, I don't think the
savings are significant in many cases, and I think that the
interests of small businesses should be paramount and should be
actually weighted heavier than any secondary savings that might
be realized by the agency.
Ms. Chu. Thank you. I yield back.
Chairman Hanna. Ms. Clarke.
Ms. Clarke. I thank you, Chairman Hanna and Ranking Member
Meng.
And I would like to thank our witnesses today for sharing
your expertise and your testimony.
I would like to take a moment to say that I understand the
significance and the gravity of this extremely important issue
facing our small business community and have myself been very
vocal on the need to address the inherent disregard for small
business opportunities in bundling, especially on minority and
women-owned, veteran-owned small businesses. Given the
seriousness of this issue, I truly wish this hearing were
occurring under normal circumstances, however, with our Federal
contracting and procurement agencies present here today to hear
your testimony.
However, the current congressional climate we are
confronted with could not be any less ideal, indeed harmful for
our small business community and our Nation. With all due
respect, Mr. Chairman, we are now in the 10th day of a
Republican-forced government shutdown, which has already cost
our still recovering economy $1.6 billion to date at a rate of
$160 million daily.
In my district alone, the Republican-forced shutdown has
cost my small business constituents nearly $800,000 in SBA
approved 7(a) loans and 504 real estate and equipment loans.
These are loans that are needed to sustain and grow small
businesses that are the engines of our local, State, and
national economy.
So I find it ironic that we are having a hearing regarding
issues in the bundling process when the very Federal Government
that is at the heart of this discussion is essentially
nonoperational. Bids that have been submitted are not being
processed; payments for completed work are not being processed;
and smaller contractors who don't have the cushion to survive a
prolonged shutdown are laying off workers and dipping into
lines of credit just to survive.
So again, while I understand that this is a very important
issue, I am having a bit of trouble concentrating on the trees
for the forest. So perhaps you are prepared to discuss this
today, but I have a question, a very simple one. Given the
current environment, it is critical that we hear and understand
what you are hearing regarding the impact of this shutdown on
your membership and the damage that it is doing to our small
business community.
And I thank you, Ms. Dorfman, for including at least your
understanding in your comments. But I am open for our other
folks who have testified here today to just share with us,
because I think it is critical we put this in context.
Ms. Larkin. May I? Gloria Larkin, representing WIPP. We are
in our conference, our annual conference right now, so
yesterday we had the advantage of having a room full of
businesswomen raise their hands and indicate how many companies
had received stop-work orders, putting their staff, their
employees out of work.
We are living it right now. I have a client in Tennessee
who has an $8 million payment that they are waiting on from the
government. They have to lay off their staff because they don't
have cash flow to run.
So this is hitting us deeper than anyone imagined. My
staff, my personal staff in my business, their spouses are
employed by the government, and they are wondering if they are
going to be able to make house payments now.
Ms. Clarke. Thank you.
Ms. Dorfman. If I could just add, I have a member here
today who her subcontract was absorbed into the prime because
it would, quote/unquote, ``be cheaper.'' And the other issue
that really impacts women especially is that we don't have
access to capital. We talk about lines of credit, but a lot of
my members can't get lines of credit or loans for their
business without the husband's signature, and so they don't
have that cushion at all. They can't plan.
When you have a shutdown and you need to fill in the gaps,
you can't do that if you don't have access to the capital you
need. So there is just levels and layers of challenges with
this whole shutdown. Thank you.
Ms. Beauford. Juanita Beauford, PTAC of Delaware. And I
think that I speak for all the PTACs across the country, but in
my State of Delaware we are seeing similar things, termination
for convenience. We are seeing delay in contract, no task
orders issued on contracts that have been awarded; layoffs of
staff people by our small businesses. So I don't think that is
much different than any other program or PTAC across the
country, and we assume it is going to just get worse as it goes
on.
Ms. Clarke. I thank you. And I yield back.
Chairman Hanna. Thank you.
Ms. Dorfman, you said something I found interesting, and
that is that in your written, and in your testimony here today,
you mentioned that you thought that the whole idea of bundling
was somehow misguided, that it might just be let go away. And
if I have that correct, maybe I do not, but I found it
interesting, there is almost unanimity in terms of how people
feel about the way this is handled. Is it the case that if the
rules were actually followed that there are enough rules in
place to do what it is we all want to see done? Anybody can
answer that. Or is it an enforcement issue?
Ms. Dorfman. Well, I believe a lot of it is an enforcement
issue and there could be improvements upon the language to
strengthen the enforcement. What I don't see is a top level-
down commitment. Where are the heads of the agencies? Why
aren't they saying to their people down below, you must make
your small business goals, you must make sure there is due
access to small businesses to gather these contracts and
perform on them. What people don't really think about is, they
are thinking, oh, we are going to save money this way, but the
reality is if you cut out competition, you know, fair market
trade, then the taxpayer is going to pay more.
Chairman Hanna. Right. And the word was used task orders,
by Mr. Burton, I think. Was that you?
Ms. Larkin. Me.
Chairman Hanna. Oh, thank you. That is just a different
word for change order. But it is different for you?
Ms. Larkin. No.
Ms. Beauford. No.
Chairman Hanna. What we are really describing here is a way
for contract officers--this may be overly simplistic--but to
make their life easier and actually limit competition by simply
giving work to the people that are already in front of them,
people that they have experience with, people they know are
large enough, therefore providing the least opportunity for
problems in terms of the work, or maybe in their workload. Is
that somehow fair?
Ms. Larkin. I would like to answer that. Gloria Larkin.
About 10 years ago, we were spending about $220 billion and we
had over 100,000 people employed in contracting and acquisition
handling that workload. Today we are spending over $500 billion
and we have fewer, I believe, than 40,000 people in the
contracting and acquisition workforce. It is simple math. They
have to have larger contracts managed by fewer people.
It is not a fact that these folks aren't doing their job.
It is a fact that they have too much to do with too large of
contracts. So one of the solutions to this is to take a look at
our professional contracting and acquisition staff--who are not
contractors, by the way. We have gone that route and we have
contractors making decisions about what other contractors are
going to get the contracts. Sounds a little crazy in the
government contracting market.
So it is a matter of having enough professional contracting
and acquisition staff employed by the government to manage
these unbundled contracts.
Chairman Hanna. Mr. Burton, would you like to speak to
that? You get the allegation. I don't need to repeat it. And I
am sure you are right. I just would like your opinion, Mr.
Burton.
Mr. Burton. Let me address the task order issue because I
think this is a very significant issue. Task orders are actual
contracts, in effect, that are awarded under an umbrella
contract. We see many, many more of these types of multiple
award contract vehicles where there is a contract in place and
agencies then submit task orders for products or services under
those big umbrella contracts. The GSA schedules are the best
example of where you have an umbrella contract, and then many
task orders are submitted by various agencies under that.
The accountability for task orders is something I am very
concerned about. In 2010, Congress did address this issue in
amendments to the Small Business Act, and they made it very
clear that written determinations for consolidation are
required. What is not clear is whether written justifications
are required for task orders under that larger contract.
And I think that clarity is very important here, because
some agencies I think are playing games with respect to these
definitions, contract versus task order, and they are saying,
well, we can consolidate task orders underneath the umbrella
contracts.
Chairman Hanna. What you are saying is that we are
basically hurting ourselves by eliminating competition and in
fact even allowing opportunities for corruption, perhaps.
Mr. Burton. Well, I don't know. But, I mean, I think this
is something that can be----
Chairman Hanna. Sure. As an aside, I was in construction
for 30 years, did over 3,000 projects, and I have seen this
many, many times. So it is a combination of things, then; it is
not just understaffing. Lack of accountability. The idea that
we actually let this happen and there is nobody watching over
people in a way that makes them accountable for what are
billions of dollars worth of expenditures.
I am going to yield to Ranking Member Meng.
Ms. Meng. This question is for Ms. Beauford, but anyone is
welcome to answer.
Your association has staff that works continuously with
small businesses trying to enter the Federal marketplace. What
is their experience regarding how bundling affects a business'
ability to compete for contracts? And if there is a belief that
a contract has been improperly bundled, what guidance or advice
do you give them?
Ms. Beauford. I will give you an example. Aberdeen Proving
Ground consolidated four commands, their IT, which ended up
being over $5 billion, something like that. We put a team of
six small businesses together to go after the small business
suite under that consolidated contract. We spent 18 months.
When the contract was finally awarded, it was awarded to the
large companies, and as of July they had still not awarded the
small business suites.
Now, this has been over 2 years for that. What we found is
that as we went further and further in the process,
modifications kept coming out on this contract, and it was
pushing the small business owner further and further away from
competing for it, making it more and more difficult.
So they are very aware of the consolidation. I understand
that Ms. Larkin has spoken about teaming. That is not the
optimal way we would like to go, but in this environment we try
to counsel a business more on teaming because it is better to
get a piece of the pie than none at all.
And if I can go back and mention what Mr. Burton said, I
also find that as we are having a mass exodus of contracting
officers from the Federal Government, we are also having an
influx of very, very young people taking their place. And
contracting takes sometimes decades to master, so you are going
to find an increase in protests because people really don't
know what they are doing, and with no recourse, as Mr. Burton
said, for the small business. When they do try to complain, you
know, it is just a big, if I may say, mess on their part. That
is an example of what we have dealt with, with consolidation.
Ms. Meng. A question to Ms. Dorfman. There are various
factors that are taken into account when determining when
bundling and consolidation are allowed. However, an agency can
still bundle or consolidate goods or services if they find that
it is necessary and justified. While there are still
requirements to procure goods through these methods, have you
found that agencies are overusing this tool to circumvent the
safeguards that exist to prevent abuses?
Ms. Dorfman. Absolutely. It appears that it has become
quite textbook to go ahead and set it aside for the big firm
without consideration for small firms, and so there is definite
overusage of that.
Ms. Meng. I yield back.
Chairman Hanna. Mr. Bentivolio.
Mr. Bentivolio. Thank you very much, Mr. Chairman.
You have given me a really good overview of the problem and
the situation. I have two questions. Once a contract is
bundled, is there any way to unbundle it? No? Ms. Dorfman?
Ms. Dorfman. The PCRs are supposed to be looking out for
those contracts that are coming off that their intention is to
bundle and pull them down and pick them apart and set aside
parts of that for small businesses. The challenge that there
is, there are not enough PCRs for the country, and it is not
funded well, so if we don't have the right kind of staffing--I
think part of the conversation here has been we need more
staff, but we need the funding to go with it. And when you look
at the IDIQs, that is part of the issue as well, that there
will be some contracts that are set aside and then suddenly
there is no funding for that portion of the IDIQ and the small
business is out contracts. So I definitely see some issues.
Mr. Bentivolio. Mr. Burton?
Mr. Burton. Early in the process you can definitely
unbundle, and that is the whole idea of having the review and
the justification done upfront. And that is the remedy to, if
the agency feels there has been unjustified bundling, then it
needs to unbundle it and uncouple it before the solicitation
actually goes on the street.
Mr. Bentivolio. And you need a mediator, it sounds like,
when a small business is unjustly discriminated against in a
bidding process, correct?
Mr. Burton. Well, I think that it would be helpful to have
an independent reviewer, and I think you could use that word
mediator, somebody outside of the agency process that does not
have a vested interest in the procurement process----
Mr. Bentivolio. Do you have any recommendations for who
would do that?
Mr. Burton. Well, I have struggled with that, and the
General Accountability Office, the Government Accountability
Office is the one that occurs to me probably is best positioned
to do that. I am sure there will be some resource issues in
that regard that will be raised as an obstacle. But I think a
separate office from the bid protest group at GAO. And there
are teams within GAO, and I think the acquisition team might be
a very good one to actually conduct this type of independent
review.
Mr. Bentivolio. Okay. Do you think this committee should
pursue legislation on bundling and consolidation, and what
should that legislation look like or incorporate?
Mr. Burton. I think that the answer is yes. I think that
legislation is required. One thing I found when I was in the
government, it did seem that agencies paid attention to actual
statute more so than other memos and regulations even.
So I do think legislation is required. I think the
legislation should actually specify the independent review
board or office that will conduct reviews of bundling and
consolidation. I think that to simplify things there should be
just one definition. I would use the word consolidation because
I think it is broader than bundled. And I think I would just
have one definition.
And actually, you know, the definitions are not that
complicated. They are fairly clear. But to simplify things even
more, maybe we should just have one definition, and I think
consolidated procurement is what I would go with. Because
agencies are trying to argue that this isn't bundling, and so
therefore we don't need to have a lot of these protections and
justifications and so forth, this is mere contract
consolidation, not technically bundling. I think we need to do
away with that whole distinction because consolidated
procurements alone are hurting small businesses dramatically.
It doesn't have to necessarily be a bundled procurement where
the agency has to show that it is actually unsuitable work for
small businesses. In most instances work is suitable for small
businesses.
Mr. Bentivolio. Would you incorporate in that legislation a
process where we have that mediator step then in case of a
protest?
Mr. Burton. Yes.
Mr. Bentivolio. Because I am not interested in making the
government any bigger and putting watchers over watchers, you
know. I am not interested in doing that. It just costs
taxpayers money for a job they should be doing anyway, right?
They should be objective in the way they pursue, and if it is--
well, anyway, would you put that in there?
Mr. Burton. Yes, sir, I would.
Mr. Bentivolio. Streamlining that process, make it easier
for veterans and women and anybody else that wants to protest?
Mr. Burton. And I would use the word challenge.
Mr. Bentivolio. Challenge.
Mr. Burton. I don't think I would use the word protest
because it immediately brings up the formal process at GAO. I
think you want this to be much more simplistic. It is just a
challenge with respect to the agency decision to consolidate
and reduce opportunities for small businesses. I don't think
you have to hire a lot of staff in order to do this simple
review, but I do think it needs to be somewhat independent of
the actual agency, because my experience is the agency will
support the contracting official's decision to consolidate.
Mr. Bentivolio. Great. Thank you very much, sir, and I
appreciate your time here today, all of you. Thank you very
much.
Mr. Burton. Thank you.
Chairman Hanna. A couple things. You used the word vested
interest, which opens up a whole number of issues in my mind in
terms of contracting. And Ms. Larkin, they are understaffed,
right?
Ms. Larkin. Uh-huh.
Chairman Hanna. But yet even though they are understaffed,
that doesn't necessarily solve the problem if it is a
fundamental problem in terms of how they view their job and
perceive the opportunity they have to make their job easier
rather than harder, so that I don't think you can lay it all on
that. The numbers suggest that it is a policy that is avoided
at all costs, that there is no incentive for them to pursue
unbundling or simpler, easier, more competitive numbers of
contracts, if that were the case. You don't have to agree with
me.
What do you mean, Mr. Burton, by vested interest? Because
one would assume that somebody awarding a contract would have
no vested interest, although I personally think that--I want to
hear your version or anyone's version of why the process is
naturally going towards this, something other than just a lack
of number of people to do it. Mr. Burton, am I clear in my
question?
Mr. Burton. Yes, sir. I think that the acquisition
workforce issue is significant. I do think that that is
certainly a major issue here with respect to having fewer
contracts to award, having fewer contracts to manage. There is
enormous pressure on the acquisition workforce to do things
quickly. Strategic sourcing is something that has been embraced
by the administration as the number one acquisition reform
agenda item, and there is a lot of pressure to produce with
respect to strategic sourcing. That equals consolidated
procurements.
And all of this combined is giving contracting officers
great motivation to justify the consolidation. It is usually
done on the basis of cost savings, and in some instances there
may even be some short-term cost savings.
What is happening, sir, is that agencies, agency officials
within the procurement community do not necessarily want to
challenge a contracting officer's determination. They are very
deferent to the contracting officer. But in most instances I do
not think there is supporting data, I do not think there is
actual cost analysis available, and just asking for that
information to be produced I think will show the seriousness of
this problem.
But you are in an environment right now, for a number of
factors, as you point out, separate and apart, just related to
the lack of acquisition personnel, but there is a number of
factors pressing for consolidation, and that is clearly hurting
small businesses. That is why I think Congress will have to be
very aggressive on this subject and will have to exercise
increased oversight.
Chairman Hanna. Interesting.
Ms. Dorfman. If I may, I do think there is a challenge with
the lack of workforce, especially now where we are losing so
many seasoned professionals. But I would like to remind
everybody here that an investment in small business, which
would mean putting funds into some of these mechanisms to
protect small business and ensure small business growth, you
know, the SBA, any of the small business, it is an investment.
When you grow small business, you are going to grow employment,
you are going to grow your tax base, and it just becomes a win-
win-win.
So instead of looking at this is going to cost the country,
I think this is really key that we invest in small businesses
so that we can grow our tax base, we can ensure that we have
growth in jobs, and that, I believe, will turn the country
around from an economic standpoint just alone.
Chairman Hanna. Sure. So there is a momentum, an inertia
involved in this that is moving towards the larger, moving
towards less work for the procurement officer for a whole host
of reasons that by definition, and we don't have to, I don't
think anyone would argue this, but we eliminate or reduce
competition just by tasking. You are actually saying that
someone gets a project but doesn't have to necessarily have
competition, and that is a great benefit to the particular
contractor, but everybody else who might do it cheaper, better,
faster, or who is smaller, would have that opportunity if we
just bundled it.
So in terms of the people it might take or the outside
board to look at this, people it might take to do this work
that we would all be happier with if it were unbundled, I would
suggest that there might be opportunities with the tens or
hundreds of billions of dollars we spend that just the
increased competition alone may help pay for an enormous
portion of that. That is a conjecture, but what do you think of
that?
Ms. Dorfman. I agree.
Ms. Larkin. Increased competition would be a wonderful
thing. In the SeaPort-e contract, which is the Navy contract,
largest bundled contract in the history of the United States,
$50 billion since its inception in 2004, do you realize that 20
companies have shared $29 billion of that contract? There is no
competition there.
Chairman Hanna. I think Juanita mentioned that in her
testimony, too, or in her written testimony.
Ms. Larkin. Thank you.
Chairman Hanna. I could keep you here a lot longer, but, I
mean, we have kind of run through this. Since we do have a
couple minutes, would anyone like to say anything else that may
be a question that I haven't asked or someone else hasn't asked
that you find germane and would like to get out there?
Mr. Bentivolio. Mr. Chairman, yeah, may I?
Chairman Hanna. Yes.
Mr. Bentivolio. Ms. Dorfman, you said earlier that
enforcement of subcontracting from a general contractor, they
had certain protocols that they had to follow, they put a plan
in on how they are going to fulfill that contract, right, like
an operational plan or a build plan, a business plan, if you
will? All right. And they don't follow it. Is there any
penalties for that, would you suggest?
Ms. Dorfman. There is no teeth right now in that, so they
can do that.
Mr. Bentivolio. Okay. So Mr. Burton suggested legislation,
some things we should put in some legislation. Would you
recommend putting some teeth in it to force, what, to force
the----
Ms. Dorfman. To ensure that they are following the
subcontracting plan, that when they have engaged with a small
business to be part of the contract, and when the contract is
awarded that they do use that small business for that contract.
Mr. Bentivolio. Okay. I am on another committee, Oversight
and Government Reform, and we are investigating government
agencies for some abuses of their power. Now, it really comes
down to, though, if a contractor is not fulfilling or following
his business plan for that particular contract and the
government agency is not enforcing it, don't you think we
should have some teeth for that government agency? I mean, it
makes sense to me, right? I mean, if they look the other way
and choose not to enforce it, which is happening so often in
this--well, that has come to light in the last several months--
wouldn't you think that, you know, we should have some
recourse? Because right now all they do is retire and say,
thank you, Fifth Amendment.
Ms. Dorfman. There definitely has to be a mechanism to
ensure that the small businesses are getting their portion of
that contract. So I would agree.
Mr. Bentivolio. So you would recommend that we put some
teeth into forcing the government agencies to provide proper
oversight, which is their responsibility to our taxpayers,
correct, as well as the contractor that took that bid?
Ms. Dorfman. We do need mechanisms in there that would
ensure that the agency is doing their due diligence as well as
the prime contractor living within the plan, keeping the plan,
the contracting plan.
Mr. Bentivolio. But there could be changes and, you know,
they may find maybe that subcontractor didn't, you know, isn't
going to fulfill, they found out something new, and they have
to change it, but there should be some protocol for change,
right, correct? I mean, legitimate reasons. They could say,
well, in this particular case we can't use this subcontractor,
things change.
Ms. Dorfman. Things may change, but unfortunately this is a
systemic issue where it happens frequently where our small
businesses, they fulfill a piece of the precontract, the pre-
award. I mean, they have to go and put together a proposal for
the prime contractor. The prime contractor wins the award and
then systematically does not use the small business that took
the time and money from, you know, from their pockets. I mean,
they are basically robbing the small business because the small
business has paid, has invested lots of money in preparing
this, and then they get nothing at the end of it.
Mr. Bentivolio. So we need----
Ms. Dorfman. There needs to be some mechanism in there to
ensure that the small business is getting the part of the
contract that originally was put there. But so often they just
take it in-house.
Mr. Bentivolio. For small business we should write some
legislation that opens the door for small business and keeps
the door open, right?
Ms. Dorfman. [Nonverbal response.]
Mr. Bentivolio. Great. Thank you very much. I appreciate
your time today.
Ms. Beauford. Can I speak to that for a minute?
Mr. Bentivolio. Sure.
Ms. Beauford. There is some regulations right now for prime
contractors to use the subcontractors that are written into
their subcontracting plan, and if they don't, they have to give
justification as to why they are changing. They can change, but
it is already regulations out there supporting that.
What I find is that, even with the PCRs, who should have
oversight over these contracts, they have a grieving process
with the agency. However, in the final analysis the agency will
make the final decision. If we are going to have the PCRs
review an agency, we need to give them authority to have final
decision on that. But if the contracting officer has the final
decision on whether or not this contract is going to go to this
company or not, even though I come in as a PCR and tell you
that this is really not the way this should go, it doesn't
matter. They don't have any authority, the PCRs, over the
agency.
Mr. Bentivolio. And improve the challenge process. Thank
you.
Chairman Hanna. Thank you, everyone. I want to thank Emily
Murphy, our chief counsel. She does a great job.
Chairman Hanna. If there are no further questions for the
witnesses, I want to thank you for being here today.
Seventeen years after the committee passed the first law
addressing contract bundling it is simply inconceivable that
these agencies are not correctly identifying bundling and
consolidating. Bundling and consolidation pose threats to
competition and the viability of small business, our small
business and our industrial base. So we owe it to the taxpayers
to make sure that any contract bundling is justified and
mitigated. I look forward to working with Chairman Graves and
other members of this committee to address these problems that
we learned about today.
Thank you very much, everyone, for being here.
I ask unanimous consent that members have 5 legislative
days to submit statements and supporting materials for the
record. Without objection, so ordered.
This hearing is now adjourned. Thank you.
[Whereupon, at 12:55 p.m., the subcommittee was adjourned.]
A P P E N D I X
Testimony of
Juanita H. Beauford, President
Association of Procurement Technical
Assistance Centers (APTAC) and
Program Manager of the University of Delaware PTAC
To a Hearing of the U.S. House of Representatives' Small Business
Committee's
Subcommittee on Contracting and the Workforce
Chairman Hanna, Ranking Member Meng, and distinguished
Members of the Subcommittee, thank you for the opportunity to
testify today. I am honored to speak before you on behalf of
the Association of Procurement Technical Assistance Centers and
the small businesses we serve across the country.
First, I would like to express my gratitude for your
leadership and efforts on behalf of small businesses.
My name is Juanita Beauford. I am President of the
Association of Procurement Technical Assistance Centers--
APTAC--which is the professional organization of the 98 PTACs
nationwide. I am also Program Manager of the University of
Delaware PTAC. As you may know, the Procurement Technical
Assistance Program was created by Congress in 1985 to help
small businesses compete for federal, state and local
government contracts. It is funded and administered through the
Defense Logistics Agency and supported by state or local
governments, educational institutions, or non-profits which
must provide a non-federal funding match of up to 50%. Our
purpose is to assist local small businesses at little or no
cost by preparing them to become capable government
contractors, on the belief that a broad base of small business
suppliers provides the highest quality and best value to our
government agencies and at the same time creates a strong and
vibrant economic base for our communities. Last year we helped
over 70,000 small businesses win more than 112,000 government
contracts valued at over $14.1 billion.
We applaud your efforts to re-examine the issue of
``bundling'' and ``consolidation'' of federal contract
opportunities. Many of our members--procurement counselors
across the country--report frustration and concern among their
small business clients about dwindling bid opportunities as
agencies increasingly rely upon larger acquisition mechanisms
such as Strategic Sourcing, Government-wide Acquisition
Contracts (GWACs), Multi-Agency Contracts (MACs), Omnibus
``Single Solution'' contracts, and multiple year Indefinite
Delivery Indefinite Quantity (IDIQ) contracts in addition to
more traditional bundling and consolidation. There is a clear
perception that--as agencies prioritize strategies to
streamline acquisitions and achieve price reductions--the
number of solicitations appropriate for small businesses is
shrinking significantly, and small businesses are disadvantaged
generally by lack of access to contracting officers and a trend
away from Best Value trade-offs and toward Lowest Price
Technically Acceptable.
We cannot quantify the extent to which these perceptions
are accurate or the degree to which change is occurring--either
for better or worse. We have anecdotal evidence and the
observation of procurement counselors with many years of
experience that small businesses are losing opportunities and
concerned the environment worsening. But as you know, hard data
about bundled or consolidated contracts is incomplete and hard
to find. Likewise, we hear little about efforts to challenge or
mitigate consolidation practices, despite statutory and
regulatory provisions to do so.
It is a difficult problem. Agencies strive to be good
stewards of tax dollars, often with understaffed and under-
funded acquisition offices. Streamlined acquisition tools are
attractive because of their ease of use and promise of cost
savings. I suspect that there is confusion about--or even
ignorance of--what constitutes bundling or consolidation, not
to mention the fact that there are requirements that
solicitations be accessible to small business wherever
possible. And it is clear that enforcement of such requirements
is simply not happening in many cases.
Simplifying the definition could be an important place to
start. As new types of contract vehicles evolve, the complexity
of the current definitions makes it easier for agencies to find
loopholes or work-arounds--or simply believe that these
definitions do not apply to their contracting vehicle. Having
different definitions for ``bundling'' and ``consolidation'' is
itself difficult. Whatever utility was once served by the
distinction is--I believe--outweighed by the confusion caused.
Selecting one team--perhaps ``consolidation''--and defining it
simply--ie: ``2 or more requirements of the federal agency for
goods or services that could reasonably be provided to or
performed for the federal agency under 2 or more separate
contracts'' would bring under the umbrella all of the vehicles
which present barriers to small business. It would also make
communications about--and measurement of--the issue much
easier.
From there, criteria under which consolidated contracts may
be considered appropriate and/or require review or
justification can be determined. Certainly, there are many
circumstances in which consolidated procurements may be the
best option. But it would at least make clear that newer
mechanisms like strategic sourcing. GWACs, MACs, IDIQs, etc.
indeed constitute consolidated solicitations, which is the
first step in determining the prevalence--and impact--of these
practices.
Simplifying the reporting process--and identifying a better
platform for making the information available to SBA's
Procurement Center Representatives (PCRs) and the public--could
be helpful as well. We've included just one example of a
possible simplified format as an addendum to our written
testimony. While the reporting requirements in the Small
Business Act and Jobs Act may have been intended to provide
accountability, it appears that they are often side-stepped,
perhaps because they are so rigorous. Those ``Justification for
Fair Opportunity Exception'' notices that are posted to
FedBizOpps are difficult to find. It is critical that there be
an ability to track and analyze this information if effective
strategies for protecting the ability of small business to
participate in the federal marketplace are to be developed and
implemented.
Defining realistic enforcement triggers, and providing
adequate resources to implement them, is also critical. The
current situation in which enforcement actions are rare--and
successful actions rarer still--only undermines the current
regulations.
At the end of the day, the real answer--and challenge--is
to convince government buyers that their interests can be well
served by contracting with small business. I don't believe this
problem can be solved by case-by-case challenges from PCRs,
small businesses or trade associations.
To this end, we encourage the Subcommittee to consider
initiatives that could educate agency acquisition staff at all
levels about statutory and regulatory provisions with regard to
bundling/consolidation, including circumstances in which
justification are required and provisions allowing small
business set-asides, reserves and other tools that foster small
business inclusion. This would also provide an opportunity to
emphasize the importance of maintaining a robust base of small
business suppliers generally as well as the specific benefits
that small business contractors can bring to individual agency
requirements. You understand--as we do--that it is false to
believe that striving for the lowest possible price or the most
streamlined contract vehicle necessarily delivers the best
value to the taxpayer. But contracting officers may not be
aware of all the benefits that working with small business
vendors offers, much less best practices for crafting
accessible contract vehicles and reaching out to the small
business community. There are success stories out there--buying
activities with strong local relationships (or relationships
with local PTACs), and agencies like DLA's Land and Maritime
which have energetic small business outreach programs.
Collecting and highlighting these examples to share government-
wide might be helpful. Substantial and widespread training of
Contracting Officers on how and why to contract with small
businesses could be critical to overcoming the current cultural
trend toward consolidation; buying from small businesses must
be seen as an easy and appealing option.
To the extent that APTAC or the PTACs can help on any of
these fronts, we hope you will call upon us. PTACs around the
country are proud to collaborate with local federal offices to
sponsor outreach events, identify potential vendors for
specific requirements and support small businesses in their
efforts to market and bid. APTAC has partnered with DLA Land
and Maritime to promote their Training, Knowledge and
Opportunity (TKO) events and facilitate and distribute recorded
webinars on DIBBS and their First Destination Transportation
and Packaging Initiative (FDTPI). We would gladly work with
other agencies to help them open more opportunities to small
business.
Thank you again for the opportunity to appear before you
today. I hope my testimony has been helpful. I know I speak for
all of the PTACs when I say that it is a privilege for us to
assist small business in the government marketplace, and we are
eager to support this Subcommittee, the full Committee and the
agencies in endeavors that will better utilize this invaluable
national resource.
Addendum to the Testimony of Juanita Beauford, President
Association of Procurement Technical Assistance Centers
Possible reporting format to facilitate tracking of
consolidated contracts:
Require the Contracting Officer (CO) to stipulate up front
whether or not his/her requirement constitutes a bundled or
consolidated contract, and if so, what is the justification.
This could be accomplished via a simple yes/no drop-down field
in the system used to submit solicitations to FBO or in another
acquisition tracking vehicle if more appropriate. Language with
the relevant definition(s) could be included on the form itself
as an aid. A second drop-down field with the various categories
of justification for bundling could follow immediately
thereafter and be required for any ``yes'' answer to the
bundled/consolidated question.
At the very least, such a mechanism would remove the
ability for a CO to ``duck the question'' with regard to
consolidation and would improve tracking. Regularly publishing
a listing of bundled/consolidated contracts--or ensuring that
the reporting vehicle is easily accessible and searchable so
that others can publish such a report--will also increase
transparency, allowing small business contractors and their
supporters to better assess the degree to which they are being
excluded from potentially appropriate opportunities.
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Bungling Bundling: How Contract Bundling and Consolidation
Remain Challenges to Small Businesses Success
Chairman Hanna, Ranking Member Meng, and distinguished
Members of the Subcommittee, thank you for the opportunity to
testify this morning.
My name is Gloria Larkin and I am President of TargetGov at
Marketing Outsource Associates, Inc., and serve as Vice-Chair
of the Educational Foundation of Women Impacting Public Policy
(WIPP). I have been in business since 1997 and my firm helps
companies of all types pursue, propose, and win federal
contracts. As a result, we have specific experience in the
challenging world of bundled and consolidated contracts.
I am also here today representing Women Impacting Public
Policy (WIPP). WIPP is a national nonpartisan public policy
organization advocating on behalf of its coalition of 4.7
million business women including 75 business organizations.
WIPP plays a key role in developing women-owned businesses into
successful federal government contractors through its Give Me 5
and ChallengeHER programs.
In our view, bundling and consolidation continues to hamper
small businesses in the federal marketplace. We believe that
contracts that can be serviced by small businesses should not
be subject to any form of consolidation.\1\ It is our
recommendation the following actions be taken to minimize
unnecessary and unjustified consolidation: 1) improve the
collection of statutorily required data from agencies to
measure the impact of bundling and consolidation on small
businesses; 2) complete the regulatory actions required in the
National Defense Authorization Act for FY2013 (P.L. 112-239)
and the Small Business Jobs Act of 2010 (``Jobs Act'' P.L. 111-
240); and 3) increase outreach to small business vendors
regarding the consolidation and bundling processes.
---------------------------------------------------------------------------
\1\ For the purposes of this testimony, consolidation and bundling
will both be used to refer to the contracting practice of merging
smaller contracts into a single larger contract, through bundling will
be specifically used when considering the practice of consolidation
with a finding that the new contract is not longer suitable for small
business concerns.
As this discussion begins, we value the Congressional
direction already given on this issue in the Small Business Act
---------------------------------------------------------------------------
(P.L. 85-536), which notes that the government should:
Aid, counsel, assist, and protect, insofar as is
possible, the interests of small-business concerns in
order to preserve free competitive enterprise, to
insure that a fair proportion of the total purchases
and contracts or subcontracts for property and services
for the Government be placed with small-business
enterprises...[in order] to maintain and strengthen the
overall economy of the Nation.\2\
---------------------------------------------------------------------------
\2\ 15 U.S.C. Sec. 631
This is our guiding principle to improve small business
access to government contracts. We concur that small businesses
play a vital and irreplaceable role in growing and
strengthening the national economy and deserve broad access to
---------------------------------------------------------------------------
government contracts.
Changes To Contracting Over the Last Decade
Federal government purchasing has grown significantly over
the last decade. According to USAspending.gov, federal spending
increased from $220 billion in 2000 to over $500 billion in
FY2013. Amid this tremendous rise in spending, agencies are
consistently failing to meet the small business contracting
goal of 23%. The last time the goal was met was FY2005. On that
note, the data for women-owned small businesses are equally
disappointing. Despite a new contracting program and the
removal of the dollar caps on contracts in that program, as
well as WIPP efforts to register more than 20,000 women-owned
businesses in the SAM database, FY2012 marked another year in
which the government failed to meet the 5% percent goal for
purchases from women-owned small businesses--a goal it is yet
to meet.
More awarded dollars in federal contracting does not mean
more money to small businesses, largely because the number of
contracts awarded has been declining since FY2008. Thus the
average contract size is increasing--due in some part to
policies like contract consolidation and bundling--which limits
the number of businesses that can compete. This practice harms
small businesses and this trend, while not surprising, is
certainly threatening women-owned small businesses, the small
business community in general, and their long term prospects in
the federal market.
The last decade has not been all bad news. Indeed, there
are many areas where contracting opportunities and education
have been improved significantly. For example, WIPP applauds
the government's success in making positive changes in the
market research process. We have seen the Sources Sought Notice
and Request for Information (RFI) processes improve and grow in
just the last two years, especially since the Office of
Management and Budget (OMB) ``Myth-busters'' memorandums of
2011 and 2012.\3\ Sources Sought Notices grew from 50 to 70 in
a typical month in 2011 to approximately 1,100 to 1,300 per
month in 2013. This increase is indicative of the acquisition
community's efforts to perform mandated market research.
Similarly, WIPP has stepped up to educate women-owned
businesses in the importance of responding to these Notices and
RFIs.
---------------------------------------------------------------------------
\3\ Daniel Gordon, Office of Federal Procurement Policy. ``Myth-
Busting'': Addressing Misconceptions to Improve Communication with
Industry during the Acquisition Process.'' Feb. 2, 2011. http://
www.whitehouse.gov/sites/default/files/omb/procurement/memo/Myth-
Busting.pdf Lesley Field. Office of Federal Procurement Policy. ``Myth-
Busting 2'': Addressing Misconceptions and Further Improving
Communication During the Acquisition Process.'' May 7, 2012. http://
www.whitehouse.gov/sites/default/files/omb/procurement/memo/myth-
busing-2-addressing-misconceptions-and-further-improving-communication-
during-the-acquisition-process.pdf
Reports on and Examples in Contract Bundling and
---------------------------------------------------------------------------
Consolidation
Congressional Research Service (CRS) reports prepared in
the last few years detail consolidation and bundling with
regard to federal contracting as well as legislative and
regulatory changes to the underlying law. Key points from these
reports include:\4\
---------------------------------------------------------------------------
\4\ See multiple reports by Kate Manuel all filed under CRS Report
Number: R41133. These include ``Contract ``Bundling'' Under the Small
Business Act: A Legal Overview'' and multiple updates of ``Contract
`Bundling' Under the Small Business Act: Existing Law and Proposed
Amendment.''
1. Congress recognizes that bundling and
consolidating can limit opportunities for small
---------------------------------------------------------------------------
business to receive prime contracts.
2. To combat this limitation, statutory requirements
mandate that agencies must: a) conduct market research
to justify possible bundling; b) provide advance note
to incumbent small businesses holding contracts that
possibly may be bundled; and c) use certain procurement
strategies for ``substantial bundling.''
3. Consolidation has separate but similar
requirements also aimed at ensuring all consolidated/
bundled contracts are ``necessary and justified.''
4. Protections exist that, if enforced government-
wide, would keep small businesses from losing access to
government contracts.
5. Legislative action aimed at improving these
protections has existed in recent Congresses with
varied levels of success and some regulations from
previously enacted legislation are still awaiting
promulgation.
Examples of these consolidated contracts (with contract
ceiling value) in use today include: Department of the Navy
SeaPort-e ($50 billion), Department of Homeland Security
FirstSource II ($3.1 billion), NASA SEWP IV ($5.6 billion), and
Department of Health and Human Services CIO-SP3 ($20 billion).
These multi-billion dollar contracts are either agency-specific
or government-wide contracts. Examining the largest, Navy's
SeaPort-e contract, shows that small businesses are not getting
access to the bulk of the contracts.
Bloomberg Government reports that the Navy's Seaport-e
vehicle expects to award $8 billion via task orders in
FY2013.\5\ SeaPort-e, which provides professional services, is
the largest multiple-award contract (MAC) in the federal
government, with almost $50 billion in orders since its
creation in FY2004.\6\ Annually, the contract averages nearly
$6 billion, more than any other MAC outside the General
Services Administration and Veterans Affairs Federal Supply
Schedule. SeaPort-e reflects a larger trend toward
consolidation in professional services government-wide.
---------------------------------------------------------------------------
\5\ Brian Friel, Paul Murphy, et al. ``8 Billion in 2013
Opportunities On SeaPort-e Multiple Award Contract.'' Bloomberg
Government. Nov. 14, 2013. http://www.bgov.com/news--item/
BGflu73ZpTBruuiAEiZ9tQ. NB: All following data on SeaPort-e contract
vehicle comes from this report.
\6\ Professional Services is the largest category of government
spending. Overall, federal agencies spent $77.6 billion on professional
services in FY2011, $20 billion more than the next category, research
and development, with $57.7 billion. Professional services include
financial management services, engineering support, logistics
management and office support.
With nearly 3,000 prime contractors on the contract, with
``hunting licenses'' to pursue individual task orders, the
competition for task orders is fierce. But structural problems
---------------------------------------------------------------------------
within the contract make that competition unfair.
SeaPort-e, as a cost-plus-fee contract, caps profit to 8%
of the order's value, two percentage points lower than the cap
for services contracts set by federal acquisition regulations.
Many companies that ``win the contract'' never bid on task
orders because they cannot run and grow a company on such slim
margins. Companies who can accept lower margins are taking over
more contracts as smaller companies who cannot operate on such
margins are leaving. Moreover, the SeaPort-e bid and proposal
costs are rising, as task orders grow shorter, forcing them to
compete more often. Limited profit margins, increasing
competition issues, shorter contract awards, and consolidation
are ultimately forcing many small businesses to leave what
should be a lucrative market for all businesses.
Furthermore, in FY2012, 90% of small business awards on
SeaPort-e came through set-asides--task order competitions
limited only to small businesses. Set-asides accounted for 83%
of small business wins by value on SeaPort-e from FY2004
through FY2012. Small businesses rarely win full-and-open task
order competitions on Seaport-e, even for orders worth less
than $1 million. Only 20% of primes won orders, meaning 80% of
companies have never actually secured work through SeaPort-e.
The top 20 primes alone won over $29 billion of the $50 billion
in SeaPort-e orders. The result is big companies getting bigger
and small businesses struggling to compete.
Lastly, Navy buyers are mandated to consider using SeaPort-
e before creating new contracts for professional services such
as engineering and project management support. SeaPort-e is an
example of a broader trend to increase the mandatory use of
MACs government-wide as part of the ``Strategic Sourcing''
initiative being advanced by the White House.\7\ Increased
mandatory MAC usage will force agencies to rely on a small pool
of participating contractors, which further limits competition.
WIPP opposes the implementation of Strategic Sourcing methods
without adequate consideration and protection of small business
concerns. We recognize that increased consolidation and
bundling of contracts are symptomatic of this Strategic
Sourcing initiative.
---------------------------------------------------------------------------
\7\ An effort to increase strategic sourcing was highlighted in an
OMB memorandum cited below and has been a topic of consideration before
in this Committee (June 13, 2013). Jeffrey Zients. Office of Management
and Budget. ``Improving Acquisition through Strategic Sourcing.'' Dec.
5, 2012. http://www.whitehouse.gov/sites/default/files/omb/memoranda/
2013/m-13-02--0.pdf
Burdens on Small Businesses Caused by Contract Bundling and
---------------------------------------------------------------------------
Consolidation
According to WIPP members, the key reasons they are wary of
entering the federal market include:
Costs Involved: The costs involved in pursuing a
consolidated contract are astronomical. It is not unusual for
large businesses to invest $100,000 or even over $250,000 in
pursuing these large contracts through the entire proposal
pursuit and writing effort. Small businesses invest $20,000,
$30,000 or more in valuable, non-billable time to simply write
a proposal, not taking into account the business development
and marketing efforts that go into planning, positioning,
pursuing, proposing and possibly winning a hunting license.
Time & Effort: In order to be considered as a viable
competitor in these large contracts, vendors must enter the
market 12 to 18 months before the contract is competed. They
must spend time and money marketing their business to the
multiple layers of decision-makers. This is difficult because
for most small businesses, every person must be billable.
Marketing and sales costs, however, cannot be billed and
therefore, many times are eliminated from daily activities.
Small business must choose between going to vendor outreach
days, attending industry days where specific procurements are
discussed, and making money on existing contracts.
Size: Seemingly, an engineering firm, with a size standard
of $14 million in annual revenue, pursuing a consolidated
contract worth $100 million cannot possibly win as a prime
contractor. The government is prohibited from taking a risk in
awarding contracts and requires that past performance show work
on a similar sized contract. An engineering firm, with revenues
of $14 million, cannot show proof of performing a $100 million
contract. If they could, they would not be small. As these
consolidated contracts increase in size, far exceeding the size
standard for the small business, the burden to respond and win
becomes an exercise in expensive teaming.
Bonding: Two US Army Corps of Engineers consolidated
contracts are coming up this year (FY2014), one for $200
million and the other for $300 million. One is set-aside for
small business and the other is set-aside for service disabled
veteran owned small business. On the surface this is an
excellent opportunity--$500 million for small businesses. It
seems hard to imagine that a small construction business with a
size standards ranging from $7 million to $33.5 million could
receive bonding for a contract valued at $200 or $300 million.
Teaming: One viable way a small company can pursue and win
these large consolidated contracts is to team with other small
and/or large businesses. This is fraught with costs, risks and
dangers to all parties. If one business pursues a $200 million
dollar contract and each company only has a ten million dollar
maximum bonding capacity, at least 20 or more companies would
have to team together. These teaming contracts are
intricate.\8\ The costs involved in teaming are unallowable in
the federal cost accounting process and must be borne by the
small business directly.
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\8\ At a minimum teaming requires companies to: develop trusting
relationships, share delicate financial information, develop legal
documentation as to who is responsible for what, who manages the
federal reporting and DCAA accounting and compliance requirements, who
manages the contract, how each teaming partner gets paid and how/when
payments are distributed, what happens in the cases of default or
substandard performance and a myriad other contract requirements.
Winners and Task Orders: When a small business is
successful and actually wins a bundled contract, it is often
only a first step. No money is actually paid for products or
services until each awardee further pursues individual task
orders on a competitive basis. The winners have simply won the
right to limited competition in the pool of other winners. As
we have seen, in the case of Seaport-e, 80% of companies are
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yet to be successful in that second effort.
Protests: As is the case with FirstSource II, the bundled/
consolidated contract at Homeland Security, 29 small business
awardees celebrated the win for this multi-year 3.1 billion
dollar contract. However, protests were filed and despite
investing all of the effort, time and tens of thousands of
dollars in overhead and RFP response costs required to win,
most awardees have been stopped dead in their tracks and
prohibited from conducting business on this contract because
other companies have protested parts of the acquisition
process.
These burdens listed above negatively impact small
businesses that already work in the federal sector as well as
those wishing to enter the marketplace. We appreciate this
Committee's efforts to improve the contracting environment
through hearings and legislation over the past three years.
Recommendations to the Committee
WIPP offers the Committee these suggestions on removing
some of the barriers consolidating contracts have created.
1. Improve the collection of statutorily required
data from agencies to measure the impact of bundling
and consolidation. Provisions in the Small Business Act
as well as additional requirements in the 2010 Jobs Act
require agencies and the Small Business Administration
(SBA) to record and track consolidation and bundling
via a database. At this point, that database does not
appear accessible or complete. This data collection is
vital, but our attempts at identifying this information
through the Federal Procurement Data System (FPDS) have
not been successful. Without adequate data from any
source, we cannot entirely know how damaging
unjustified consolidation is to women-owned small
businesses.
2. Complete the regulatory actions required in the
National Defense Authorization Act for FY2013 and the
Small Business Jobs Act of 2010. These enacted pieces
of legislation carry important provisions with regards
to consolidation and should be promulgated by SBA and
adopted by the Federal Acquisition Regulatory (FAR)
Council. Regulations still in need of implementation
include additions of bundling justifications to agency
websites as well as procedural details on advance
notice to small business vendors whose contracts may
face consolidation.
3. Increase education efforts of small business
vendors regarding the consolidation and bundling
processes. As new rules and regulations are released,
small businesses need to understand the consolidation
process, as well as the appeal and protest processes
for possibly unjustified or unnecessary consolidations
or bundling.
Thank you to the Subcommittee holding this hearing today
and for the efforts to make the contracting environment better
for women-owned businesses. It is our hope that our
identification of barriers and recommendations are helpful to
your efforts to assist small businesses to become successful
federal contractors. I am happy to answer any questions.
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