Contract Management
Impact of Strategy to Mitigate Effects of Contract Bundling on Small Business is Uncertain Gao ID: GAO-04-454 May 27, 2004To achieve efficiencies and respond to procurement reforms, agencies have consolidated their procurement contracts--that is, combined existing smaller contracts into fewer larger contracts. To ensure contract bundling--a subset of contract consolidation--does not unfairly disadvantage small businesses, the President tasked the Office of Management and Budget (OMB) to develop a strategy that would hold agencies accountable for contract bundling practices. In October 2002, the Office of Federal Procurement Policy (OFPP) within OMB issued its strategy. This report discusses the extent to which contracts were bundled in fiscal year 2002 and assesses the potential effectiveness of regulatory changes that have recently resulted from OFPP's strategy.
In contrast to data captured in the Federal Procurement Data System (FPDS), only 4 of the 23 agencies held accountable by OFPP's strategy reported a total of 24 bundled contracts in fiscal year 2002--far fewer than the 928 contracts identified as bundled in FPDS. Agency officials, after researching their contracts, determined that the bundling data in FPDS were miscoded due to confusion about the statutory definition of contract bundling, inadequate verification of information, and ineffective controls in the FPDS reporting process. For example, about 33 percent of FPDS contract actions identified as bundled were miscoded, because they were awarded to small businesses. By definition, a small business is essentially precluded from being awarded a bundled contract. The Department of Defense, which reported the second largest number of bundled contracts, determined that only 8 of the 109 contracts identified as bundled in FPDS met the statutory definition of a bundled contract. Although the actual number of bundled contracts reported by agencies is small, concerns about the effect of contract bundling on small businesses remain. According to OFPP, the primary goal of its strategy--and the resulting regulatory changes--is to increase small business federal contracting opportunities. Because new regulations have only recently been established, it is too early to determine whether agencies are achieving this goal. In addition, part of OFPP's strategy--to identify and disseminate best practices for maximizing small business contract opportunities--has not been implemented. Yet even with time and guidance, it could be difficult to assess the effect of the recent regulations, in part because any increases in small business contracting opportunities could be attributed to other factors. For example, the largest procuring agencies have a history of seeking opportunities to increase small business contracting, and according to the General Services Administration, nearly 80 percent of Federal Supply Schedule contracts are awarded to small businesses. Further, because the regulations primarily relate to contract bundling--an activity most agencies report they do not engage in--the regulations may have little impact on increasing small business contracting opportunities. Nevertheless, certain regulatory changes--especially those related to oversight--have the potential to promote greater small business opportunities. For example, the new regulations require agencies to annually assess the extent to which small businesses receive a fair share of federal procurements, the adequacy of contract bundling documentation and justifications, and actions taken to mitigate the effects on small businesses of necessary and justified contract bundling. However, the new regulations do not establish metrics to measure agency accountability, and past data on bundling and its effects on small businesses have been limited and unreliable. Without metrics and reliable data, it will be difficult to gauge agency efforts to identify and eliminate contracts that are unnecessarily bundled.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-04-454, Contract Management: Impact of Strategy to Mitigate Effects of Contract Bundling on Small Business is Uncertain
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Report to the Chairman and Ranking Minority Member, Committee on Small
Business, House of Representatives:
United States General Accounting Office:
GAO:
May 2004:
Contract Management:
Impact of Strategy to Mitigate Effects of Contract Bundling on Small
Business Is Uncertain:
GAO-04-454:
GAO Highlights:
Highlights of GAO-04-454, a report to the Committee on Small Business,
House of Representatives
Why GAO Did This Study:
To achieve efficiencies and respond to procurement reforms, agencies
have consolidated their procurement contracts”that is, combined
existing smaller contracts into fewer larger contracts. To ensure
contract bundling”a subset of contract consolidation”does not unfairly
disadvantage small businesses, the President tasked the Office of
Management and Budget (OMB) to develop a strategy that would hold
agencies accountable for contract bundling practices.
In October 2002, the Office of Federal Procurement Policy (OFPP) within
OMB issued its strategy.
This report discusses the extent to which contracts were bundled in
fiscal year 2002 and assesses the potential effectiveness of regulatory
changes that have recently resulted from OFPP‘s strategy.
What GAO Found:
In contrast to data captured in the Federal Procurement Data System
(FPDS), only 4 of the 23 agencies held accountable by OFPP‘s strategy
reported a total of 24 bundled contracts in fiscal year 2002”far fewer
than the 928 contracts identified as bundled in FPDS. Agency officials,
after researching their contracts, determined that the bundling data in
FPDS were miscoded due to confusion about the statutory definition of
contract bundling, inadequate verification of information, and
ineffective controls in the FPDS reporting process. For example, about
33 percent of FPDS contract actions identified as bundled were
miscoded, because they were awarded to small businesses. By
definition, a small business is essentially precluded from being
awarded a bundled contract. The Department of Defense, which reported
the second largest number of bundled contracts, determined that only 8
of the 109 contracts identified as bundled in FPDS met the statutory
definition of a bundled contract.
Although the actual number of bundled contracts reported by agencies
is small, concerns about the effect of contract bundling on small
businesses remain. According to OFPP, the primary goal of its strategy”
and the resulting regulatory changes”is to increase small business
federal contracting opportunities. Because new regulations have only
recently been established, it is too early to determine whether
agencies are achieving this goal. In addition, part of OFPP‘s strategy”
to identify and disseminate best practices for maximizing small
business contract opportunities”has not been implemented. Yet even with
time and guidance, it could be difficult to assess the effect of the
recent regulations, in part because any increases in small business
contracting opportunities could be attributed to other factors. For
example, the largest procuring agencies have a history of seeking
opportunities to increase small business contracting, and according to
the General Services Administration, nearly 80 percent of Federal
Supply Schedule contracts are awarded to small businesses. Further,
because the regulations primarily relate to contract bundling”an
activity most agencies report they do not engage in”the regulations may
have little impact on increasing small business contracting
opportunities.
Nevertheless, certain regulatory changes”especially those related to
oversight”have the potential to promote greater small business
opportunities. For example, the new regulations require agencies to
annually assess the extent to which small businesses receive a fair
share of federal procurements, the adequacy of contract bundling
documentation and justifications, and actions taken to mitigate the
effects on small businesses of necessary and justified contract
bundling. However, the new regulations do not establish metrics to
measure agency accountability, and past data on bundling and its
effects on small businesses have been limited and unreliable. Without
metrics and reliable data, it will be difficult to gauge agency efforts
to identify and eliminate contracts that are unnecessarily bundled.
What GAO Recommends:
GAO recommends that OMB (1) ensure agencies report uniform and reliable
contract bundling data and (2) establish contract bundling metrics. OMB
concurred with the first recommendation, but not the second. GAO
believes metrics are needed to help determine how bundling affects
small businesses. GAO also recommends that SBA disseminate best
practices to maximize small business contracting opportunities, as
required by the OFPP strategy. SBA concurred.
www.gao.gov/cgi-bin/getrpt?GAO-04-454.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact David Cooper at (202)512-
4125 or cooperd@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
Agency Data Are Inconsistent with FPDS Data:
Effect of Regulatory Changes on Small Business Contracting
Opportunities Will Be Difficult to Gauge, Although Certain Changes May
Yield Increases:
Regulatory Changes Do Not Establish Metrics and Information to Monitor
Contract Bundling Trends and Effects:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Scope and Methodology:
Appendix I: Status of Nine Action Items Contained in OFPP's Report:
Appendix II: Summary of Agency Responses to OFPP-Directed Metrics:
Appendix III: Summary of Contract Bundling Rule Changes:
Appendix IV: Comments from the Office of Management and Budget:
Related GAO Products:
Tables:
Table 1: Status of Action Items Contained in OFPP's Contract Bundling
Strategy:
Table 2: Summary of Agency Responses to OFPP-Directed Metrics for
Fiscal Year 2002:
Table 3: Bundling Regulations, before and after Amendments:
Abbreviations:
AID: Agency for International Development:
DHS: Department of Homeland Security:
DOD: Department of Defense:
DOE: Department of Energy:
EPA: Environment Protection Agency:
FAR: Federal Acquisition Regulation:
FPDS: Federal Procurement Data System:
GSA: General Services Administration:
HHS: Health and Human Services:
HUD: Housing and Urban Development:
NASA: National Aeronautics and Space Administration:
NSF: National Science Foundation:
OFPP: Office of Federal Procurement Policy:
OMB: Office of Management and Budget:
OSDBU: Office of Small and Disadvantaged Business Utilization:
PMC: President's Management Council:
SBA: Small Business Administration:
SSA: Social Security Administration:
VA: Veteran's Administration:
[End of section]
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed
in its entirety without further permission from GAO. However, because
this work may contain copyrighted images or other material, permission
from the copyright holder may be necessary if you wish to reproduce
this material separately.
United States General Accounting Office:
Washington, DC 20548:
May 27, 2004:
The Honorable Donald A. Manzullo:
Chairman:
The Honorable Nydia M. Velazquez:
Ranking Minority Member:
Committee on Small Business:
House of Representatives:
Each year, the federal government spends billions of dollars to
procure goods and services ranging from paper clips to the development
of complex space vehicles. To achieve efficiencies while responding
to significant procurement reforms and acquisition workforce
reductions, agencies have increasingly consolidated their procurement
contracts--that is, combine existing smaller contracts into fewer
larger contracts. However, concerns have been raised that contract
bundling--consolidating contracts to such an extent that they may
preclude small businesses from competing--unnecessarily limits federal
contracting opportunities for small businesses.
To ensure contract bundling does not unfairly disadvantage small
businesses, the President tasked the Office of Management and Budget
(OMB) to develop a strategy that would hold agencies accountable for
contract bundling practices. In October 2002, OMB's Office of Federal
Procurement Policy (OFPP) issued "Contract Bundling: A Strategy for
Increasing Federal Contracting Opportunities for Small Business." The
strategy contains action items designed to change contract bundling
regulations, hold 23 agencies accountable for eliminating unnecessary
contract bundling, mitigate the effects of necessary bundling, and
increase small business contracting opportunities. OFPP also required
each agency to submit quarterly reports through October 31, 2003,
documenting their progress in implementing the strategy.
To provide a better understanding of the extent to which contract
bundling occurs and the effect of OFPP's strategy on small business
federal contracting opportunities, you asked us to (1) identify the
number of contracts the 23 accountable agencies reported as bundled in
fiscal year 2002, and (2) assess the potential effectiveness of the
regulatory changes to increase small business contracting
opportunities.
To identify the number of bundled contracts, we reviewed agency data
submitted to OFPP, as required by the OFPP strategy, and data in the
Federal Procurement Data System (FPDS), the federal repository for
contracting data.[Footnote 1] When discrepancies surfaced between the
two sets of data, we asked agency officials for an explanation. To
assess the potential effectiveness of regulatory changes to increase
small business contracting opportunities, we reviewed OFPP-strategy-
required reports and obtained the views of officials from agencies
that, collectively, accounted for over 85 percent of the fiscal year
2002 federal procurement expenditures. A more detailed discussion of
our scope and methodology is at the end of this letter.
We conducted our review from April 2003 to February 2004 in accordance
with generally accepted government auditing standards.
Results in Brief:
Four of the 23 agencies held accountable by OFPP's strategy reported
a total of 24 bundled contracts in fiscal year 2002; of the remaining
19 agencies, 16 reported no bundled contracts, and 3[Footnote 2] did
not provide information on the number of bundled contracts. The small
number of agency-reported bundled contracts is inconsistent with the
928 contracts[Footnote 3] identified as bundled in the FPDS. Agency
officials, after researching their contracts, determined that the
bundling data in FPDS were miscoded due to confusion about the
definition of contract bundling, inadequate verification of
information, and ineffective controls in the FPDS reporting
process.[Footnote 4] For example, about 33 percent of the FPDS fiscal
year 2002 contract actions shown as being bundled were awarded to small
businesses, an unlikely occurrence, since a small business, by
definition, is essentially precluded from being awarded a bundled
contract.
Despite the limited number of bundled contracts reported by agencies,
concerns that small businesses may be losing federal contracting
opportunities remain. According to OFPP, the primary goal of its
strategy--and the resulting regulatory changes--is to increase small
business federal contracting opportunities. Because the new regulations
have only recently been established, it is too early to determine
whether agencies are achieving this goal. In addition, the Small
Business Administration (SBA), as of February 25, 2004, has not
identified and disseminated best practices--as required by OFPP's
strategy--to help agencies maximize small business contract
opportunities. However, even with time and guidance, it will likely be
difficult to assess the effect of the recent changes to the
regulations, in part because any increases in small business
contracting opportunities could be attributed to factors other than
regulatory changes. For example, we found that the largest procuring
agencies have a history of seeking opportunities to increase small
business contracting opportunities, which could explain any future
increases. Further, because the regulations primarily relate to
contract bundling and agency-reported data show that bundling is
limited, the regulations' impact on increasing small business
contracting opportunities may also be limited.
Nevertheless, certain regulatory changes--especially those related to
oversight--have the potential to promote greater small business
opportunities. For example, the regulations now require agencies'
Office of Small and Disadvantaged Business Utilization (OSDBU)--an
agency's advocate for small business--to conduct annual assessments of
(1) the extent to which small businesses receive a fair share of
federal procurements, (2) the adequacy of contract bundling
documentation and justifications, and (3) the adequacy of actions taken
to mitigate the effects on small businesses of necessary and justified
contract bundling. However, the regulations do not establish metrics to
measure the extent to which contract bundling is occurring, or the
extent to which bundling impacts small business contracting
opportunities. Consequently, it will be difficult to gauge agency
efforts to identify and eliminate contracts that are unnecessarily
bundled and, thereby, increase small business federal contracting
opportunities. This weakness is not new; past data on bundling and the
effects of consolidating requirements on small businesses have been
limited and unreliable.[Footnote 5]
To improve the oversight of contract bundling, we are recommending that
the Director, Office of Management and Budget, (1) ensure that FPDS and
agency reporting processes provide uniform and reliable contract
bundling information and (2) direct the Administrator, OFPP, to
establish metrics to measure contract bundling and the extent to which
contract bundling impacts small business federal contracting
opportunities. In commenting on a draft of this report, OMB concurred
with the first recommendation, but not the second. The basis of OMB's
non-concurrence is their concern that implementation of the
recommendation envisions new government-wide reporting and record
keeping requirements outside of FPDS, which is duplicative and possibly
labor-intensive. OMB suggested, in place of our recommendation, that it
work with the SBA to explore possible inclusion of new reporting
requirements in FPDS that would track the impact of bundling on
contracting opportunities for small businesses. The purpose of our
recommendation is to establish metrics, not a new reporting and record
keeping system outside of FPDS. OMB's position, that it work with SBA
to explore possible inclusion of new reporting requirements in FPDS,
does not address the need for metrics. We believe metrics are needed to
help determine how bundling affects small businesses. Without metrics
to measure contract bundling and its impact, the information needed to
ensure agency accountability to eliminate unnecessary contract
bundling, mitigate the effects of necessary bundling, and increase
small business contracting opportunities will be limited or unknown.
We are also recommending that the SBA Administrator expedite
dissemination of best practices for maximizing small business contract
opportunities. SBA concurred with this recommendation.
Background:
Over the last decade, changes in procurement practices, acquisition
workforce reductions, and legislative changes have challenged agencies
to create efficiencies in their acquisition processes. By consolidating
contracts--that is, combining existing requirements into fewer
contracts--agencies can streamline the procurement process and thereby
reduce acquisition and administrative complexity and cost. A subset of
contract consolidation is contract bundling. The Small Business
Reauthorization Act of 1997 defines a bundled contract as one that
consolidates two or more procurement requirements that previously were
provided or performed under separate, smaller contracts into a
solicitation for offers for a single contract that is likely to be
unsuitable for award to a small business. For example, a small business
might be able to perform certain maintenance tasks, such as plumbing
and carpentry at a single government facility. However, if a
solicitation were to add paving and electrical repairs and also expand
the performance site to more than one regional area, such a
solicitation may be beyond the capability of any small
business.[Footnote 6] In sum, a consolidated contract can be suitable
for award to a small business and a bundled contract is not.
To help ensure that contract bundling does not unnecessarily
disadvantage small businesses, the Small Business Reauthorization Act
of 1997 requires that to the maximum extent practicable, agencies are
to avoid contract bundling unless they can demonstrate "measurably
substantial benefits," such as cost savings,[Footnote 7] quality
improvement, reduction in acquisition cycle times, or better terms and
conditions.
OFPP's strategy to address contract bundling and increase federal
contracting opportunities for small businesses contains nine action
items designed to change contract bundling regulations, hold
23 agencies accountable to eliminate unnecessary contract bundling,
mitigate the effects of necessary bundling, and increase small business
contracting opportunities. Most action items were incorporated into
Federal Acquisition Regulation (FAR) and SBA regulations on October 20,
2003. The nine action items and their status are described in appendix
I.
As part of implementing its strategy, OFPP also required OSDBUs from
the 23 agencies to report quarterly on their implementation of the nine
action items. OSDBUs have a central role in monitoring contract
bundling activity. They are responsible for overseeing their agency's
functions and duties related to the awarding of contracts and
subcontracts to various types of small businesses. Moreover, the
Congress intended that OSDBU directors serve in their respective
agencies as advocates for these businesses.
Agency Data Are Inconsistent with FPDS Data:
In their reports to OFPP, only 4 of the 23 accountable agencies
reported that they had bundled contracts for fiscal year 2002. Further,
the four agencies reported only a total of 24 bundled contracts--far
fewer than the 928 contracts reported as bundled in FPDS. Of the
remaining 19 agencies, 16 reported no bundled contracts, and 3 did not
provide contract bundling information. (See app. II for details on
contract bundling activity reported by agencies.)
Through our review of FPDS bundling data, we found that much of the
data are inaccurate, causing FPDS to record more bundled contracts and
actions than reported by the agencies to OFPP. For example, about
33 percent of FPDS-coded bundled contract actions were also shown as
being awarded to small businesses. By definition, a small business is
essentially precluded from being awarded a bundled contract. According
to OSDBU officials at the Departments of Defense (DOD), Veterans
Affairs, Interior, Health and Human Services, and Transportation--the
five agencies with the largest number of FPDS-reported bundled actions
in fiscal year 2002--the inaccuracies in FPDS were coding errors made
as the result of confusion about the statutory definition of contract
bundling, inadequate verification of data, and ineffective controls in
the FPDS reporting process. For example, through a review of Interior's
80 contracting offices, Interior's OSDBU found that all had erroneously
coded contracts as bundled. Interior's OSDBU attributed the coding
errors to confusion over the statutory definition of a bundled
contract. DOD similarly had its military departments and defense
agencies review the 109 contracts originally identified as bundled, and
they determined that only 8 out of the 109 contracts met the statutory
definition of a bundled contract. The 101 miscoded contracts were
primarily the result of confusion about the definition of bundling and
lack of controls and oversight in the FPDS reporting system.
Inaccuracies in FPDS data are a long-standing problem, which we have
previously reported on--most recently on December 30, 2003, when we
issued a letter to OMB expressing our concern that continuing problems
with the reliability of FPDS data could adversely impact decision-
making and oversight of the federal procurement system.[Footnote 8] We
identified a number of examples where poor data limited our ability to
assess procurement programs and found that many of the FPDS data
problems, including inaccurate data on bundling activity, were the
result of confusion over information requirements, which led to data
entry mistakes by agency contracting officials. We made recommendations
to improve the reliability of FPDS data. OMB generally concurred with
our recommendations and, as of March 25, 2004, are considering actions
to respond to them.
Effect of Regulatory Changes on Small Business Contracting
Opportunities Will Be Difficult to Gauge, Although Certain Changes May
Yield Increases:
According to OFPP, the primary goal of its strategy--and the recent FAR
changes--is to increase small business federal contracting
opportunities. However, it will be difficult to determine whether any
increases in small business opportunities are the result of the recent
regulatory changes or other factors, such as continuing agency efforts.
While some aspects of the changes have the potential to help achieve
desired goals, the new regulations do not provide for metrics to
measure agency accountability for improving small business
participation in federal procurement.
Despite OFPP's stated goal for its strategy--to increase small business
federal contracting opportunities--several factors will make it
difficult to assess the effect of the regulatory changes on such
opportunities. First, because contract bundling FAR and SBA rules were
not amended until October 2003, it is too early to determine whether
the regulations have achieved desired outcomes. Further, SBA has yet to
disseminate best practices to agencies--an action item in OFPP's
strategy. One key purpose of the best practices is for agencies to
incorporate them into training courses and materials. In January 2003,
SBA requested agency senior procurement executives to provide proven
best practices to optimize prime and subcontracting opportunities for
small businesses. According to SBA officials, that input has been
received and a best practices guide has been drafted. SBA, however, has
not established a schedule to disseminate the guide, and until such
time, agencies can do little to respond to this OFPP strategy action
item.
Second, it will be difficult to determine whether any increased
opportunities are the result of the regulatory changes or other
factors, such as continuing agency efforts to address bundling. DOD,
the Department of Energy (DOE), the National Aeronautics and
Space Administration (NASA), and the General Services Administration
(GSA)--which together procured about 80 percent of the federal
government's goods and services in fiscal year 2002--each have a
history of seeking opportunities to increase small business contracting
opportunities. Since 1982, DOD has issued five policy memoranda on
small business participation in consolidated and bundled contracts. The
first memorandum directed that functions currently performed by small
businesses should not be consolidated and that, unless there were
overriding national security interests, future solicitations should be
packaged so as not to preclude performance by small businesses. The
most recent policy memorandum, dated January 17, 2002, requires
(1) review of multiple award indefinite-delivery, indefinite-quantity
contracts to avoid unnecessary bundling[Footnote 9] and
(2) consideration of small business participation from acquisition
planning through program execution. A benefit analysis guidebook was
disseminated with the January 2002 memorandum that includes guidance on
avoiding contract bundling, outlines how to perform a benefit analysis
to justify necessary bundling, and addresses how to mitigate the impact
on small businesses when a bundled contract has been determined to be
necessary and justified. Further, the National Defense Authorization
Act for Fiscal Year 2004[Footnote 10] imposes additional requirements
on senior procurement executives to ensure that small businesses are
given appropriate opportunities to participate in consolidated
acquisitions in excess of $5 million--a threshold that is $2 million
lower than the substantial bundling threshold established in the new
regulations.
The other three agencies also have a history of efforts to address
contract bundling and increase small business contracting
opportunities. For example, in 1992, NASA put a policy in place that
required its contracting offices contemplating contract consolidation
to get concurrence from the NASA Chief of Staff at Headquarters, who
was required to seek advice from the NASA OSDBU. In 2000, NASA required
contract bundling justification, review, and approval of orders from
Federal Supply Schedule contracts,[Footnote 11] governmentwide
acquisition contracts, or other indefinite-delivery contracts. NASA
further imposed the substantial bundling documentation requirements, as
well as Headquarters Office of Procurement review, on each proposed
bundling activity expected to exceed $5 million in total value--half
the substantial bundling threshold of $10 million in effect at that
time.[Footnote 12] DOE's procurement executive has similarly issued
acquisition letters dating back to April 2000 that focused on how to
maximize small business opportunities in federal contracting. According
to GSA officials, GSA's Multiple Award Schedule Program has, for
several years, allowed Federal Supply Schedule contractors to team up
to deliver a total solution to customer agencies from multiple
industries.[Footnote 13] Such arrangements have the potential to
enhance the ability of small businesses to capture all or a portion of
a customer's total requirement. Further, the Federal Supply Schedule,
which GSA administers, also contains a strong small business presence,
with approximately 78 percent of Federal Supply Schedule contracts
awarded to small businesses, according to GSA.
Finally, the recent regulations relate primarily to contract bundling-
-an activity most agencies report they do not engage in. The
regulations, for example, are designed to require agency officials to
review proposed acquisitions to preclude unnecessary bundling and
mitigate the effects of necessary contract bundling. However, because
16 of the 23 agencies[Footnote 14] held accountable by the OFPP
strategy reported that they had no bundled contracts in fiscal year
2002 and the bundling that was reported was limited, it is unclear to
what extent the regulations will help increase small business
contracting opportunities at these agencies.
Despite the uncertainties regarding the effect of the recent regulatory
changes on small business contracting opportunities, certain changes in
the FAR and SBA regulations[Footnote 15] have the potential to increase
such opportunities--specifically those related to mandatory
coordination of agency officials and increased oversight. These
regulatory changes were designed to preclude unnecessary contract
bundling and mitigate the effects of justified bundling on small
contractors. For example, the FAR now requires OSDBUs to conduct
periodic reviews to assess (1) the extent to which small businesses are
receiving their fair share of federal procurements under the Small
Business Act, (2) the adequacy of contract bundling documentation and
justification, and (3) the actions taken to mitigate the effects of
necessary and justified bundling on small businesses. OSDBUs are
required to submit their assessments to the head of their agency and
the SBA Administrator.
The FAR and SBA regulations now require agencies to assess contractor
performance against small business goals identified in subcontracting
plans in contracts that require a subcontracting plan.[Footnote 16]
This action requires agencies to systematically review contracts of
$500,000 for products or services and contracts of $1 million for
construction and ensure they comply with required small business
subcontracting plans. Further, the new regulations established agency-
specific dollar thresholds to invoke mandatory coordination with agency
small business specialists.[Footnote 17] The new thresholds are
$7 million for DOD; $5 million for DOE, GSA, and NASA; and $2 million
for all other agencies. The regulations also specify that multiple
award indefinite quantity contracts and orders placed against Federal
Supply Schedule contracts and governmentwide acquisition contracts are
now subject to bundling requirements and restrictions.
Finally, SBA now requires SBA procurement center
representatives[Footnote 18] to ensure that small business
participation is maximized through teaming arrangements by working with
agency small business specialists and OSDBUs, as early in the
acquisition process as practical. The new SBA regulation is designed to
(1) allow small business teams to compete for acquisitions when
contract bundling is determined to be necessary, and hence, unsuitable
for individual small businesses to perform and (2) remove obstacles
small businesses face in forming teams, such as the relatively limited
time available to respond to solicitations.
Regulatory Changes Do Not Establish Metrics and Information to Monitor
Contract Bundling Trends and Effects:
Over the last several years, we have been asked to review acquisition
reforms and initiatives to determine whether they are achieving desired
outcomes. Determining whether desired outcomes are being achieved is
dependent on metrics and reliable information. However, as we testified
in March 2003 before the Senate Committee on Small Business and
Entrepreneurship,[Footnote 19] agencies often lack metrics and reliable
information to enable the Congress and the President to ensure agency
accountability for improving small business participation in federal
procurement. Despite our findings, the new contract bundling regulatory
changes do not establish metrics or identify the information needed to
determine the extent to which agencies bundle contracts and measure the
impact of bundling on small businesses--a weakness exacerbated by the
fact that past data on bundling has been limited and
unreliable.[Footnote 20]
Recording and distributing timely and accurate information on contract
bundling is key to ensuring accountability, monitoring contract
bundling trends, and adjusting practices as warranted. Although agency
OSDBUs must now submit annual reports to assess the small business
share of federal procurements, the adequacy of bundling documentation,
and actions taken to mitigate the effects of bundling to their agency
head and the SBA Administrator, there is no requirement for metrics or
specific bundling-related information. Without metrics and information
to measure contract bundling and its impact, annual assessments will
likely be process oriented, citing, for example, senior executive memos
stressing commitment to eliminate unnecessary contract bundling and
identifying who is accountable to optimize contracting opportunities
for small businesses. Potential metrics and information OSDBUs could
use in their required annual reports to monitor contract bundling
trends and impacts include (1) the number and dollar value of bundled
contract actions and contracts, (2) benefit analyses (dollars saved) to
justify why contracts are bundled, (3) the number of small businesses
losing federal contracts because of bundling, (4) how bundled contracts
complied with agencies subcontracting plans, and (5) how mitigation
actions, such as teaming arrangements, provided increased contracting
opportunities to small businesses.
Conclusions:
As we have reported over the past several years, a lack of reliable
data on contract bundling activity at federal agencies has limited the
Congress' and the President's ability to accurately assess the extent
of contract bundling governmentwide and its effect on small business
contracting opportunities. Although the most recent regulatory changes
have the potential to increase contracting opportunities for small
businesses, until such time that OFPP takes action to improve FPDS data
reliability and establish metrics to measure contract bundling
activity, the extent to which contract bundling impacts small business
federal contracting opportunities will continue to be limited or
unknown.
Recommendations for Executive Action:
We are recommending that the Director, Office of Management and Budget,
* ensure that planned FPDS reliability improvements include accurate
agency reporting to provide uniform and reliable contract bundling
information and:
* direct the Administrator, OFPP, to establish metrics to measure
contract bundling and the extent to which contract bundling impacts
contracting opportunities for small businesses.
We are also recommending that the Administrator, SBA, expedite the
dissemination of best practices to maximize small business contract
opportunities for incorporation into agencies' training courses, as
required by the OFPP strategy.
Agency Comments and Our Evaluation:
In March 2004, we requested comments on a draft of this report from the
Director of OMB and from the Administrator, SBA.
In written comments, OMB concurred with the first recommendation, but
not the second. OMB expressed concern with our recommendation that OFPP
be directed to establish metrics to measure contract bundling and the
extent to which contract bundling impacts contracting opportunities for
small businesses. OMB is concerned that our recommendation envisions
that OMB establish new, governmentwide reporting and record-keeping
requirements outside of FPDS, which is duplicative and possibly labor-
intensive. In addition, OMB suggested that the our recommendation be
revised to require OFPP to work with SBA to explore possible inclusion
of new reporting requirements in FPDS that would track the impact of
bundling on contracting opportunities for small businesses.
We believe OMB's concern is unfounded. The purpose of our
recommendation is to establish contract bundling metrics, not a new
reporting and record-keeping system outside of FPDS. The establishment
of bundling metrics, together with the implementation of our
recommendation that OMB ensure that its planned FPDS reliability
improvements include accurate agency reporting of contract bundling
information, does not require a new reporting and record-keeping system
outside of FPDS.
We believe OMB's suggestion that our recommendation be revised to
explore possible inclusion of new reporting requirements to track the
impact of bundling on small businesses will not provide the Congress
sufficient information to understand the effects of bundling on small
businesses, unless metrics are established. As stated in our report,
determining whether acquisition reforms and initiatives are being
achieved is dependent on metrics. Without metrics to measure contract
bundling and its impact, the information needed to ensure agency
accountability to eliminate unnecessary contract bundling, mitigate the
effects of necessary bundling, and increase small business contracting
opportunities will be limited or unknown.
In official oral comments on the report, staff from SBA concurred with
the SBA recommendation and had no other comments on the report.
Scope and Methodology:
To identify the number of contracts agencies reported as bundled in
fiscal year 2002, we reviewed the data submitted by agencies in their
reports to OFPP. We also analyzed fiscal year 2002 contract actions
coded as bundled in FPDS to compare information reported by the
agencies. Where large discrepancies existed between agency and FPDS
data, we contacted agency OSDBU officials to obtain an explanation.
Those agencies were the Veterans Administration and the Departments of
Defense, Health and Human Services, Interior, and Transportation. We
did not verify the agency-reported data used in this report. Its
reliability is dependent on OSDBU review of their agency contracts. We
believe the data OSDBUs reported to OFPP to be generally reliable
because OSDBUs (1) have a central role in monitoring contract bundling
activity, (2) are responsible to oversee their agency's functions and
duties related to the awarding of contracts and subcontracts to various
types of small businesses, and (3) researched and then explained the
difference between the bundling data they reported to OFPP and what is
in FPDS.
To assess the potential effectiveness of the OFPP strategy and the
regulatory changes resulting from it, we reviewed the four required
quarterly reports submitted by the agencies to OFPP. Those reports were
to describe agency efforts to implement the strategy. In addition, we
met with procurement and OSDBU officials from five federal agencies--
DOD, DOE, GSA, NASA, and the Veterans Administration--that collectively
spent over 85 percent of the total procurement dollars in fiscal year
2002. We obtained their views on the impact of the strategy and
subsequent regulatory changes. We also contacted officials from the
OSDBUs of the remaining 18 agencies held accountable by the strategy to
obtain their views on its implementation. Finally, we met with
officials from OFPP and SBA to gain a better understanding of the
objectives of the strategy, as well as a governmentwide perspective on
contract bundling and its effect on small business opportunities within
the federal procurement community.
We also reviewed applicable contract bundling laws, policies, and
regulations.
As agreed, unless you publicly announce its contents earlier, we plan
no further distribution of this report until 30 days after the date of
this letter. At that time, we will send copies of this report to the
Administrators of the OFPP and SBA, and the heads of the 23 executive
agencies held accountable by OFPP's strategy. We will also provide
copies to others on request. In addition, the report will be available
at no charge on the GAO Web site at http://www.gao.gov.
If you or your staff have questions concerning this report, please
contact me at (202) 512-4841 or by e-mail at cooperd@gao.gov, or
James Fuquay at (937) 258-7963. Key contributors to this report were
Johnetta Gatlin-Brown, Daniel Hauser, Julia Kennon, Mary Jo Lewnard,
Sylvia Schatz, and Karen Sloan.
Signed by:
David E. Cooper, Director:
Acquisition and Sourcing Management:
[End of section]
Appendix I: Status of Nine Action Items Contained in OFPP's Report:
In October 2002 in response to the President's tasking to develop a
strategy to hold agencies accountable for contract bundling practices,
the Office of Federal Procurement Policy (OFPP) issued "Contract
Bundling: A Strategy for Increasing Federal Contracting Opportunities
for Small Business." The status of the strategy's nine action items, as
of February 25, 2004, is presented below.
Table 1: Status of Action Items Contained in OFPP's Contract Bundling
Strategy:
Action item: Ensure accountability of senior agency management for
improving contracting opportunities for small business;
Status: Twenty- three agencies were required to report to the Office of
Management and Budget's (OMB) Deputy Director for Management on the
status of their efforts to address contract bundling issues on a
quarterly basis from January 31, 2003, until October 31, 2003.
Quarterly reports are no longer required.
Action item: Ensure timely and accurate reporting of contract bundling
information through the President's Management Council (PMC);
Status: PMC, composed of deputy secretaries and administrators from the
major agencies, was tasked with assisting OMB with monitoring the
status of agency efforts to address contract bundling. We did not
obtain access to PMC documentation.
Action item: Require contract bundling reviews for task and delivery
orders under multiple award contract vehicles;
Status: The Federal Acquisition Regulation (FAR) and Small Business
Administration (SBA) regulations were amended on October 20, 2003.
Action item: Require agency review of proposed acquisitions above
specified dollar thresholds for unnecessary and unjustified contract
bundling;
Status: The FAR and SBA regulations were amended on October 20, 2003.
Action item: Require identification of alternative acquisition
strategies for the proposed bundling of contracts above specified
thresholds and written justification when alternatives involving less
bundling are not used;
Status: The FAR and SBA regulations were amended on October 20, 2003.
Action item: Mitigate the effects of contract bundling by strengthening
compliance with subcontracting plans;
Status: The FAR and SBA regulations were amended on October 20, 2003.
Action item: Mitigate the effects of contract bundling by facilitating
the development of small business teams and joint ventures;
Status: SBA regulations were amended on October 20, 2003.
Action item: Identify best practices for maximizing small business
opportunities;
Status: In January 2003, SBA requested agencies to provide proven
"best practices" to optimize prime and subcontracting opportunities
for small businesses. The intent of this action item was to disseminate
best practices for incorporation into agencies training courses. On
February 25, 2004, SBA advised us that a draft Best Practices Guide had
not been approved and a schedule for its approval had not been
established.
Action item: Dedicate agencies' Offices of Small and Disadvantaged
Business Utilization (OSDBU) to the President's Small Business Agenda;
Status: OSDBUs must now submit annual bundling justification reports to
their agency head and the SBA Administrator.
Source: GAO analysis of OFPP contract bundling strategy and
regulations.
[End of table]
[End of section]
Appendix II: Summary of Agency Responses to OFPP-Directed Metrics:
OFPP required OSDBUs from 23 agencies to report quarterly on
implementation of OFPP's contract bundling strategy. Table 2 summarizes
agency responses to the OFPP-directed metrics for fiscal year 2002.
Table 2: Summary of Agency Responses to OFPP-Directed Metrics for
Fiscal Year 2002:
Dollars in millions:
Agency: Agriculture;
Number of bundled contracts: 0;
Contracts/orders at or above agency specific dollar thresholds[A]:
Total number: 308;
Total dollars: $1,400.0;
Percentage of total agency procurement dollars for FY 2002: 35.60%;
Review by OSDBU: Number: 59;
Review by OSDBU: Percent: 19%;
Review by SBS[B]: Number: 205;
Review by SBS[B]: Percent: 67%.
Agency: AID;
Number of bundled contracts: N/R;
Contracts/ orders at or above agency specific dollar thresholds[A]:
Total number: 56;
Total dollars: $410.5;
Percentage of total agency procurement dollars for FY 2002: 38.75%;
Review by OSDBU: Number: 45;
Review by OSDBU: Percent: [C];
Review by SBS[B]: Number: 0[N];
Review by SBS[B]: Percent: 0[N].
Agency: Commerce;
Number of bundled contracts: 0;
Contracts/orders at or above agency specific dollar thresholds[A]:
Total number: 89;
Total dollars: $436.5;
Percentage of total agency procurement dollars for FY 2002: 27.00%;
Review by OSDBU: Number: 24;
Review by OSDBU: Percent: 27%;
Review by SBS[B]: Number: 65;
Review by SBS[B]: Percent: 73%.
Agency: DHS;
Number of bundled contracts: N/A;
Contracts/ orders at or above agency specific dollar thresholds[A]:
Total number: N/A;
Total dollars: N/A;
Percentage of total agency procurement dollars for FY 2002: N/A;
Review by OSDBU: Number: N/A;
Review by OSDBU: Percent: N/A;
Review by SBS[B]: Number: N/A;
Review by SBS[B]: Percent: N/A.
Agency: DOD;
Number of bundled contracts: 8;
Contracts/ orders at or above agency specific dollar thresholds[A]:
Total number: 3,397;
Total dollars: $131,018.2;
Percentage of total agency procurement dollars for FY 2002: 72.50%;
Review by OSDBU: Number: [D];
Review by OSDBU: Percent: [D];
Review by SBS[B]: Number: 3,319;
Review by SBS[B]: Percent: 98%[E].
Agency: Education;
Number of bundled contracts: 0;
Contracts/orders at or above agency specific dollar thresholds[A]:
Total number: 24;
Total dollars: $79.0;
Percentage of total agency procurement dollars for FY 2002: 7.50%;
Review by OSDBU: Number: 21;
Review by OSDBU: Percent: 88%;
Review by SBS[B]: Number: 21;
Review by SBS[B]: Percent: 88%.
Agency: Energy;
Number of bundled contracts: 0;
Contracts/ orders at or above agency specific dollar thresholds[A]:
Total number: 7;
Total dollars: $61.8;
Percentage of total agency procurement dollars for FY 2002: 0.16%;
Review by OSDBU: Number: 0[F];
Review by OSDBU: Percent: 0%;
Review by SBS[B]: Number: 0[F];
Review by SBS[B]: Percent: 0%.
Agency: EPA;
Number of bundled contracts: 0;
Contracts/ orders at or above agency specific dollar thresholds[A]:
Total number: 109;
Total dollars: $1,800.0;
Percentage of total agency procurement dollars for FY 2002: 10.60%;
Review by OSDBU: Number: 77;
Review by OSDBU: Percent: 71%;
Review by SBS[B]: Number: 32;
Review by SBS[B]: Percent: 29%.
Agency: GSA;
Number of bundled contracts: 0;
Contracts/ orders at or above agency specific dollar thresholds[A]:
Total number: 70;
Total dollars: $1,294.2;
Percentage of total agency procurement dollars for FY 2002: 13.74%;
Review by OSDBU: Number: 14;
Review by OSDBU: Percent: 20%;
Review by SBS[B]: Number: 14;
Review by SBS[B]: Percent: 20%.
Agency: HHS;
Number of bundled contracts: 2;
Contracts/ orders at or above agency specific dollar thresholds[A]:
Total number: 1,141;
Total dollars: $1,268.9;
Percentage of total agency procurement dollars for FY 2002: 21.00%;
Review by OSDBU: Number: [D];
Review by OSDBU: Percent: [D];
Review by SBS[B]: Number: 244[G];
Review by SBS[B]: Percent: 21%.
Agency: HUD;
Number of bundled contracts: 0;
Contracts/ orders at or above agency specific dollar thresholds[A]:
Total number: 16;
Total dollars: $72.8;
Percentage of total agency procurement dollars for FY 2002: 7.70%;
Review by OSDBU: Number: 16;
Review by OSDBU: Percent: 100%;
Review by SBS[B]: Number: 16;
Review by SBS[B]: Percent: 100%.
Agency: Interior;
Number of bundled contracts: 0;
Contracts/orders at or above agency specific dollar thresholds[A]:
Total number: 34;
Total dollars: $125.0;
Percentage of total agency procurement dollars for FY 2002: 5.20%;
Review by OSDBU: Number: 0;
Review by OSDBU: Percent: 0%;
Review by SBS[B]: Number: 34;
Review by SBS[B]: Percent: 100%.
Agency: Justice;
Number of bundled contracts: N/R;
Contracts/orders at or above agency specific dollar thresholds[A]:
Total number: N/R;
Total dollars: N/R;
Percentage of total agency procurement dollars for FY 2002: N/R;
Review by OSDBU: Number: N/R;
Review by OSDBU: Percent: N/R;
Review by SBS[B]: Number: N/R;
Review by SBS[B]: Percent: N/R.
Agency: Labor;
Number of bundled contracts: 0;
Contracts/ orders at or above agency specific dollar thresholds[A]:
Total number: 25;
Total dollars: $176.3;
Percentage of total agency procurement dollars for FY 2002: 10.70%;
Review by OSDBU: Number: 8[H];
Review by OSDBU: Percent: [H];
Review by SBS[B]: Number: 8[H];
Review by SBS[B]: Percent: [H].
Agency: NASA;
Number of bundled contracts: 0;
Contracts/ orders at or above agency specific dollar thresholds[A]:
Total number: 68;
Total dollars: $4,553.8;
Percentage of total agency procurement dollars for FY 2002: 34.20%;
Review by OSDBU: Number: 15[I];
Review by OSDBU: Percent: 22%;
Review by SBS[B]: Number: 68[J];
Review by SBS[B]: Percent: 100%.
Agency: NSF;
Number of bundled contracts: 0;
Contracts/ orders at or above agency specific dollar thresholds[A]:
Total number: 1;
Total dollars: $131.8;
Percentage of total agency procurement dollars for FY 2002: 69.40%;
Review by OSDBU: Number: 1;
Review by OSDBU: Percent: 100%;
Review by SBS[B]: Number: 1;
Review by SBS[B]: Percent: 100%.
Agency: OPM;
Number of bundled contracts: 0;
Contracts/ orders at or above agency specific dollar thresholds[A]:
Total number: 7;
Total dollars: $23.9;
Percentage of total agency procurement dollars for FY 2002: 7.30%;
Review by OSDBU: Number: 7;
Review by OSDBU: Percent: 100%;
Review by SBS[B]: Number: 7;
Review by SBS[B]: Percent: 100%.
Agency: SBA;
Number of bundled contracts: 0;
Contracts/ orders at or above agency specific dollar thresholds[A]:
Total number: 5;
Total dollars: $17.2;
Percentage of total agency procurement dollars for FY 2002: 38.00%;
Review by OSDBU: Number: 5;
Review by OSDBU: Percent: 100%;
Review by SBS[B]: Number: 5;
Review by SBS[B]: Percent: 100%.
Agency: SSA;
Number of bundled contracts: 0;
Contracts/ orders at or above agency specific dollar thresholds[A]:
Total number: 26;
Total dollars: $89.7;
Percentage of total agency procurement dollars for FY 2002: 14.00%;
Review by OSDBU: Number: 12;
Review by OSDBU: Percent: 46%;
Review by SBS[B]: Number: 12[K];
Review by SBS[B]: Percent: 46%.
Agency: State;
Number of bundled contracts: 0;
Contracts/ orders at or above agency specific dollar thresholds[A]:
Total number: 0;
Total dollars: 0;
Percentage of total agency procurement dollars for FY 2002: 0%;
Review by OSDBU: Number: 0;
Review by OSDBU: Percent: 0%;
Review by SBS[B]: Number: 0;
Review by SBS[B]: Percent: 0%.
Agency: Transportation;
Number of bundled contracts: 3;
Contracts/orders at or above agency specific dollar thresholds[A]:
Total number: 260;
Total dollars: $2,820.7;
Percentage of total agency procurement dollars for FY 2002: 80.00%;
Review by OSDBU: Number: 3;
Review by OSDBU: Percent: 0[M];
Review by SBS[B]: Number: 260;
Review by SBS[B]: Percent: 100%.
Agency: Treasury;
Number of bundled contracts: 0;
Contracts/orders at or above agency specific dollar thresholds[A]:
Total number: 121;
Total dollars: $1,747.0;
Percentage of total agency procurement dollars for FY 2002: 57.82%;
Review by OSDBU: Number: 33;
Review by OSDBU: Percent: 27%;
Review by SBS[B]: Number: 33;
Review by SBS[B]: Percent: 27%.
Agency: VA;
Number of bundled contracts: 11;
Contracts/ orders at or above agency specific dollar thresholds[A]:
Total number: 240;
Total dollars: $2,811.7;
Percentage of total agency procurement dollars for FY 2002: 47.14%;
Review by OSDBU: Number: [L];
Review by OSDBU: Percent: [L];
Review by SBS[B]: Number: Unknown;
Review by SBS[B]: Percent: Unknown.
Total;
Number of bundled contracts: 24.
Source: GAO analysis of agency reported OFPP required metrics.
Legend: N/R = not reported, N/A = not applicable:
[A] DOD = $7M; Energy, GSA, and NASA = $5M; all other agencies = $2M.
[B] Small Business Specialist.
[C] Cannot be calculated. Review of contracts is not correlated to OFPP
threshold requirements.
[D] The OSDBU gets involved on a case-by-case basis, when needed.
[E] DOD orders off Federal Supply Schedules (FSS) are not required to
be reviewed (with a Form 2579), but may actually be reviewed by a SBS.
As a result, this is a "floor" amount and may actually be higher
because the number excludes all 78 orders off FSS.
[F] OSDBU and SBSs only review new contracts, not orders against
existing contracts.
[G] Contract actions above $100,000 are reviewed by SBSs.
[H] Breakdown of contract/orders: 2 were solo source; 9 were
unilaterally small business set-asides; 8 were contracts open market
contract awards reviewed by OSDBU and SBS; 4 were orders to large
business off GSA Schedules; and 2 were orders to small businesses off
GSA schedules.
[I] NASA OSDBU reviews any contract/order over $50M. Fifteen fell into
this category.
[J] NASA SB specialists review all procurement expected to exceed
$100,000. All 68 fit this category.
[K] OSDBU serves in the capacity of a SBS.
[L] VA's OSDBU does not review contracts and/or purchase orders. It
does review the VA Form 2268 for specific requirements at specific
thresholds. OSDBU records reveal that 168 forms were reviewed in fiscal
year 2002.
[M] Actual percentage is 0.15.
[N] No SBSs.
[End of table]
[End of section]
Appendix III: Summary of Contract Bundling Rule Changes:
The FAR Council and Small Business Administration issued final rules
in 2003 amending the bundling requirements in the FAR and SBA
regulations (effective October 20, 2003). These amendments implemented
recommendations in the Office of Management and Budget's October 2002
report "Contract Bundling: A Strategy for Increasing Federal
Contracting Opportunities for Small Business." The following table
summarizes the changes and new mandates incorporated in the amendments.
Table 3: Bundling Regulations, before and after Amendments:
Applicability:
Before amendments: An agency was required to conduct market research
to determine whether bundling was necessary and justified. FAR
7.107(a); 13 C.F.R. 125.2(d)(3);
After amendments: Clarified that it also applies to:
(1) multiple award indefinite quantity contracts; and;
(2) orders placed against an indefinite quantity contract under:
--a Federal Supply Schedule contract; or;
--a task/delivery order contract awarded by another agency--
i.e., governmentwide acquisition contract or multi-agency contract.
FAR 2.101; FAR 7.107(a); 13 C.F.R. 125.2(d)(1)(iii)(iv).
Justification of "measurably substantial" benefits:
Before amendments: To justify contract bundling, an agency was required
to demonstrate "measurably substantial" benefits, which included:
(1) costs savings,
(2) price reduction,
(3) quality improvements,
(4) reduction in acquisition cycle times,
(5) better terms and condition, or
(6) any other benefits;
After amendments: Clarified that it also applies to orders.
Before amendments: Quantification of benefits: These benefits were
required to be quantified as:
(1) 10 percent of the contract's value (including options) if the
contract was $75 million or less; or
(2) 5 percent of the contract's value (including options) or $7.5
million, whichever is greater, if the contract was over $75 million.
FAR 7.107(b); 13 C.F.R. 125.2(d)(5)(i);
After amendments: Same quantification of benefits analysis, but
clarified it also applies to orders.
FAR 2.101; FAR 7.107(b); 13 C.F.R. 125.2(d)(1)(iv); 125.2(d)(5)(i).
Threshold--substantial bundling:
Before amendments: Substantial bundling threshold was defined as a
contract worth $10 million or more.
FAR 7.107(e); 13 C.F.R. 125.2(d)(1)(iii);
After amendments: Threshold lowered to:
(1) $7 million for the Department of Defense;
(2) $5 million for the Department of Energy, the General Services
Administration, and National Aeronautics and Space Administration; and
(3) $2 million for all other agencies.
FAR 7.107(e); FAR 7.104(d)(2); 13 C.F.R. 125.2(b)(2)(i)(ii) and
125.2(d)(1)(iv).
Justification--substantial bundling:
Before amendments: To justify "substantial bundling," agency must, in
the documentation of that strategy:
(1) identify the specific benefits anticipated to be derived from
bundling;
(2) include an assessment of the specific impediments to small
business participation that result from bundling;
(3) specify actions designed to maximize small business participation
as contractors;
(4) specify actions designed to maximize small business participation
as subcontractors; and
(5) include a specific determination that the anticipated benefits of
the proposed bundled contract justify its use.
FAR 7.107(e)(1)-(5); 13 C.F.R. 125.2(d)(7);
After amendments: Added a sixth requirement: identify alternative
strategies that would reduce or minimize the scope of the bundling and
the rationale for not choosing those alternatives.
FAR 7.107(e)(6); 13 C.F.R. 125.2(d)(7)(E); Clarified that these six
requirements applied to orders. FAR 7.107(e).
New mandates:
Before amendments: Not applicable;
After amendments: Agency must coordinate acquisition strategies with
agency Small Business Specialist (SBS) when the acquisition meets the
applicable new threshold and is not set aside for small business; SBS
must then notify agency OSDBU if the strategy involves bundling that
is unnecessary, unjustified, or not identified as bundling by the
agency; and; SBS must identify alternative strategies that would
reduce bundling.
(FAR 7.104(d)(1); 13 C.F.R. 125.2(b)(2)).
Before amendments: Not applicable;
After amendments: Agency OSDBU must: conduct annual reviews to assess
small business share of federal procurements, the adequacy of bundling
documentation, and actions taken to mitigate the effects; and; submit
assessment to the agency head and SBA Administrator.
(FAR 19.201(d)(11)(12); 13 C.F.R. 125.2(e)); Agency must: for any
bundling, provide all information about the bundling justification,
including the acquisition strategy, to the SBA procurement center
representative 30 days before solicitation issuance; and; for
substantial bundling, also provide substantial bundling justification
documentation to procurement center representative and submit all
information to agency OSDBU.
(FAR 19.202-1(e)(1)(iii); 13 C.F.R. 125.2(b)(3) and (d)(7)(E)(ii)).
Source: GAO analysis of regulations.
[End of table]
[End of section]
Appendix IV: Comments from the Office of Management and Budget:
EXECUTIVE OFFICE OF THE PRESIDENT:
OFFICE OF MANAGEMENT AND BUDGET:
WASHINGTON, D.C. 20503:
OFFICE OF FEDERAL PROCUREMENT POLICY:
May 6, 2004:
Mr. David E. Cooper, Director:
Acquisition and Sourcing Management:
United States General Accounting Office:
Washington, DC 20548:
Dear Mr. Cooper:
Thank you for this opportunity to comment on the draft General
Accounting Office (GAO) report entitled, "Contract Management: Impact
of Strategy to Mitigate Effects of Contract Bundling on Small Business
Is Uncertain" (GAO-04-454).
The Office of Management and Budget (OMB) appreciates GAO's thorough
analysis of agency efforts to implement the Administration's strategy
on contract bundling. However, we are concerned with GAO's draft
recommendation that would require the Office of Federal Procurement
Policy (OFPP) "to establish metrics to measure contract bundling and
the extent to which contract bundling impacts contracting opportunities
for small businesses." We are concerned that this recommendation
envisions that we establish new, government-wide reporting and record
keeping requirements outside of the Federal Procurement Data System
(FPDS).
For efficient and effective agency operations, we need to maintain our
reliance on automated procurement data gathering, rather than
establishing duplicative, possibly labor-intensive reporting
requirements. We have devoted considerable resources to improving FPDS
in recent years. Accordingly, we suggest that the recommendation be
revised to require OFPP to work with the Small Business Administration
to explore possible inclusion of new reporting requirements in FPDS
that would track the impact of bundling on contracting opportunities
for small businesses.
I appreciate your consideration of our recommended change to the draft
GAO report.
Sincerely,
Signed by:
Robert A. Burton:
Associate Administrator:
[End of section]
Related GAO Products:
Contract Management: DOD Needs Measures for Small Business
Subcontracting Program and Better Data on Foreign Subcontracts. GAO-04-
381. Washington, D.C.: April 5, 2004.
Small and Disadvantaged Businesses: Most Agency Advocates View
Their Roles Similarly. GAO-04-451. Washington, D.C.: March 22, 2004.
Reliability Federal Procurement Data. GAO-04-295R. Washington, D.C.:
December 30, 2003.
Small Business Contracting: Concerns About the Administration's Plan to
Address Contract Bundling Issues. GAO-03-559T. Washington, D.C.: March
18, 2003.
Small Business: Trends in Federal Procurement in the 1990s. GAO-01-119.
Washington, D.C.: January 18, 2001.
Small Business Subcontracting Report Validation Can Be Improved. GAO-
02-166R. Washington, D.C.: December 13, 2001.
Small Business: Limited Information Available on Contract Bundling's
Extent and Effects. GAO/GGD-00-82. Washington, D.C.: March 31, 2000.
How Selected DOD Consolidation Efforts Affected Small Business
Opportunities. GAO/NSIAD-83-30. Washington, D.C.: August 12, 1983.
FOOTNOTES
[1] FPDS contains detailed information on contract actions over $25,000
and summary data on procurements of less than $25,000. The system is
intended to identify who bought what, from whom, for how much, when,
and where. On October 1, 2003, the successor system to FPDS--FPDS Next
Generation--became operational.
[2] The Agency for International Development and the Department of
Justice did not report. In addition, the Department of Homeland
Security, established by law in November 2002 (Pub. L. 107-296, Nov.
25, 2002), did not have fiscal year 2002 FPDS data.
[3] The 928 bundled contracts in FPDS represent contracts associated
with 2,404 contract actions coded as bundled in fiscal year 2002. A
fiscal year 2002 contract action could have been associated with a
contract awarded in fiscal year 2002, or a prior fiscal year.
[4] We have previously reported on FPDS data inaccuracies, most
recently in December 2003. See Reliability of Federal Procurement Data,
GAO-04-295R (Washington, D.C.: Dec. 30, 2003).
[5] Small Businesses: Limited Information Available on Contract
Bundling's Extent and Effects, GAO/GGD-00-82 (Washington, D.C.: Mar.
31, 2000).
[6] The Small Business Reauthorization Act of 1997 lists several
factors that may result in a contract being unsuitable for award to a
small business: (1) the diversity, size, or specialized nature of the
elements of the performance specified; (2) the aggregate dollar value
of the anticipated award; (3) geographical dispersion of the contract
performance sites; and (4) any combination of the above. Pub.L. 105-
135, section 412.
[7] The regulations implementing the act stated that for contracts of
$75 million or less, benefits were equivalent to 10 percent of the
contract value (including options); for contracts over $75 million,
benefits were equivalent to 5 percent of contract value (including
options) or $7.5 million, whichever is greater. Further, agencies were
required to justify "substantial bundling," defined as any bundled
contract valued at $10 million or more, by also (1) identifying the
specific benefits anticipated to be derived from bundling;
(2) including an assessment of the specific impediments to small
business participation that result from bundling, (3) specifying
actions designed to maximize small business participation as
contractors, (4) specifying actions designed to maximize small business
participation as subcontractors, and (5) including a specific
determination that the anticipated benefits of the proposed bundled
contract justify its use. FAR 7.107(b), (e); 13 C.F.R. 125.2 (d)(5),
(7).
[8] See GAO-04-295R.
[9] Indefinite delivery, indefinite quantity contracts are used when an
agency does not know the precise quantity of supplies or services to be
provided under a contract. As the agency identifies a specific need for
goods or services, it issues orders for individual requirements, which
cannot exceed the maximum amount specified in the contract.
[10] Pub. L. 108-136, section 801.
[11] The Federal Supply Schedule, administered by GSA, is designed to
provide federal agencies with a simplified process for
obtaining millions of commonly used commercial supplies and services at
prices associated with volume buying. The program consists of single
award schedules with one supplier and multiple award schedules, in
which GSA awards contracts to multiple companies supplying comparable
services and products.
[12] The new bundling regulations lowered the substantial bundling
threshold for NASA to $5 million.
[13] Schedule contractors may propose a team solution or customer
agencies may solicit for a team solution.
[14] The Agency for International Development and Justice did not
report. In addition, the Department of Homeland Security, established
by law in November 2002 (Pub. L. 107-296, Nov. 25, 2002), did not have
fiscal year 2002 FPDS data.
[15] See appendix III for table summarizing regulatory changes.
[16] FAR 42.1502; 13 CFR 125.2(e)(1)(iii).
[17] Small business specialists are agency personnel that assist small
businesses with federal contracting.
[18] Procurement center representatives are SBA personnel whose duties
include assisting small businesses in obtaining federal contracts and
monitoring acquisitions to ensure compliance with small business
requirements. These representatives are located at various SBA
procurement area offices and federal buying centers around the country.
[19] See Small Business Contracting: Concerns About the
Administration's Plan to Address Contract Bundling Issues, GAO-03-559T
(Washington, D.C.: Mar. 18, 2003).
[20] See Small Businesses: Limited Information Available on Contract
Bundling's Extent and Effects, GAO/GGD-00-82 (Washington, D.C.: Mar.
31, 2000).
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