Air Force contract bundling effort upheld

The General Accounting Office has ruled that a huge Air Force weapons maintenance contract does not violate laws designed to protect small businesses from bundled contracting practices. In a Feb. 22 decision, the General Accounting Office denied a bid protest filed by Phoenix Scientific Corp., a small Georgia-based defense contractor, and the Small Business Administration against the Air Force. The plaintiffs alleged that the $7.4 billion contract package, which combines six awards into a single contract, violated provisions of the 1984 Competition in Contracting Act and the 1958 Small Business Act. The case is a major test of how the bundling of contracts, a practice in which agencies combine two or more contracts into a single prime contract, is regulated under the procurement laws that help small businesses. Attorneys for both sides disagreed over what precedent GAO's decision sets for future cases involving contract bundling and small businesses. "This decision is probably an excellent road map for how to get around the bundling provisions of [the Small Business Act] and Competition in Contracting Act rules," said J. Hatcher Graham, attorney for Phoenix Scientific Corp. "Every agency will start drafting their [acquisition proposals] based on this decision." Gregory Petkoff, the lead attorney for the Air Force, disagreed. "This contract worked for our requirements," he said. "I can't say that it would make sense for other agencies in other situations." The case involves the Air Force's plan to consolidate weapons maintenance purchases in a contract package known as the Flexible Acquisition Sustainment Tool (FAST). Designed to provide the department with ready maintenance on its aging aircraft, the FAST initiative will pool purchases at Robins Air Force base, Ga., and depots in Oklahoma City and Ogden, Utah. The Air Force originally planned to award the massive five-year contract to six contractors who would compete to provide maintenance tasks. After Congress and the Small Business Administration raised concerns over the role of small businesses in the project, the Air Force agreed to reserve two of the six contracts for small businesses.

But the Small Business Administration and Phoenix Corp. continued to fight the FAST initiative, alleging the contract did not go far enough in reaching out to small businesses and violated the 1997 amendments to the Small Business Act. The General Accounting Office's decision is the first interpretation of these amendments, according to Petkoff. "We understood what the law on [the Competition in Contracting Act] was, but the Small Business Act amendments of 1997 were kind of an unknown quantity," said Petkoff. The 1997 amendments set strict requirements that agencies must meet in order to justify the need for bundled contracts, which typically exclude small businesses. In dismissing the Small Business Administration's argument that the Air Force contract hurts small businesses, the General Accounting Office noted that two of the six contract awards were reserved for small firms. A GAO hearing to examine the Air Force's need for the contract was the turning point in the case, according to Phoenix CEO Maurice Allain. At the hearing, GAO officials heard testimony from Air Force managers who described how downsizing in maintenance and acquisition staff had left the department shorthanded to perform routine upkeep on aircraft. "What tipped the scales was testimony from an Air Force manager that this method of contract was needed because for one system, the C-5 transport aircraft, the Air Force had more than 3,000 parts with no known vendor," said Allain. Under the FAST initiative, the Air Force could quickly fulfill requests for those parts without going through the entire acquisition process. GAO occasionally convenes hearings while investigating protests of bids, a senior official said. "We hold hearings in approximately 50 cases a year, so they are relatively unusual but not rare," said Daniel I. Gordon, GAO's associate general counsel. The Small Business Administration and Phoenix Corp. both expressed hope that Congress would revisit the impact of bundled contracts on small businesses. The Air Force plans to award the FAST contracts by this summer.

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