Lawmakers criticize rising use of bundled contracts

The average size of federal contracts is growing, a report to be released later this month says, spurring worries that small businesses are being pushed out of the federal market.

According to data presented Thursday at a House Small Business Committee hearing, the average federal contract was worth $1.1 million in fiscal 1998, up 20 percent since 1992.

"Our data show that larger and larger contracts are being awarded to a shrinking number of prime contractors, a growing percentage of which are large businesses," said Paul Murphy, president of Eagle Eye Publishers, a Fairfax, Va.-based research firm.

Murphy said the data will be included in a report to be formally released by the Small Business Administration later this month.

Murphy attributed much of the consolidation of contracts into fewer hands to "contract bundling," a practice in which agencies combine two or more contracts into a single bid. Bundled contracts make up at least 13 percent of federal contracts, Murphy said. Small businesses have trouble competing for bundled contracts in comparison to larger companies. Small businesses' share of bundled contract dollars is only 11 percent, compared to their share of 17 percent of all contracts, Murphy said.

The House panel Thursday focused its disdain for contract bundling on the Defense Department, repeatedly asking David Oliver, principal deputy under secretary of Defense for acquisition, technology and logistics, why the Pentagon wasn't doing more to ensure small businesses win federal contracts.

"Small businesses are facing a crisis in federal contracting," said Rep. Nydia M. Velazquez, D-N.Y., as she criticized the Defense Department for failing to justify contract bundling.

Contract bundling "does save time and frustration for the procurement officer," said Rep. Jim Talent, R-Mo., chairman of the Small Business Committee, but agencies need to offer better reasons for creating huge contracts given their impact on small businesses, he said.

Oliver said that contract bundling does not appear to be having an adverse effect on the number of contracts DoD awards to small businesses, noting that about 20 percent of prime contracts and 40 percent of subcontracts belong to small businesses. But he agreed with lawmakers that better data is needed to justify the use of contract bundling and pledged to conduct a study on the costs and benefits of the practice.

As lawmakers focus attention on contract bundling, the Small Business Administration is also trying to rein in the practice, requiring agencies to justify bundling with cost-benefits analyses.

But Velazquez said a loophole in the new SBA requirement allow agencies to waive the cost-benefit rule if the agency head determines that bundling would support the agency's mission.

"That's a loophole you can drive a tank through," Velazquez said.