New regulations restrict efforts to bundle contracts

The Small Business Administration Monday issued regulations aimed at limiting the practice of "contract bundling," in which federal agencies combine two or more contracts into a single prime contract.

Agencies have increasingly been turning to contract bundling as a means of consolidating work under fewer contractors, arguing that bundling increases efficiency and saves money.

SBA thinks otherwise. "Government agencies and, more importantly, the taxpayers who support them save money when small business is a viable participant in the federal procurement marketplace," SBA Administrator Aida Alvarez said in a statement. "The competition holds down prices."

Under SBA's regulations, which take effect Dec. 27, agencies must justify to SBA any bundled contract worth $10 million or more per year, showing what cost savings, quality improvements or time savings would result from bundling.

If the contract is worth $75 million or less, agencies have to do a cost-benefit analysis demonstrating that the benefits of bundling are equivalent to 10 percent of the combined contract value. For contracts worth more than $75 million, agencies must prove that the benefits of bundling are worth 5 percent of the contract value.

Senior procurement officials can waive the cost-benefit analysis in cases where they determine that "contract consolidation is critical to the success of the agency's mission," SBA said. SBA can appeal an official's decision to bundle contracts to the head of the agency.

The regulations also allow small businesses that form joint ventures to compete for large government contracts to retain their designations as small businesses. Before, small businesses that banded together would sometimes lose the competitive advantage granted to small businesses in federal procurement rules.

The new regulations do not apply to contracts being issued as part of public-private competitions under Office of Management and Budget Circular A-76.