FEDERAL CONTRACT LAW

Contract bundling remains a sizable problem

Joseph J. Petrillo

The ancient Greeks, lovers of logical paradox, posed a riddle: How many hairs would it take to make a beard? A similar puzzle faces the procurement community when it comes to bundling items into single buys that should perhaps be competed separately. How big is too big?

Small businesses, losing ground because of buying reforms, contend that contract bundling is a major ill. Congress responded with amendments to the Small Business Act in 1997, directing the Small Business Administration to come up with regulations to rectify the problem. Proposed regulations weren't issued until last January, and the final version is still pending.

SBA's proposed regulations are proving highly controversial. Procuring agencies chafed against any restrictions on how they constructed their contracts. Small businesses complained that the regulations didn't go far enough to protect their interests. Hearings held by the House Small Business Committee in August showed a great divide between competing interests on this issue. SBA is caught in the middle.

In a sense, the situation isn't new. A string of bid protest decisions shows how the General Accounting Office has wrestled with the same issue from a different angle. When agency bundling results in overly large contracts, GAO becomes concerned about possible restriction of competition.

Muddy waters

The GAO rulings in this area, however, have been less than clear. In one, GAO approved a contract bundling engineering support services for the C-130 and C-141 transport airplanes. But in another decision, GAO held it was improper to put into the same contract maintenance requirements for the KC-135 tanker aircraft and the A-10 ground attack plane.

In yet another ruling, GAO held that the repair and service of photocopiers should be procured separately from the purchase of new copiers. But in a later ruling GAO approved consolidating nationwide elevator repair, previously obtained through more than 100 separate contracts, into five regional contracts. GAO was deaf to the plea that the large regional contracts were beyond the reach of small businesses, which could compete successfully only for local repair business.

SBA, charged with championing the interests of small businesses, now inherits this issue'and the controversy that attends it. But there is no easy answer.

One path is to establish a set of so-called bright-line tests. That entails somebody setting numerical limits, based on a quantifiable measure such as dollars. One witness at the House hearings urged maximum dollar ceilings on contracts and orders for architectural engineering services. Regardless of the context, such limits are likely to be merely arbitrary.

Another method is to set a series of factors, and leave the result to the discretion of the procuring agencies. This puts small businesses at the mercy of the buying agencies that could justify bundled contracts on flimsy grounds. The route is open to abuse without an adequate oversight and review mechanism.

One could ask why this is a procurement issue at all. Some contracts are clearly too large for any small business. In those cases, the government can impose subcontracting requirements to channel procurement dollars to small businesses. More vigorous application and enforcement of these rules can make the bundling issue less significant.

In other cases, decisions to include or exclude requirements in a single contract should be made on their merits as business propositions. Does it make sense to handle the tasks in a single contract? Do they result in greater efficiency, or is it a matter of administrative convenience?

Taxpayers reasonably expect their government to administer its contracts efficiently and effectively. Was it really so important to the General Services Administration to cut its elevator maintenance contracts from 100 to five? The numbers of buildings and elevators serviced stayed the same. Did the savings in administrative costs justify the sharp curtailment of competition?

No matter how SBA constructs its final rules on contract bundling, the tough questions will remain. Managers in program and procurement shops alike will ask these questions and insist on honest responses. If they abdicate this duty, someone else will take up the challenge. Small business is not likely to go away quietly.

Joseph J. Petrillo is an attorney with the Washington law firm of Petrillo & Powell, PLLC. E-mail him at jp@petrillopowell.com.

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