FEDERAL CONTRACT LAW

Out-of-character SBA cracks down on bundling

Joseph J. Petrillo

If there is ever a remake of Peter Sellers' classic comedy 'The Mouse That Roared,' the Small Business Administration would be my nominee for the title role. Its new regulations on contract bundling are more aggressive than I have come to expect from this relatively meek agency.

The long-overdue interim regulations appeared in the Oct. 25 Federal Register, just a couple of months after the House Small Business Committee held hearings on bundling. The new rules take effect Dec. 27, but SBA will entertain comments filed before then.

Just cause

The regulations make a multipronged attack on bundling. The centerpiece provision requires federal agencies to justify decisions to consolidate two or more procurements into one. If the resulting contract is 'likely to be unsuitable for award to a small business concern,' the regulation states, the agency must justify its bundling decision. This unsuitability can result from the contract's diversity, size, specialized nature, dollar value or geographical coverage, or any combination of those factors.

The agency must not only tender in writing its decision to bundle requirements, it must also quantify the decision. In other words, the agency must identify sufficient dollar benefits to justify the decision to consolidate contracts.


SBA's rules even contain a test for what constitutes sufficient benefits. If the contract value is $75 million or less, including options, the benefits must amount to 10 percent of that value. Above this contract value, the requirement drops to 5 percent'unless the benefits consist only of administrative and personnel costs, in which case the threshold remains at 10 percent.

Although aggressive, this isn't overreaching. The statute that charged SBA to write these regulations called for 'measurably substantial benefits' to justify bundling. Benefits can consist of cost savings, price reductions, quality improvements that will save time or improve performance, reductions in acquisition cycle times, or better terms and conditions. Whatever the bundling benefits, they must be expressed in terms of dollars.

The procuring agency can claim an exemption from this rule, but only if the exemption is invoked by an assistant secretary in the Defense Department or a deputy secretary in a civil department. Exemptions are also available for procurements under Office of Management and Budget Circular A-76.

SBA's Procurement Center representative gets to review the written justification for bundling, including the dollar benefits claimed, 30 days before the solicitation becomes public. The small businesses currently working under the contracts to be combined also get a 30-day notice.

The representative can ask for concessions to help small businesses and can appeal the decision on bundling all the way to the head of the contracting activity. If that fails, SBA can pursue the matter up to the head of the agency. On their own, the affected small businesses may be able to protest the bundling decision to the General Accounting Office or bring a suit in federal court.

The new regulations relax the affiliation rules, allowing small businesses to combine to bid on a project that they could not complete individually. This exemption applies to any procurement that meets one of two size tests.

If the procurement is for services, the value of the procurement, including options, must exceed half the revenue standard that SBA assigns to small companies in the industry relevant to the procurement. For buying manufactured goods, a category in which the threshold for small is based on the number of employees, the rules apply for any contract valued at more than $10 million, including options.

When either test is met, a bidding team is considered a small business as long as each team member is small under the applicable size standard.

The new rules have a final twist when contracts do get bundled in spite of all these restrictions. As long as the bundled requirement offers a significant opportunity for subcontracting, the solicitation must make this an important factor in evaluating offers.

The evaluation must include the bidder's proposed rate of subcontracting to small business and its past performance in meeting subcontracting goals in other contracts. Small businesses, exempt from the subcontracting requirement, automatically get the highest possible score for these factors.

All in all, the new rules are tougher than many expected. SBA has roared. Who is listening?

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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