Federal Contract Law: Is anything small in small-business IT contracts?

Karen Powell

Everyone knows the Bush Administration wants to make the procurement system more small-business-friendly. Toward this end, it presented two significant changes for small business subcontracting programs earlier this year. But whether small businesses will actually be helped or, possibly, even hurt by the changes remains in question.

The Civilian Agency and Defense Acquisition councils proposed new regulations Jan. 31 regarding contract bundling. Bundling refers to an agency's decision to combine contract requirements previously satisfied by two or more small businesses. Under the proposal, agencies must provide greater justification for bundling decisions and have the decisions reviewed at higher levels. The new bundling review and oversight requirements will specifically apply to orders under task and delivery order contracts.

Sadly lacking from the proposed regulation is any means for affected small businesses to object to a bundling decision. Instead, the rule will be enforced by an agency's small-business specialist. This is hardly a robust system or one capable of providing timely relief to small businesses confronting unjustified bundling.

The Office of Federal Procurement Policy announced a more striking change on Feb. 12 in response to intense lobbying by some members of Congress and the Microcomputer Industry Suppliers Association. OFPP is requiring agencies that manage governmentwide acquisition contracts for IT to obtain annual size status certifications from small business awardees. There has been talk that OFPP might broaden this rule to include all GWACs as well as other multiple-award vehicles. The General Services Administration recently made a similar change to its schedules program, although it requires size status to be recertified every five years or each time the schedule contract is renewed.

The new rule for GWACs will cause consternation in agency program offices. The fact that is many small businesses first exceed their size standards as a consequence of receiving a significant multiyear contract.

Small-business awardees might have to give up these contracts after only a year or two. In turn, agencies may have to recompete contracts awarded to small businesses on a much more frequent schedule. The GSA five-year rule makes practical sense.

It isn't hard to imagine that agencies will be reluctant to set aside high-dollar-value contracts for small businesses if it appears that most of the likely competitors will be unable to recertify after the first year or two. Requiring annual certifications is overkill.

The failure of the Small Business Administration and OFPP to adequately police small-business programs in the past was most unfortunate. The current haste to plug loopholes in the program may only make things worse. A more refined approach is needed to examine whether existing size standards, including the nonmanufacturer rule, are appropriate for today's high-value IT service and support contracts.

Karen D. Powell is a lawyer with the Washington law firm of Petrillo & Powell. E-mail her at kdp@petrillopowell.com.

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