Contract Management:

Impact of Strategy to Mitigate Effects of Contract Bundling on Small Business is Uncertain

GAO-04-454: Published: May 27, 2004. Publicly Released: Jun 28, 2004.

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To achieve efficiencies and respond to procurement reforms, agencies have consolidated their procurement contracts--that is, combined existing smaller contracts into fewer larger contracts. To ensure contract bundling--a subset of contract consolidation--does not unfairly disadvantage small businesses, the President tasked the Office of Management and Budget (OMB) to develop a strategy that would hold agencies accountable for contract bundling practices. In October 2002, the Office of Federal Procurement Policy (OFPP) within OMB issued its strategy. This report discusses the extent to which contracts were bundled in fiscal year 2002 and assesses the potential effectiveness of regulatory changes that have recently resulted from OFPP's strategy.

In contrast to data captured in the Federal Procurement Data System (FPDS), only 4 of the 23 agencies held accountable by OFPP's strategy reported a total of 24 bundled contracts in fiscal year 2002--far fewer than the 928 contracts identified as bundled in FPDS. Agency officials, after researching their contracts, determined that the bundling data in FPDS were miscoded due to confusion about the statutory definition of contract bundling, inadequate verification of information, and ineffective controls in the FPDS reporting process. For example, about 33 percent of FPDS contract actions identified as bundled were miscoded, because they were awarded to small businesses. By definition, a small business is essentially precluded from being awarded a bundled contract. The Department of Defense, which reported the second largest number of bundled contracts, determined that only 8 of the 109 contracts identified as bundled in FPDS met the statutory definition of a bundled contract. Although the actual number of bundled contracts reported by agencies is small, concerns about the effect of contract bundling on small businesses remain. According to OFPP, the primary goal of its strategy--and the resulting regulatory changes--is to increase small business federal contracting opportunities. Because new regulations have only recently been established, it is too early to determine whether agencies are achieving this goal. In addition, part of OFPP's strategy--to identify and disseminate best practices for maximizing small business contract opportunities--has not been implemented. Yet even with time and guidance, it could be difficult to assess the effect of the recent regulations, in part because any increases in small business contracting opportunities could be attributed to other factors. For example, the largest procuring agencies have a history of seeking opportunities to increase small business contracting, and according to the General Services Administration, nearly 80 percent of Federal Supply Schedule contracts are awarded to small businesses. Further, because the regulations primarily relate to contract bundling--an activity most agencies report they do not engage in--the regulations may have little impact on increasing small business contracting opportunities. Nevertheless, certain regulatory changes--especially those related to oversight--have the potential to promote greater small business opportunities. For example, the new regulations require agencies to annually assess the extent to which small businesses receive a fair share of federal procurements, the adequacy of contract bundling documentation and justifications, and actions taken to mitigate the effects on small businesses of necessary and justified contract bundling. However, the new regulations do not establish metrics to measure agency accountability, and past data on bundling and its effects on small businesses have been limited and unreliable. Without metrics and reliable data, it will be difficult to gauge agency efforts to identify and eliminate contracts that are unnecessarily bundled.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: In written comments on GAO's report, OMB concurred to this recommendation. On August 5, 2005, OMB responded to the requirements of 31 U.S.C. 720 by submitting a written statement of the actions taken on GAO's recommendation to the Senate Committee on Governmental Affairs and to the House Committee on Government Reform, which were due on August 27, 2004. The OMB response states that agencies are diligently working to improve the reporting of bundling statistics. Further, the response states that, since May 2003, agencies have worked with OMB staff to ensure that data entered into FPDS comes from a validated source and that appropriate checks are built into automated contract writing systems. The contract bundling statistics used in the GAO report are from fiscal year 2002.

    Recommendation: The Director, Office of Management and Budget, should ensure that planned FPDS reliability improvements include accurate agency reporting to provide uniform and reliable contract bundling information.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  2. Status: Closed - Not Implemented

    Comments: In written comments on GAO's report, OMB did not concur with this recommendation. OMB is concerned that GAO's recommendation envisions the establishment of a new, government-wide reporting and record-keeping requirement outside of the Federal Procurement Data System.

    Recommendation: The Director, Office of Management and Budget, should direct the Administrator, OFPP, to establish metrics to measure contract bundling and the extent to which contract bundling impacts contracting opportunities for small businesses.

    Agency Affected: Executive Office of the President: Office of Management and Budget

  3. Status: Closed - Implemented

    Comments: In official oral comments, the Small Business Administration concurred with this recommendation. In August 2007, SBA issued the first Small Business Procurement Scorecard. The Scorecard rates agencies on their progress plans and actions to meet small business goals. One of the mandatory nine progress plans and action items that is required to be address is: "Demonstrates no unjustified bundling has taken place." The plans and best practices are published on SBA's website. There will be two Scorecards each fiscal year. The first Scorecard for FY2008 was published in June 2008. The second Scorecard is planned to be published in August 2008. According to SBA officials, the rationale for the Scorecard was developed as the best way to comply with GAO recommendations, OMB executive orders, SBA statutory requirements, as well as to provide transparency and accountability.

    Recommendation: The Administrator, SBA, should expedite the dissemination of best practices to maximize small business contract opportunities for incorporation into agencies' training courses, as required by the OFPP strategy.

    Agency Affected: Small Business Administration


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