By John Lilly

The airliners crashed, the towers blazed and fell, and thousands of innocent people were murdered, many of them in the course of transcendently heroic acts of altruism. Now, the unimaginable yet all-too-real tragedy of September 11 has begun to descend into a tangle of bickering -- over money, over the ethnic composition of the commission overseeing reconstruction, over the proper way to remember the dead... But mostly over money. This is, after all, New York City.

Amid news reports of grieving families riven by inheritance disputes, just how unseemly is it for New York's small-business community to demand a share of the $20 billion in government money that is already starting to flow into the reconstruction of Lower Manhattan? These demands are at the center of a bill sponsored by Representative Nydia Velázquez (D-NY), which is now in Senate committee. To the family of a murdered police officer or firefighter, carving up Federal reconstruction funds for small business owners may not seem like the most urgent issue at hand right now. But to the owner of a small business in New York City, Rep. Velázquez's awkwardly-named Rebuild Infrastructure and Support Entrepreneurs Act of 2002 (RISE) probably seems not just reasonable but necessary. Many of the city?s small businesses have barely survived the economic turmoil following September 11th.

But in a broader sense, it would also partly redress -- albeit in a merely localized way -- the problems small business faces in securing federal contracts in the first place. The federal government buys just about everything. It even says so right there on the General Services Administration?s website, in an overview of procurement procedures for the Federal Supply Service (FSS): "Do you have a product or service to sell? Chances are it's something the General Services Administration (GSA) buys." Once you hack your way through all the three-letter acronyms, the GSA?s site seems to offer a boundless universe of selling opportunities -- an infinite variety of voracious appetites begging for satisfaction. To a small-businessperson it all seems too good to be true. And it is.

Let?s forget for a moment that -- as in practically all dealings with the Feds -- small businesses seeking government contracts face a wildly difficult slog through the bureaucratic swamp. Unlike, say, Lockheed Martin, a small business owner who sets aside the huge block of time required to complete the paperwork to make a bid (let alone hire a lobbyist to sell that bid in the U.S. Congress) will probably have to sacrifice other important tasks. And let?s disregard the government?s reputation for being slow to cough up the dough once a contract is filled, which of course hurts a cash-poor small business far more than its deep-pocketed big-business rivals. Let?s instead focus on an aspect of government procurement that in many cases actually makes it impossible for small businesses to bid on contracts they would ordinarily be perfectly capable of fulfilling. Let?s look at the practice known as "bundling."

In the curiously cozy parlance of federal procurement, a "bundled contract" comes into being when a purchasing agency swaddles several baby contracts in the toasty embrace of one really large contract. The resulting behemoth forces any small business to bid not only on the job that it could actually complete, but on a lot of other jobs as well. They may cover a much wider geographical area or involve work outside the small business?s area of competence. In effect, the bundled contract often ends up eliminating small businesses? chance of bidding on the work at all.

The creation of bundled contracts in the federal procurement process has long rankled the small business community, and has in fact already been the subject of a lot of debate and some legislation. Purchasing agents like bundling, because it cuts down on administrative costs: Instead of sending a number of small contracts out to bid (with all the attendant paperwork), the agent gets to submit just one. Small businesses -- and their advocates at the federal level, including the Small Business Administration, argue that bundled contracts not only discriminate against small business, but also result in a less-competitive bidding environment, and thereby in higher prices in the federal marketplace. The SBA?s Office of Government Contracting even hosts a Web page that invites businesses to rat out any government entity that engages in bundling. But so far, regulations designed to control this practice have been relatively easy for government agencies to avoid.

When he introduced an anti-bundling bill he sponsored called the Small Business Federal Contractor Safeguard Act in early May, Chairman of the Senate Committee on Small Business John Kerry pointed out some of the problems the government has faced in enforcing regulations intended to curb the practice. Kerry?s bill, which won support from a bipartisan committee, would require purchasing agencies to perform market research before sending certain kinds of bundled contracts out for bid and to break them up under some circumstances. It would also -- mercifully -- substitute the expression "consolidated contract" for "bundled contract," and it would tighten the definition of what constitutes such a contract. As Kerry said on the Senate floor, "Although there is current law in place intended to require Federal agencies to conduct market research before bundling a contract, loopholes in the current definition of a bundled contract allow them to often skirt these safeguards."

The problem with Kerry?s bill is that it has no teeth. He says as much in his introductory remarks but for some reason feels that agencies will comply, even though they?ll face no penalty if they choose not to. Interestingly, Nydia Velázquez -- she of the RISE bill for New York?s small businesses -- has an anti-bundling bill of her own pending in the House. Introduced in late March, Velázquez's Small Business Contract Equity Act of 2001 is more stringent in its requirements for market research than Kerry?s version. But once again, her bill, which is currently under review by the House subcommittee on technology and procurement policy, would offer no penalty provisions.

The strange thing is that when he introduced his bill, Kerry at least recognized the possibility that penalties for bundling may be necessary in the future: "[...I]f Federal agencies continue to consolidate contracts when there is no justification, fail to conduct the required economic research, or fail to provide procurement opportunities to small businesses, I would see little choice but to support legislative changes requiring punitive measures for these Federal agencies," he said.

New York?s small-business community may be about to get some indirect relief in the form of government contracts, but a nationwide solution to the bundling problem is long overdue. Here?s hoping that some version of anti-bundling legislation passes, and that Kerry is right that whatever does pass will go a long way toward solving the problem. But if it doesn?t, I say bring on those penalties. One way or another, it?s time for federal buyers to start feeling small-businesspeople?s pain.