Good morning and thank you for being here.

Few issues so strongly galvanize the small-businesses community as the practice of contract bundling, a term that means little to the general public, but means billions in lost dollars to the small-business community. And for the past decade, the problem of contract bundling, exacerbated by “so called” procurement reform in the early and mid-90s, has only gotten worse.

The SBA’s Office of Advocacy, an independent body within the SBA, estimated that contract bundling costs small businesses an estimated $13 billion annually. The Office of Advocacy arrived at these conclusions using a conservative definition of what constitutes a bundled contract. Therefore, the negative impact on small businesses from contract bundling is likely more severe.

While the law requires an assessment before bundling, most federal agencies don’t comply, and there’s limited staff for oversight. Many supporters of the practice of contract bundling point to its cost savings. They claim it saves the taxpayer money to lump contracts together. Unfortunately, there is little evidence supporting this claim, and too many contracts are bundled without the required economic research designed to determine if a bundled contract will actually result in a cost savings.

Bundled contracts, while seemingly an efficient and cost-saving means for federal agencies to conduct business, are anti-competitive and anti-small business. Further, they will result in increased costs over time. When a Federal agency bundles contracts, it limits small businesses’ ability to bid for the new bundled contract, thus limiting competition. Small businesses are consistently touted as more innovative, providing better and cheaper services than their larger counterparts. But when forced to bid for mega-contracts, at times across large geographic areas, few if any small businesses can be expected to compete. This deprives the Federal government of competition and our economy of possible innovations brought about by small businesses.

Many procurement officers -- already overworked and under tight budgetary constraints -- are looking to bundled contracts as a means to save time and money. However, in order to consolidate procurement requirements into a bundled contract, procurement officers must conduct economic research to prove consolidating requirements will meet a minimum threshold of savings as a bundled contract. Unfortunately, the Procurement Center Representatives (PCRs), responsible for oversight of contract bundling, cannot possibly review every contract. Currently there are 47 PCRs that cover only 255, or just 11.6 percent, of the 2200 federal procurement centers. As a result, a number of contracts, which many would consider bundled, have been awarded to large firms, without the benefit of economic research.

Given the possible short-term monetary and time savings of bundled contracts, it can be safely assumed that procurement officers will continue to bundle contracts, despite the negative consequences for small businesses and the economy, unless the culture of contract bundling at federal agencies is changed.

More than that, I believe the entire procurement system has turned its back to some degree on small business participation and fails to recognize the benefits of a diverse supplier network and increased competition that expanded small-business contracting opportunities would create. We need a major change within procuring agencies to reverse the decline in small business participation in government procurement. Until the Federal government, at all levels, realizes the importance of doing business with small business, these negative trends will continue, our nation will not have access to a wide range of small business suppliers and small businesses across the country will continue to lose billions of dollars in opportunities year after year.

While there are current laws 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. That is why I have reintroduced the Small Business Federal Contractor Safeguard Act, designed to protect the interests of small businesses in the Federal marketplace.

My legislation – which was first introduced last spring with then-Ranking Member Bond and Senators Carnahan and Collins, and was endorsed unanimously by this Committee last July – has one ultimate purpose: to prevent Federal agencies from circumventing small business protections with regard to the practice known as contract bundling.

Small Business Federal Contractor Safeguard Act changes the term “bundled contract” to “consolidated contract,” strengthens the definition of a consolidated contract, and closes the loopholes in the existing definition to prevent Federal agencies from circumventing statutory safeguards intended to ensure that separate contracts are consolidated for economic reasons, not administrative expediency.

The new definition relies on a simple premise: if a Federal employee combines contracts, be it new contracts, existing contracts, or a combination thereof, that is contract consolidation and by law, that employee must take the necessary steps to ensure it is justified economically before proceeding.

This legislation also alters the current Small Business Act requirements regarding procurement strategies when a contract is consolidated to include a threshold level for triggering the economic research requirements.

Previously, any consolidated contract would trigger the economic research requirements, something considered onerous by many Federal agencies and often cited as the reason for circumventing the law. The new procurement strategies section of the Small Business Act would require a statement of benefits and a justification for any consolidated contract over $2 million and a more extensive analysis, corresponding to current requirements for any consolidated contract, for consolidations over $5 million.

In order to move forward with a consolidated contract over $2 million, the agency must put forth the benefits expected from the contract, identify alternatives that would involve a lesser degree of consolidation, and include a specific determination that the consolidation is necessary and justified. The determination that a consolidation is necessary and justified may be determined simply through administrative and personnel savings, but there must be actual savings.

In order to move forward with a consolidated contract over $5 million, an agency must, in addition to the above: conduct current market research to demonstrate that the consolidation will result in costs savings, quality improvements, reduction in acquisition times, or better terms and conditions; include an assessment as to the specific impediments to small business participation resulting from the consolidation; and specify actions designed to maximize small business participation as subcontractors and suppliers for the consolidated contract. The determination that a consolidation is necessary and justified may not be determined through administrative and personnel savings alone unless those savings will be substantial for these larger contracts.

By establishing this dual-threshold system, we have placed the emphasis for the economic research on contracts more likely to preclude small business participation, while not ceding smaller contracts to the whims of a Federal agency. This change, coupled with a clear definition of a consolidated contract, should be enough to garner compliance.

Today, small business owners are increasingly frustrated that the practice of contract bundling continues to run rampant within the federal government, and the small-business contracting community is discouraged and disappointed by the federal government’s lack of action on this issue and the constant skirting of contract bundling safeguards. So, I want to thank Chair Snowe for making this important issue the focus of the Committee’s second hearing. I also want to thank SBA Administrator Hector V. Baretto, OMB Office of Federal Procurement Policy Administrator Angela B. Styles, DOD Office of Acquisition Director Deidre Lee, and GAO Acquisition and Sourcing Management Director David Cooper for their current and future efforts to address contract bundling. I would also like to thank, Paul Murphy, President of Eagle Eye Publishers; Eric Adolphe, CEO of OPTIMUS Corp.; Michael Robinson, Defense Logistics Manager of MassMEP; and Carol Kuc, who is representing Women Impacting Public Policy, for representing small businesses from around the nation.

Also, I am happy to see that the Administration has recognized this problem and followed our lead from last Congress by introducing a well-intentioned proposal to combat contract bundling. While very similar to my legislation in spirit, the SBA’s January 31, 2003, anti-bundling rule lacks the means to deter procurement officials from unnecessarily bundling contracts and does little to change the deep-rooted contract bundling culture that exists at many federal agencies. I am also concerned that the proposal does not adequately close the current loopholes agencies use to avoid current contract bundling safeguards. Put simply, the Administration’s proposal is a step in the right direction, but lacks the teeth to change the tone and protect small businesses. However, I applaud the Administration for joining me and the members of this Committee in the fight to protect small businesses in the Federal marketplace and look forward to working with the Administration and my colleagues on this important issue.

I look forward to reviewing the witness testimony and continuing our work with the Administration and the small-business community as we address this critical issue.

Thank you.