Mr. KERRY. Madam President, I am pleased today to be introducing legislation, the Small Business Federal Contractor Safeguard Act, designed to protect the interests of small businesses in the Federal marketplace.

As the Chairman of the Senate Committee on Small Business and Entrepreneurship, I have focused a considerable amount of energy promoting the interests of small businesses in the Federal marketplace. The legislation being introducing today marks a critical step forward in this process.

It is no secret that the Committee on Small Business and Entrepreneurship places a great deal of importance on moving legislation forward in a bipartisan manner, the members of my Committee understand we represent the interests of all of our Nation's small businesses, the most important and dynamic segment of our economy. And nowhere is the bipartisan consensus stronger than in the area of Federal procurement and ensuring that our Nation's small businesses receive their fair share of procurement opportunities. I am pleased to once again be introducing bipartisan legislation with the Committee's ranking member, Senator Kit Bond. Regardless of who has chaired the Committee during our tenure together, we have both worked hard to improve small business Federal procurement opportunities.

I am also pleased to be joined by Senator Jean Carnahan, a member of the Committee on Small Business and Entrepreneurship and the Senate Armed Services Committee and Senator Susan Collins, also a member of the Senate Armed Services Committee. While small business participation in procurement activities is important throughout the Federal Government, nowhere is it more important than at the Department of Defense, which is responsible for over 63 percent of the goods and services purchased by the Federal government. The support of Senator Carnahan and Senator Collins will help ensure the success of this legislation.

The legislation we are introducing today has one ultimate purpose, to prevent Federal agencies from circumventing small business protections with regard to the practice known as contract bundling. Few issues have so strongly galvanized the small businesses contracting community as the practice of contract bundling, which occurs when procurement contracts are combined to form large contracts, often spread over large geographic areas, resulting in minimal or no small business participation.

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.

The Small Business Administration's, SBA, Office of Advocacy, an independent body within the SBA, estimated that for every increase of 100 bundled contracts, there was a decrease of over 106 individual contracts issued to small firms. Additionally, for every $100 awarded on a bundled contract, there was a decrease of $33 to small business. 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 seemingly an efficient and cost effective means for Federal agencies to conduct business , bundled contracts, are anti-competitive. 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 then 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. By driving small business from the Federal marketplace, contract bundling will actually drive up the costs of goods and services purchased by the Federal Government because competition will be limited and our economy will be deprived of possible innovations brought about by small businesses.

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.

Our legislation changes the name "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 you combine contracts, be it new contracts, existing contracts or a combination thereof, you are consolidating them and would need to take the necessary steps to ensure it is justified economically before proceeding.

Our 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 anticipated 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 their 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. However, if 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. This is a step I have been reluctant to take in the past. However, I am optimistic that such a step will not be necessary and that the fair and reasonable system established under this legislation will be effective.

I would once again like to thank my fellow sponsors, Senators Bond, Carnahan, and Collins for their support on this issue. I hope all of my colleagues will join us in supporting this bill. I ask unanimous consent that the text of the legislation be printed in the Record.