Historically, a major factor preventing small businesses from participating in the government contracts was “bundling.”  Bundling occurs when two or more contract requirements, previously provided or performed under smaller contracts, are consolidated into a solicitation for a single contract that is likely to be unsuitable for award to a small business.  Attempting to increase efficiency and decrease administrative costs, Congress passed the Federal Acquisition Streamlining Act in 1994, encouraging the consolidation of certain contracts.  As a result, between 1992 and 2001, 44.5% of all reported prime contract dollars were in bundled contracts.[1]

In 1997, Congress amended the Small Business Act to limit the occurrences of bundled contracts.  Before a federal agency proceeds with an acquisition that could lead to a contract containing consolidated procurement requirements, the Small Business Act requires it to first determine whether the consolidation requirements are necessary and justified.  The agency is required to “avoid unnecessary and unjustified bundling of contract requirements that precludes small business participation in procurements as prime contractors.”  15 U.S.C. § 631(j)(3).  In order to show that “bundling” is necessary and justified, an agency must show that it would derive measurably substantial benefits by consolidating the requirements, as compared with meeting its needs through separate smaller contracts.  Agencies may overcome the bundling restrictions by demonstrating cost savings, quality improvements, reduction in acquisition cycle times, or better terms and conditions.  The reduction of costs alone, however, cannot be a justification for bundling.

Where an agency fails to justify a bundled contract, any award is subject to protest.  For example, in Sigmatech, Inc., the United States Army Tank-Automotive and Armaments Command (“TACOM”) issued a Request for Quotations (“RFQ”), in part, for engineering and support services.  Sigmatech, a small business, filed a protest, arguing that the TACOM had improperly bundled the engineering and support services with engineering services.  The TACOM had failed to perform any bundling analysis and did not provide the Small Business Administration (“SBA”) with proper notice of its intent to bundle the services prior to awarding the contract.  The Government Accountability Office (“GAO”) sustained Sigmatech’s protest, finding that the TACOM violated the prohibition on bundling by failing to notify the SBA of its intention to bundle the services and by failing show that it would derive measurably substantial benefits.

Two recent decisions from the GAO have shed more light on what it considers to be proper bundling of contracts.[2]

  • On November 1, 2013, the GAO held that consolidation of requirements being performed by large businesses did not qualify as impermissible bundling.  In Star Food Service, Inc., the Defense Logistics Agency (“DLA”) contracted with prime vendors to obtain and distribute food products throughout specific regions.[3]  In February 2013, however, DLA issued a Request for Proposal (“RFP”) to satisfy it requirement for chicken parts by entering into contracts directly with chicken suppliers, thereby cutting out the middleman.  One contract, for frozen chicken wings, was set aside for small businesses, but the other contract, for various other chicken parts, was unrestricted.  Prior to the closing date for submissions of proposals, Star Food Service, Inc. (“Star”) filed a protest, arguing that the unrestricted contract reflected unreasonable bundling by aggregating 24 different chicken parts into one contract.  The GAO disagreed, finding that “DLA is not consolidating requirements that were previously provided under separate contracts into a solicitation for a single contract.”  Since the prohibition against bundling applies only to contracts “previously provided or performed under smaller contracts,” the GAO denied Star’s protest because the prior contracts as issue were being performed by large businesses.
  • On March 12, 2014, the GAO ruled that a bundled contract does not violate the Small Business Act if the contract is a small business set-aside.  In Homecare Products, Inc., the Veterans Administration issued an RFQ for the establishment of a blanket agreement for the purchase, delivery, and installation for prosthetic ramps.[4]  The RFQ was issued as a total small business set-aside.  Seven vendors, including Homecare Products, Inc. (“Homecare”), submitted bids.  Just before final bids were due, Homecare submitted a protest to the GAO, arguing, in part, that the agency impermissibly bundled its acquisition of prosthetic ramps with the installation services without notifying the SBA.  The GAO ruled that “the solicitation has been issued as a total small business set-aside and small business firms, such as the protester, will be competing for the BPAs.  As a result, there is no possible violation of the Small Business Act’s restrictions on bundling.”

Comment:  An improperly bundled contract warrants an immediate protest, but keep in mind that the Small Business Act does not impose an absolute prohibition on bundling.  The Small Business Act’s restrictions on bundling are not as broad as many small businesses would like to think.  Nevertheless, if an agency bundles requirements that were previously being performed under smaller contracts without even attempting to show that such a decision was necessary and justified or if an agency fails to notify the SBA of its intent to bundle, a small business affected by the decision has cause to protest.

[1] U.S. Small Business Admin., Office of Advocacy, The Small Business Economy:  A Report to the President (2005).

[2] Thanks to Steven Koprince for inspiring this article.  His blog, SmallGovCon, is a great source for news relevant to small business government contractors.  Read his perspective on bundled contracts here and here.

[3] B- 408535 (Comp.Gen.), 2013 CPD P 246 (Nov. 1, 2013).

[4] B-408898.2 (Comp.Gen.) (Mar. 12, 2014).

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