S. 633. A bill to modify the contract consolidation requirements in the Small Business Act, and for other purposes; to the Committee on Small Business and Entrepreneurship.
Mr. KERRY. Mr. President, I am pleased today to be re-introducing legislation, the "Small Business Federal Contractor Safeguard Act," designed to protect the interests of small businesses in the Federal marketplace.
Currently as the Ranking Member, and last Congress as Chairman, of the Senate Committee on Small Business and Entrepreneurship, I have focused a considerable amount of energy on increasing the role of small businesses in the Federal marketplace. Not only is it an issue of fairness, but it is in the best interest of our economy and our national security. In fact, the Small Business Administration was created after World War II to ensure that small businesses would be viable for defense-related production, to build a diverse pool of suppliers so that the country would not be dependent on only a handful of companies. As this country prepares for war in Iraq and continues the on-going war on terrorism, we should be improving that viability and expanding that diverse pool. We should be increasing our business with small business, not reducing it.
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 mannerthe 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.
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 contacting community as the practice of contract bundling, which occurs when procurement contracts are combined to form large contracts, often spread over large geographic areas, and results in minimal or no small business participation.
Many supporters of the practice of contract bundling point to its cost savingsthey 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 SBA's 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. For every $100 awarded on a bundled contract, there was a decrease of $33 to small business. This cost small businesses an estimated $13 billion in 2001. 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. And they are anti-small business. 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. 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.
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.
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 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. 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, the Committee would have little choice but to consider 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 LANDRIEU, STABENOW, CANTWELL, and PRYOR for their continued support on this issue. I hope all of my colleagues will join us in supporting this bill. I ask that the text of the legislation be printed in the RECORD.