Bundles too big for small firms

Nation's Business, Dec, 1997 by James Worsham

As the government consolidates its purchases into larger contracts, small firms are being squeezed out of the bidding.

David A. Nilson, president of a household-moving company in Columbia, S.C., is discovering firsthand how small firms of all types throughout the country can be affected by certain reforms in federal procurement practices.

In South Carolina, North Carolina, and Florida, the Defense Department is trying to consolidate many of its household-moving needs--involving transfers overseas and within the United States as well as shipments of various sizes--into large contracts grouped by regions.

This consolidation practice is putting the contracts far out of reach of small movers, says Nilson, whose firm, Nilson Van & Storage, a Mayflower agent, has won government moving contracts for the past 50 years. "They've created an animal that is absolutely impossible for small businesses to deal with," he says. "It eliminates a small company from bidding on these huge, huge contracts."

Contract bundling is the result of a governmentwide effort to reduce procurement paperwork and get better prices for products and services. Although there has been no estimate of federal cost savings attributable to bundling, administration officials acknowledge that bundling can leave small businesses with a smaller share of the federal-spending pie.

That view is underscored by a study conducted for the U.S. Small Business Administration (SBA) by Eagle Eye Publishers Inc., a Vienna, Va., research firm. "Fewer and larger contracts are being won by fewer and larger companies," says the study.

The study found that from Oct. 1, 1990, to Sept. 30, 1995, federal contracts worth $100,000 or more grew to 48 percent from 40 percent of all contracts, and about 7,000 small firms were pushed out of the federal marketplace. SBA officials say small business has lost even more ground since then.

From Oxygen To Construction

In South Carolina, moving companies appealed to the U.S. General Accounting Office to stop the bundling plan in their industry in that state, and implementation of the practice has been delayed until the GAO decides on the appeal, possibly by year's end.

In Oklahoma City, B&B Medical Services Inc. has been providing oxygen and respiratory services for the veterans hospital there for years. Recently, the U.S. Department of Veterans Affairs required that firms bid to supply these services for all the VA hospitals in a five-state region.

B&B's president, Bill Long, says the bundled contract was too big for his firm and many others. After they complained, the department changed its mind about bundling the contracts. A spokesman says Veterans Affairs will decide on such contracts for each hospital individually.

Elsewhere, however, bundling is under way. In a move that affected construction companies, the Army Corps of Engineers created a construction contract at Fort Leonard Wood, Mo., that was worth about $170 million instead of a group of smaller contracts worth $10 million to $60 million each for seven projects, says Rick Grebel, president of KCI Construction Co. of St. Louis.

As a result, Grebel says, most of the small Missouri construction firms that usually perform work at the base were shut out of the bidding because the contract exceeded their bonding capacity. The award went to a large Texas company.

"How many companies can bid on a $170 million job?" Grebel asks rhetorically.

Movement In Congress

After hearing pleas from small businesses and the SBA, Congress moved recently to curb bundling and help small firms retain a portion of the nearly $200 billion in federal procurement annually, ranging from services--such as household moves for transferring military personnel--to supplies for federal installations.

In the three-year SBA reauthorization passed by the Senate in late October, lawmakers included a provision that defines bundled contracts and strengthens the hand of the SBA to challenge federal agencies' decisions to combine contracts. At press time, the bill awaited House action.

Sen. Christopher S. Bond, R-Mo., chairman of the Senate Small Business Committee, says the bill "will help our efforts to be fair to small businesses by limiting contract bundling where it is unnecessary and unjustified."