The Impact of Contract Bundling On Small Business:

FY1992-FY1999

by Paul Murphy, President

2000. [62] pages. Completed by Eagle Eye Publishers, Inc.,

10560 Main Street, Suite 18, Fairfax, VA 22030,

under contract no. SBA-HQ-97-M-0861.

This Small Business Research Summary (ISSN 1076-8904) summarizes one of a series of research papers prepared under contracts

issued by the U.S. Small Business Administration’s Office of Advocacy. The opinions and recommendations of the authors of this study do

not necessarily reflect official policies of the SBA or other agencies of the U.S. government. For more information, write to the Office of

Advocacy at 409 Third Street S.W., Washington, DC 20416, or visit the office’s Internet site at www.sba.gov/advo.

Purpose

The purpose of this study is to present evidence

showing whether or not the practice of consolidating

small, individual government purchases into larger

contracts is having a negative impact on small business participation in the federal contracting process.

The FY 1999 total of bundled prime contracts over

$25,000 was the highest in the past eight years.

The study also covers the small firm federal contracting experience from 1992 to 1999, and displays

the contracting trends in a number of different ways:

by the number and percentage of bundled contracts,

the specific federal agency that issues them, and the

number of small firms that have continued to bid on

them. Federal contracting data in the study are generally divided into four major areas: research and

development, construction, manufacturing, and

other services—all of the standard nonresearch

service industries.

Scope and Methodology

A bundled contract is one that incorporates in a single contract the requirements formerly distributed

across several separate contracts. To define a bundled

contract, the researcher used a combination of SIC

codes, product/service codes, places of performance,

and types of contracts. While each of these categories has several potential components, the contractor's approach was essentially conservative. Bundled

contracts in this study included those involving three

or more SIC codes, multiple places of performance,

and products or services of the same type. The

researcher chose not to use multiple product/service

codes because they added to the complexity of defining a bundled contract.

When these various definitions were applied, only

67 percent of contracts over $1 billion and 62 percent of the dollars in these contracts were considered

bundled for the purposes of this study.

Highlights

• A bundled contract can last many years. The

value of the average bundled contract was $8 million

in FY 1999. This represented an increase of 21 percent in the average contract size over the past eight

years.

• In FY 1999, large businesses received 67 percent

of all prime contract dollars and 74 percent of all

bundled dollars. Small firms received 18.7 percent of

all contract dollars—up 2 percent since FY1995 but

more than 4 percent short of the 23 percent procurement goal required by law.

• In FY 1999, the small business share was about

15 percent of bundled contract dollars and 23 percent

of unbundled contract dollars.

• Analysis showed that for every increase of 100

bundled contracts, there was a decrease of over 106

individual contracts awarded to small firms; for

every additional $100 awarded on bundled contract,

there was a decrease of $33 to small business.
• The two major market segments fueling the

growth of contract bundling are construction and

nonresearch services. Between FY 1992 and FY

1999, bundled contract dollars in construction grew

170 percent to $3.5 billion, while bundled contract

dollars in nonresearch services grew 45 percent to

$33.2 billion. Perhaps because of bundling, the number of firms receiving contracts in the construction

sector fell 44.2 percent between FY 1992 and FY

1999, while the number fell 4.9 percent in nonresearch services.

• There is some good news in the research and

development and manufacturing sectors. These sectors experienced a decline of 15.1 percent in bundled

contract dollars between FY 1992 and FY 1999, and

an increase of 3.2 percent in the number of small

firms participating in the procurement process.

• The Department of Defense accounted for 82

percent of bundled contract dollars in FY 1999, but

civilian agencies are making increased use of contract bundling. The General Services Administration

(GSA), the Treasury Department, and the Justice

Department all awarded about $1 billion worth of

bundled contracts in FY 1999.

• Other federal agencies—the Department of

Education, the Office of Personnel Management, and

the Federal Emergency Management Agency—

awarded 10 times the number of bundled contract

dollars in FY 1999 as in FY 1992.

• The researcher makes some strong recommendations regarding the future direction of federal contracting. These concern the erosion of the diversity

of the federal contracting base for the nation as a

whole.

• The report recommends requiring more unbundled contracting opportunities for small business.

Such proposals, including set-asides of bundled contracts for small firms, have already been recommended by some congressional committees.

• The report calls for stricter enforcement of federal contracting goals, including requirements for

more accurate and timely reporting to the federal

procurement data center.

Conclusions

There is a difficult trade-off between achieving

greater economic efficiency in government operations and preserving contracting opportunities for all

types of businesses. Using a relatively conservative

definition of contract bundling, this study demonstrates that small firms are being harmed in several

ways. First, as the average size of a bundled contract

continues to grow, the number of small firms participating in the process declines. Second, increased

contract bundling also may have adverse effects on

on the ability of women- and minority-owned small

firms to receive federal contracts. While some small

firms may do very well under such contracting rules,

thousands more will remain unable to bid on federal

contracts without joining forces with others, if at all.

Third, contract bundling is declining in some sectors

and growing in others. Additional research is needed

to understand these trends.

Ordering Information

The full text of this report, along with summaries of

other studies performed under contract to the U.S.

Small Business Administration’s Office of Advocacy,

is available on the Internet at www.sba.gov/advo/

research.

Printed copies are available for purchase from:

National Technical Information Service

5285 Port Royal Road

Springfield, VA 22161

Tel. (800) 553-6847

TDD: (703) 487-4639

Order number: pending

Price codes: pending

The National Technical Information Service’s complete data base of federally funded business research

is available on the Internet at www.ntis.gov.