Over the last decade, changes in procurement practices, acquisition workforce reductions, and legislative changes have challenged agencies to create efficiencies in their acquisition processes. By consolidating contracts--that is, combining existing requirements into fewer contracts-- agencies can streamline the procurement process and thereby reduce acquisition and administrative complexity and cost. A subset of contract consolidation is contract bundling. The Small Business Reauthorization Act of 1997 defines a bundled contract as one that consolidates two or more procurement requirements that previously were provided or performed under separate, smaller contracts into a solicitation for offers for a single contract that is likely to be unsuitable for award to a small business. For example, a small business might be able to perform certain maintenance tasks, such as plumbing and carpentry at a single government facility. However, if a solicitation were to add paving and electrical repairs and also expand the performance site to more than one regional area, such a solicitation may be beyond the capability of any small business. In sum, a consolidated contract can be suitable for award to a small business and a bundled contract is not. To help ensure that contract bundling does not unnecessarily disadvantage small businesses, the Small Business Reauthorization Act of 1997 requires that to the maximum extent practicable, agencies are to avoid contract bundling unless they can demonstrate "measurably substantial benefits," such as cost savings, quality improvement, reduction in acquisition cycle times, or better terms and conditions. OFPP's strategy to address contract bundling and increase federal contracting opportunities for small businesses contains nine action items designed to change contract bundling regulations, hold 23 agencies accountable to eliminate unnecessary contract bundling, mitigate the effects of necessary bundling, and increase small business contracting opportunities. Most action items were incorporated into Federal Acquisition Regulation (FAR) and SBA regulations on October 20, 2003. The nine action items and their status are described in appendix I. As part of implementing its strategy, OFPP also required OSDBUs from the 23 agencies to report quarterly on their implementation of the nine action items. OSDBUs have a central role in monitoring contract bundling activity. They are responsible for overseeing their agency's functions and duties related to the awarding of contracts and subcontracts to various types of small businesses. Moreover, the Congress intended that OSDBU directors serve in their respective agencies as advocates for these businesses. In their reports to OFPP, only 4 of the 23 accountable agencies reported that they had bundled contracts for fiscal year 2002. Further, the four agencies reported only a total of 24 bundled contracts--far fewer than the 928 contracts reported as bundled in FPDS. Of the remaining 19 agencies, 16 reported no bundled contracts, and 3 did not provide contract bundling information. (See app. II for details on contract bundling activity reported by agencies.) Through our review of FPDS bundling data, we found that much of the data are inaccurate, causing FPDS to record more bundled contracts and actions than reported by the agencies to OFPP. For example, about 33 percent of FPDS-coded bundled contract actions were also shown as being awarded to small businesses. By definition, a small business is essentially precluded from being awarded a bundled contract. According to OSDBU officials at the Departments of Defense (DOD), Veterans Affairs, Interior, Health and Human Services, and Transportation--the five agencies with the largest number of FPDS-reported bundled actions in fiscal year 2002--the inaccuracies in FPDS were coding errors made as the result of confusion about the statutory definition of contract bundling, inadequate verification of data, and ineffective controls in the FPDS reporting process. For example, through a review of Interior's 80 contracting offices, Interior's OSDBU found that all had erroneously coded contracts as bundled. Interior's OSDBU attributed the coding errors to confusion over the statutory definition of a bundled contract. DOD similarly had its military departments and defense agencies review the 109 contracts originally identified as bundled, and they determined that only 8 out of the 109 contracts met the statutory definition of a bundled contract. The 101 miscoded contracts were primarily the result of confusion about the definition of bundling and lack of controls and oversight in the FPDS reporting system. Inaccuracies in FPDS data are a long-standing problem, which we have previously reported on--most recently on December 30, 2003, when we issued a letter to OMB expressing our concern that continuing problems with the reliability of FPDS data could adversely impact decision-making and oversight of the federal procurement system. We identified a number of examples where poor data limited our ability to assess procurement programs and found that many of the FPDS data problems, including inaccurate data on bundling activity, were the result of confusion over information requirements, which led to data entry mistakes by agency contracting officials. We made recommendations to improve the reliability of FPDS data. OMB generally concurred with our recommendations and, as of March 25, 2004, are considering actions to respond to them. According to OFPP, the primary goal of its strategy--and the recent FAR changes--is to increase small business federal contracting opportunities. However, it will be difficult to determine whether any increases in small business opportunities are the result of the recent regulatory changes or other factors, such as continuing agency efforts. While some aspects of the changes have the potential to help achieve desired goals, the new regulations do not provide for metrics to measure agency accountability for improving small business participation in federal procurement. Despite OFPP's stated goal for its strategy--to increase small business federal contracting opportunities--several factors will make it difficult to assess the effect of the regulatory changes on such opportunities. First, because contract bundling FAR and SBA rules were not amended until October 2003, it is too early to determine whether the regulations have achieved desired outcomes. Further, SBA has yet to disseminate best practices to agencies--an action item in OFPP's strategy. One key purpose of the best practices is for agencies to incorporate them into training courses and materials. In January 2003, SBA requested agency senior procurement executives to provide proven best practices to optimize prime and subcontracting opportunities for small businesses. According to SBA officials, that input has been received and a best practices guide has been drafted. SBA, however, has not established a schedule to disseminate the guide, and until such time, agencies can do little to respond to this OFPP strategy action item. Second, it will be difficult to determine whether any increased opportunities are the result of the regulatory changes or other factors, such as continuing agency efforts to address bundling. DOD, the Department of Energy (DOE), the National Aeronautics and Space Administration (NASA), and the General Services Administration (GSA)--which together procured about 80 percent of the federal government's goods and services in fiscal year 2002--each have a history of seeking opportunities to increase small business contracting opportunities. Since 1982, DOD has issued five policy memoranda on small business participation in consolidated and bundled contracts. The first memorandum directed that functions currently performed by small businesses should not be consolidated and that, unless there were overriding national security interests, future solicitations should be packaged so as not to preclude performance by small businesses. The most recent policy memorandum, dated January 17, 2002, requires (1) review of multiple award indefinite-delivery, indefinite-quantity contracts to avoid unnecessary bundling and (2) consideration of small business participation from acquisition planning through program execution. A benefit analysis guidebook was disseminated with the January 2002 memorandum that includes guidance on avoiding contract bundling, outlines how to perform a benefit analysis to justify necessary bundling, and addresses how to mitigate the impact on small businesses when a bundled contract has been determined to be necessary and justified. Further, the National Defense Authorization Act for Fiscal Year 2004 imposes additional requirements on senior procurement executives to ensure that small businesses are given appropriate opportunities to participate in consolidated acquisitions in excess of $5 million--a threshold that is $2 million lower than the substantial bundling threshold established in the new regulations. The other three agencies also have a history of efforts to address contract bundling and increase small business contracting opportunities. For example, in 1992, NASA put a policy in place that required its contracting offices contemplating contract consolidation to get concurrence from the NASA Chief of Staff at Headquarters, who was required to seek advice from the NASA OSDBU. In 2000, NASA required contract bundling justification, review, and approval of orders from Federal Supply Schedule contracts, governmentwide acquisition contracts, or other indefinite-delivery contracts. NASA further imposed the substantial bundling documentation requirements, as well as Headquarters Office of Procurement review, on each proposed bundling activity expected to exceed $5 million in total value--half the substantial bundling threshold of $10 million in effect at that time. DOE's procurement executive has similarly issued acquisition letters dating back to April 2000 that focused on how to maximize small business opportunities in federal contracting. According to GSA officials, GSA's Multiple Award Schedule Program has, for several years, allowed Federal Supply Schedule contractors to team up to deliver a total solution to customer agencies from multiple industries. Such arrangements have the potential to enhance the ability of small businesses to capture all or a portion of a customer's total requirement. Further, the Federal Supply Schedule, which GSA administers, also contains a strong small business presence, with approximately 78 percent of Federal Supply Schedule contracts awarded to small businesses, according to GSA. Finally, the recent regulations relate primarily to contract bundling--an activity most agencies report they do not engage in. The regulations, for example, are designed to require agency officials to review proposed acquisitions to preclude unnecessary bundling and mitigate the effects of necessary contract bundling. However, because 16 of the 23 agencies held accountable by the OFPP strategy reported that they had no bundled contracts in fiscal year 2002 and the bundling that was reported was limited, it is unclear to what extent the regulations will help increase small business contracting opportunities at these agencies. Despite the uncertainties regarding the effect of the recent regulatory changes on small business contracting opportunities, certain changes in the FAR and SBA regulations have the potential to increase such opportunities--specifically those related to mandatory coordination of agency officials and increased oversight. These regulatory changes were designed to preclude unnecessary contract bundling and mitigate the effects of justified bundling on small contractors. For example, the FAR now requires OSDBUs to conduct periodic reviews to assess (1) the extent to which small businesses are receiving their fair share of federal procurements under the Small Business Act, (2) the adequacy of contract bundling documentation and justification, and (3) the actions taken to mitigate the effects of necessary and justified bundling on small businesses. OSDBUs are required to submit their assessments to the head of their agency and the SBA Administrator. The FAR and SBA regulations now require agencies to assess contractor performance against small business goals identified in subcontracting plans in contracts that require a subcontracting plan. This action requires agencies to systematically review contracts of $500,000 for products or services and contracts of $1 million for construction and ensure they comply with required small business subcontracting plans. Further, the new regulations established agency-specific dollar thresholds to invoke mandatory coordination with agency small business specialists. The new thresholds are $7 million for DOD; $5 million for DOE, GSA, and NASA; and $2 million for all other agencies. The regulations also specify that multiple award indefinite quantity contracts and orders placed against Federal Supply Schedule contracts and governmentwide acquisition contracts are now subject to bundling requirements and restrictions. Finally, SBA now requires SBA procurement center representatives to ensure that small business participation is maximized through teaming arrangements by working with agency small business specialists and OSDBUs, as early in the acquisition process as practical. The new SBA regulation is designed to (1) allow small business teams to compete for acquisitions when contract bundling is determined to be necessary, and hence, unsuitable for individual small businesses to perform and (2) remove obstacles small businesses face in forming teams, such as the relatively limited time available to respond to solicitations. Over the last several years, we have been asked to review acquisition reforms and initiatives to determine whether they are achieving desired outcomes. Determining whether desired outcomes are being achieved is dependent on metrics and reliable information. However, as we testified in March 2003 before the Senate Committee on Small Business and Entrepreneurship, agencies often lack metrics and reliable information to enable the Congress and the President to ensure agency accountability for improving small business participation in federal procurement. Despite our findings, the new contract bundling regulatory changes do not establish metrics or identify the information needed to determine the extent to which agencies bundle contracts and measure the impact of bundling on small businesses--a weakness exacerbated by the fact that past data on bundling has been limited and unreliable. Recording and distributing timely and accurate information on contract bundling is key to ensuring accountability, monitoring contract bundling trends, and adjusting practices as warranted. Although agency OSDBUs must now submit annual reports to assess the small business share of federal procurements, the adequacy of bundling documentation, and actions taken to mitigate the effects of bundling to their agency head and the SBA Administrator, there is no requirement for metrics or specific bundling-related information. Without metrics and information to measure contract bundling and its impact, annual assessments will likely be process oriented, citing, for example, senior executive memos stressing commitment to eliminate unnecessary contract bundling and identifying who is accountable to optimize contracting opportunities for small businesses. Potential metrics and information OSDBUs could use in their required annual reports to monitor contract bundling trends and impacts include (1) the number and dollar value of bundled contract actions and contracts, (2) benefit analyses (dollars saved) to justify why contracts are bundled, (3) the number of small businesses losing federal contracts because of bundling, (4) how bundled contracts complied with agencies subcontracting plans, and (5) how mitigation actions, such as teaming arrangements, provided increased contracting opportunities to small businesses. As we have reported over the past several years, a lack of reliable data on contract bundling activity at federal agencies has limited the Congress' and the President's ability to accurately assess the extent of contract bundling governmentwide and its effect on small business contracting opportunities. Although the most recent regulatory changes have the potential to increase contracting opportunities for small businesses, until such time that OFPP takes action to improve FPDS data reliability and establish metrics to measure contract bundling activity, the extent to which contract bundling impacts small business federal contracting opportunities will continue to be limited or unknown. We are recommending that the Director, Office of Management and Budget, ensure that planned FPDS reliability improvements include accurate agency reporting to provide uniform and reliable contract bundling information and direct the Administrator, OFPP, to establish metrics to measure contract bundling and the extent to which contract bundling impacts contracting opportunities for small businesses. We are also recommending that the Administrator, SBA, expedite the dissemination of best practices to maximize small business contract opportunities for incorporation into agencies' training courses, as required by the OFPP strategy. In March 2004, we requested comments on a draft of this report from the Director of OMB and from the Administrator, SBA. In written comments, OMB concurred with the first recommendation, but not the second. OMB expressed concern with our recommendation that OFPP be directed to establish metrics to measure contract bundling and the extent to which contract bundling impacts contracting opportunities for small businesses. OMB is concerned that our recommendation envisions that OMB establish new, governmentwide reporting and record-keeping requirements outside of FPDS, which is duplicative and possibly labor-intensive. In addition, OMB suggested that the our recommendation be revised to require OFPP to work with SBA to explore possible inclusion of new reporting requirements in FPDS that would track the impact of bundling on contracting opportunities for small businesses. We believe OMB's concern is unfounded. The purpose of our recommendation is to establish contract bundling metrics, not a new reporting and record-keeping system outside of FPDS. The establishment of bundling metrics, together with the implementation of our recommendation that OMB ensure that its planned FPDS reliability improvements include accurate agency reporting of contract bundling information, does not require a new reporting and record-keeping system outside of FPDS. We believe OMB's suggestion that our recommendation be revised to explore possible inclusion of new reporting requirements to track the impact of bundling on small businesses will not provide the Congress sufficient information to understand the effects of bundling on small businesses, unless metrics are established. As stated in our report, determining whether acquisition reforms and initiatives are being achieved is dependent on metrics. Without metrics to measure contract bundling and its impact, the information needed to ensure agency accountability to eliminate unnecessary contract bundling, mitigate the effects of necessary bundling, and increase small business contracting opportunities will be limited or unknown. In official oral comments on the report, staff from SBA concurred with the SBA recommendation and had no other comments on the report. To identify the number of contracts agencies reported as bundled in fiscal year 2002, we reviewed the data submitted by agencies in their reports to OFPP. We also analyzed fiscal year 2002 contract actions coded as bundled in FPDS to compare information reported by the agencies. Where large discrepancies existed between agency and FPDS data, we contacted agency OSDBU officials to obtain an explanation. Those agencies were the Veterans Administration and the Departments of Defense, Health and Human Services, Interior, and Transportation. We did not verify the agency-reported data used in this report. Its reliability is dependent on OSDBU review of their agency contracts. We believe the data OSDBUs reported to OFPP to be generally reliable because OSDBUs (1) have a central role in monitoring contract bundling activity, (2) are responsible to oversee their agency's functions and duties related to the awarding of contracts and subcontracts to various types of small businesses, and (3) researched and then explained the difference between the bundling data they reported to OFPP and what is in FPDS. To assess the potential effectiveness of the OFPP strategy and the regulatory changes resulting from it, we reviewed the four required quarterly reports submitted by the agencies to OFPP. Those reports were to describe agency efforts to implement the strategy. In addition, we met with procurement and OSDBU officials from five federal agencies--DOD, DOE, GSA, NASA, and the Veterans Administration--that collectively spent over 85 percent of the total procurement dollars in fiscal year 2002. We obtained their views on the impact of the strategy and subsequent regulatory changes. We also contacted officials from the OSDBUs of the remaining 18 agencies held accountable by the strategy to obtain their views on its implementation. Finally, we met with officials from OFPP and SBA to gain a better understanding of the objectives of the strategy, as well as a governmentwide perspective on contract bundling and its effect on small business opportunities within the federal procurement community. We also reviewed applicable contract bundling laws, policies, and regulations. As agreed, unless you publicly announce its contents earlier, we plan no further distribution of this report until 30 days after the date of this letter. At that time, we will send copies of this report to the Administrators of the OFPP and SBA, and the heads of the 23 executive agencies held accountable by OFPP's strategy. We will also provide copies to others on request. In addition, the report will be available at no charge on the GAO Web site at http://www.gao.gov. If you or your staff have questions concerning this report, please contact me at (202) 512-4841 or by e-mail at cooperd@gao.gov, or James Fuquay at (937) 258-7963. Key contributors to this report were Johnetta Gatlin-Brown, Daniel Hauser, Julia Kennon, Mary Jo Lewnard, Sylvia Schatz, and Karen Sloan. In October 2002 in response to the President's tasking to develop a strategy to hold agencies accountable for contract bundling practices, the Office of Federal Procurement Policy (OFPP) issued "Contract Bundling: A Strategy for Increasing Federal Contracting Opportunities for Small Business." The status of the strategy's nine action items, as of February 25, 2004, is presented below. OFPP required OSDBUs from 23 agencies to report quarterly on implementation of OFPP's contract bundling strategy. Table 2 summarizes agency responses to the OFPP-directed metrics for fiscal year 2002. The FAR Council and Small Business Administration issued final rules in 2003 amending the bundling requirements in the FAR and SBA regulations (effective October 20, 2003). These amendments implemented recommendations in the Office of Management and Budget's October 2002 report "Contract Bundling: A Strategy for Increasing Federal Contracting Opportunities for Small Business." The following table summarizes the changes and new mandates incorporated in the amendments. Contract Management: DOD Needs Measures for Small Business Subcontracting Program and Better Data on Foreign Subcontracts. GAO-04-381. Washington, D.C.: April 5, 2004. Small and Disadvantaged Businesses: Most Agency Advocates View Their Roles Similarly. GAO-04-451. Washington, D.C.: March 22, 2004. Reliability Federal Procurement Data. GAO-04-295R. Washington, D.C.: December 30, 2003. Small Business Contracting: Concerns About the Administration's Plan to Address Contract Bundling Issues. GAO-03-559T. Washington, D.C.: March 18, 2003. Small Business: Trends in Federal Procurement in the 1990s. GAO-01-119. Washington, D.C.: January 18, 2001. Small Business Subcontracting Report Validation Can Be Improved. GAO-02-166R. Washington, D.C.: December 13, 2001. Small Business: Limited Information Available on Contract Bundling's Extent and Effects. GAO/GGD-00-82. Washington, D.C.: March 31, 2000. How Selected DOD Consolidation Efforts Affected Small Business Opportunities. GAO/NSIAD-83-30. Washington, D.C.: August 12, 1983.

Summary:
To achieve efficiencies and respond to procurement reforms, agencies have consolidated their procurement contracts--that is, combined existing smaller contracts into fewer larger contracts. To ensure contract bundling--a subset of contract consolidation--does not unfairly disadvantage small businesses, the President tasked the Office of Management and Budget (OMB) to develop a strategy that would hold agencies accountable for contract bundling practices. In October 2002, the Office of Federal Procurement Policy (OFPP) within OMB issued its strategy. This report discusses the extent to which contracts were bundled in fiscal year 2002 and assesses the potential effectiveness of regulatory changes that have recently resulted from OFPP's strategy. In contrast to data captured in the Federal Procurement Data System (FPDS), only 4 of the 23 agencies held accountable by OFPP's strategy reported a total of 24 bundled contracts in fiscal year 2002--far fewer than the 928 contracts identified as bundled in FPDS. Agency officials, after researching their contracts, determined that the bundling data in FPDS were miscoded due to confusion about the statutory definition of contract bundling, inadequate verification of information, and ineffective controls in the FPDS reporting process. For example, about 33 percent of FPDS contract actions identified as bundled were miscoded, because they were awarded to small businesses. By definition, a small business is essentially precluded from being awarded a bundled contract. The Department of Defense, which reported the second largest number of bundled contracts, determined that only 8 of the 109 contracts identified as bundled in FPDS met the statutory definition of a bundled contract. Although the actual number of bundled contracts reported by agencies is small, concerns about the effect of contract bundling on small businesses remain. According to OFPP, the primary goal of its strategy--and the resulting regulatory changes--is to increase small business federal contracting opportunities. Because new regulations have only recently been established, it is too early to determine whether agencies are achieving this goal. In addition, part of OFPP's strategy--to identify and disseminate best practices for maximizing small business contract opportunities--has not been implemented. Yet even with time and guidance, it could be difficult to assess the effect of the recent regulations, in part because any increases in small business contracting opportunities could be attributed to other factors. For example, the largest procuring agencies have a history of seeking opportunities to increase small business contracting, and according to the General Services Administration, nearly 80 percent of Federal Supply Schedule contracts are awarded to small businesses. Further, because the regulations primarily relate to contract bundling--an activity most agencies report they do not engage in--the regulations may have little impact on increasing small business contracting opportunities. Nevertheless, certain regulatory changes--especially those related to oversight--have the potential to promote greater small business opportunities. For example, the new regulations require agencies to annually assess the extent to which small businesses receive a fair share of federal procurements, the adequacy of contract bundling documentation and justifications, and actions taken to mitigate the effects on small businesses of necessary and justified contract bundling. However, the new regulations do not establish metrics to measure agency accountability, and past data on bundling and its effects on small businesses have been limited and unreliable. Without metrics and reliable data, it will be difficult to gauge agency efforts to identify and eliminate contracts that are unnecessarily bundled.