Contract bundling stacks the deck against small business

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A report released by the Office of Advocacy (OA) of the Small Business Administration is aimed at giving businesses like Colorado Springs-based Complete Office Products and Rhino Office Products a level playing field when it comes to selling products and services to the federal government and the military.

Several local office supply companies had previously credited a significant amount of sales to area military bases. Not only were some of those sales lost because of bundling, but another threat has emerged in the form of a purchasing directive apparently sent to Fort Carson from Fort Campbell, Kentucky. It advises those who have purchasing power at Fort Carson order supplies or services only from a list of 12 approved national vendors, said one disgruntled business owner.

The advocate’s office said “contract bundling,” or the combining of two or more contracts for goods or services previously requisitioned under separate, smaller contracts gives a competitive advantage to a select group of large businesses. Contract bundling was intended to reduce the government’s workload by consolidation.

Local vendors impacted by contract bundling say it has cost them many thousands of dollars.

David Arnsteen, co-owner of Colorado Springs-based Rhino Office Products, said his company has been hurt by bundled contracts.

“The impact is yet to be seen, but there is a great concern (over lost business),” Arnsteen said.

The same goes for Corporate Office Products.

“It goes against a competing, open market,” said Michael Johnson of Corporate Office Products. “And it keeps us from business we were doing in the past.

“We rely, as do a lot of small companies here in Colorado Springs, on the revenue we get from doing business with the military installations here,” added Johnson.

During a conference call from Maryland, Thomas M. Sullivan, chief counsel for the OA, said many small businesses are shut out of government contracts because of the practice. He said small businesses received only 16.7 percent of bundled federal contracts in fiscal year 2001, and just 20 percent of all federal prime contract dollars. Most of the bundling occurs in defense contracts.

“President Bush has directed his Office of Management and Budget to attack this procurement problem,” Sullivan said.

The Business Journal placed calls to both Fort Campbell and Fort Carson seeking comment on the issue, but the calls were not returned by deadline.

The conference call originated at the George W. Allen Company, a Beltsville, Md., office supply company. Owner Mike Tucker said bundling reduced his business from federal agencies from 80 percent to 65 percent over the past three years, knocking about $1 million yearly from his bottom line.

The SBA contracted with Eagle Eye Publishing to investigate the practice, and its 60-page report revealed the depth of the issue. High spending by the Department of Defense focuses attention on its bundling practices, the report said. They resulted in 55 percent of contract dollars being bundled between fiscal year 1992 and 2001.

President Bush announced in his small business plan in March that one of his goals is to improve small business access to government contracts by avoiding unnecessary contract bundling, streamlining the contract appeals process, and insuring that contracts are open to all businesses.

The blow to small business stems from the nature of the contracts, officials said. Large and multifaceted, they often surpass the financial and administrative capabilities of a small business, excluding them from competing.

“Though contract bundling may appear to make the process of purchasing more efficient,” said Sullivan, “there are long-term costs with reduced competition and limited choice.”

Tucker said he couldn’t bid on contracts because he cannot service federal clients nationally. “We don’t have the ability to do something on a next-day, national basis. But on a local basis we sure can compete.”

Additionally, in a position paper on contract bundling, the National Association of Women Business Owners said it discriminates against small business. “The federal government spends nearly $200 billion per year on procuring goods and services. Small businesses have for years competed for these contracts and provided quality goods and services for government agencies. The way the federal government decides to allocate these contracts can play a vital role in the success or failure of many small businesses,” NAWBO said.