A pair of misguided bills

As the 106th Congress winds down, lawmakers are considering bills that,

in the name of helping small firms compete in the federal marketplace, could

cost taxpayers billions of dollars each year.

One of those, H.R. 4890, is an "anti-bundling" bill that would give

the Small Business Administration veto power over the contracting strategies

of all government agencies anytime a new contract "would result in the displacement"

of a small firm. If SBA — an agency with no stake in the ability of an agency

to buy — doesn't accept an agency's justification for the contracting strategy,

it could prevent the solicitation from being issued, subject only to appeal

to the Office of Management and Budget.

Furthermore, any agency not meeting all its small-business goals — currently

every agency for woman-owned businesses — would be prohibited from using

contract bundling.

Contract consolidation, or bundling, is a powerful tool for achieving

lower prices. Agencies get huge discounts on information technology when

they negotiate long-term deals with a small number of vendors rather than

buying onesies. By standardizing requirements for a number of drugs and

medical devices and bidding them out as single contracts, the Department

of Veterans Affairs saves 20 percent or more over previous prices.

Bundling also saves money and improves performance in some service contracts.

If one contract comprises many different kinds of work, a single prime can

more easily shift work to respond to peaks and valleys in demand than a

bunch of uncoordinated individual contractors. And the ability to pinpoint

responsibility to one prime encourages better performance by minimizing

opportunities for finger pointing.

That doesn't mean bun-dling is always appropriate or that abuses don't

occur. But over-regulation would condemn the federal government to paying

the same retail prices individual consumers pay. This is nonsensical.

A second bill, H.R. 4943, states that every "acquisition of goods or

services" using credit cards "shall be from small business concerns." This

would effectively end the credit card program.

Agencies give cards to program people because they do not need the expertise

of contracting folks to conduct those transactions. Put back a requirement

to buy from small firms and you lose that ability.

Agency legal offices simply won't permit program people to suffer the

exposure this new requirement would create. We'd return to the days when

every little purchase went through the contracts shop. Aside from the huge

cost of eliminating credit cards — the government saves about $1.1 billion

annually in administrative costs — this would create chaos because the procurement

people who processed those transactions are no longer part of the workforce.

These taxpayer-ripoff bills are being promoted as answers to an alleged

crisis for small business in the government marketplace. But there is no

such crisis. The idea that procurement reform has made it more difficult

for small firms would come as a surprise to the many high-tech start-ups

swarming into the government market.

According to Dendy Young, chief executive officer of GTSI Corp., which

markets IT products from vendors to federal customers, his firm is being

deluged by requests from high-tech start-ups to help sell their products.

"The interest of small, innovative IT firms in the federal marketplace is

at an all-time high," he said.

The dot-com invasion demonstrates a basic truth: In the procurement-

reform environment, small companies will prosper the way they always have — by offering something special to customers. By eliminating many previous

government-unique requirements, reform has actually made it easier for small

firms to compete.

To be sure, some small firms are suffering. But most ailing small firms

are having problems because they developed a niche in government business

for reasons other than customer satisfaction. Such firms need to reinvent

themselves — not ask for taxpayer-funded bailouts.

—Kelman, administrator of the Office of Federal Procurement Policy from 1993

to 1997, is Weatherhead Professor of Public Management at Harvard's John

F. Kennedy School of Government.


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