Small businesses see this type bundling or consolidation as preventing them from receiving contract awards, effectively shutting them out of the market. Jennifer Jones explains the tiered system of approvals required by the FAR to represent small business interests.
From the “DEFENSE ACQUISITION UNIVERSITY” Article, ‘Contracting Concepts: Bundling and Consolidation’ By Jennifer Jones, Professor of Contract Management in the DAU South Region
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“Acquisition professionals sometimes find ourselves conflicted when trying to maximize our four guiding principles discussed in the previous article in this series: meeting customer needs, minimizing administrative costs, operating with integrity, and supporting public policies. This article addresses a classic example of this dissonance.
One way to meet customer needs with minimal administrative effort would be combining multiple requirements into one big contract. Makes sense, right? We award one big, perhaps indefinite delivery, contract. We get better prices (economies of scale) and reduce the time required to place orders after the contract award. We synopsize the big contract, but not the orders. Seems like a win—so much so that there was, at one time, a huge push to do “strategic sourcing,” which in effect meant combining like requirements (even across Services) into one or a few contracts. (See Additional Resources for more information.)
But wait. Is this too good to be true? Is there anyone who might object to this plan? The answer would be small businesses. Small businesses see this type of bundling or consolidation as preventing them from receiving contract awards, effectively shutting them out of the market.
Remember, one of our top public policies is to maximize small business opportunities to participate in government contracts as prime contractors and subcontractors.
Small Business Policy
Federal Acquisition Regulation (FAR) 19.201(a) states that “It is the policy of the Government to provide maximum practicable opportunities in its acquisitions to small business … concerns.” FAR 19.502-2 further states that every action for supplies or services over the micropurchase threshold (currently $10,000 in most cases) must be set aside for small businesses if there is a reasonable expectation that at least two responsible small business concerns will submit an offer and that an award will be made at fair market prices.
I have had just one experience with substantial bundling. The U.S. Marine Corps had multiple contracts for provisioning its troops. These included issuing items to individuals (e.g., uniforms) and to whole units (e.g., tents, cots). Some of the contracts were held by small businesses around the country. The Corps decided it made more sense to just use one company to manage it all. Doing so would reduce the amount of inventory we held, provide seamless material transfer, and save money. The resulting single large contract was beyond the scale and capability of a small business. So, we had to jump through the following hoops to get this acquisition strategy approved.
Consolidation, Bundling, and Substantial Bundling
So, how do we balance this lovely idea of combining requirements with supporting public policies and, specifically, small businesses? As you might expect, there is a FAR reference for that. FAR 7.107 establishes required special steps that we must take when our proposed contract involves consolidation, bundling, or substantial bundling. But first we must understand these terms.
FAR 2.101 defines consolidation or consolidated requirement as:
a solicitation for a single contract, a multiple-award contract, a task order, or a delivery order to satisfy-
(i) Two or more requirements of the Federal agency for supplies or services that have been provided to or performed for the Federal agency under two or more separate contracts, each of which was lower in cost than the total cost of the contract for which offers are solicited; or
(ii) Requirements of the Federal agency for construction projects to be performed at two or more discrete sites.
… “Separate contract” as used in this definition, means a contract that has been performed by any business, including small and other than small business concerns.
FAR 2.101 defines bundling as:
a subset of consolidation that combines two or more requirements for supplies or services, previously provided or performed under separate smaller contracts, … into a solicitation for a single contract, a multiple-award contract, or a task or delivery order that is likely to be unsuitable for award to a small business concern … due to—
(i) The diversity, size, or specialized nature of the elements of the performance specified;
(ii) The aggregate dollar value of the anticipated award;
(iii) The geographical dispersion of the contract performance sites; or
(iv) Any combination of [these] factors …
…”Separate smaller contract” as used in this definition, means a contract that has been performed by one or more small business concerns or that was suitable for award to one or more small business concerns.
Substantial bundling is defined in FAR 7.107-4(a)(1) as “any bundling that results in a contract or task or delivery order with an estimated value of $8 million or more for the Department of Defense.”
So, in plain language, consolidation involves combining smaller contracts into one bigger one. Bundling adds a twist that at least one of the smaller contracts was previously performed by or suitable for small businesses, and the bundled contract is not suitable for award to small businesses. Substantial bundling means the resulting combined contract will be over $8 million for DoD.
Acquisition Planning Steps
If the benefits are quantifiable, they must exceed 10 percent of the value of the consolidated contract with a total estimate of $94 million or less. If the consolidated contract is more than $94 million, the quantifiable benefits must exceed 5 percent of the contract value or $9.4 million, whichever is greater. But the SPE may determine that consolidation is necessary even if the benefits do not meet the required percentage, provided that it is critical to the agency’s mission success and the procurement provides for maximum small business participation.
Bundling. If the acquisition plan involves bundling, we must determine that the bundling is necessary and justified. To do so, we must demonstrate and quantify that the agency will obtain measurably substantial benefits compared to separate smaller contracts. The benefits must be quantified and may include any of the factors and meet the percentages noted in the Consolidation section above. The agency and the SBA will establish the costs for single smaller contracts either by comparing historical prices or through market research.
Substantial Bundling. The requirements for bundling apply also to substantial bundling, plus we must include benefits to be derived; specific impediments to small business participation; actions to maximize use of small business subcontractors; and anticipated benefits that justify its use. We must also list alternative strategies that would reduce the bundling and explain why we did not choose those alternatives. (See Additional Resources for Government Accountability Office [GAO] and court decisions on challenges to these analyses.)
Solicitation Provision. If anticipating a multiple award contract for significant bundling, we must include the provision FAR 52.207-6, Solicitation of Offers from Small Business Concerns and Small Business Teaming Arrangements or Joint Ventures (Multiple-Award Contracts). This provision states that the government will consider offers from small businesses, teams, or joint ventures.
Notifications. Whenever we intend to bundle requirements, we must notify the small businesses performing the prior smaller contracts at least 30 days before we issue our solicitation. Include the contact information for the Small Business Programs representative and keep a copy in the contract file. We are also encouraged (in bundling) or required (in consolidation or substantial bundling of construction) to publish the rationale for the decision in the Governmentwide Point of Entry (GPE or SAM.gov) before issuing the solicitation.
Defense Federal Acquisition Regulation Supplement 205.205-70 adds a requirement for DoD-funded actions. We must include a GPE notification of the intent to bundle and describe any measurably substantial benefits.
[T]he rules regarding consolidation and bundling are a prime example of the application of the FAR guiding principles. To balance the need to minimize administrative effort with the need to support public policy and small businesses, the regulation has created a tiered system of approvals.
If we plan to do a follow-on bundling or consolidation, the customer must provide us the amount of actual savings under the prior contract, a notification if these benefits would continue with continued bundling or consolidation and if the savings might be increased by dividing the requirement into smaller contracts suitable for small businesses, and a list of any requirements added or deleted for the follow-on. And, finally, the agency must include on its website a list and rationale for any bundled requirements and an agency policy statement on bundling.
Conclusion
In summary, the rules regarding consolidation and bundling are a prime example of the application of the FAR guiding principles. To balance the need to minimize administrative effort with the need to support public policy and small businesses, the regulation has created a tiered system of approvals. This is a classic example of how the FAR allows us discretion to do what is necessary to meet customer needs and obtain the best value solution.
Note, too, that a ruling in the pending FAR Case 2023-017 cited in Additional Resources may change the regulations on bundling.
DAU Resources
Read the full issue ofDefense Acquisition magazine
Jennifer Jones is an intermittent professor of contract management in the DAU South Region. She has worked in the defense contracting field for 44 years and holds a B.S. from the College of William and Mary.The author may be contacted at jennifer.jones@dau.edu.
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