Impact of contract bundling and consolidation on defense acquisition system and defense industrial base: The case of the u.s. department of the navy
| Published date | 01 March 2015 |
| DOI | https://doi.org/10.1108/JOPP-15-01-2015-B001 |
| Date | 01 March 2015 |
| Pages | 1-37 |
| Author | Max V. Kidalov |
| Subject Matter | Public policy & environmental management,Politics,Public adminstration & management,Government,Economics,Public Finance/economics,Texation/public revenue |
JOURNAL OF PUBLIC PROCUREMENT, VOLUME 15, ISSUE 1, 1-37 SPRING 2015
IMPACT OF CONTRACT BUNDLING AND CONSOLIDATION ON DEFENSE
ACQUISITION SYSTEM AND DEFENSE INDUSTRIAL BASE:
THE CASE OF THE U.S. DEPARTMENT OF THE NAVY
Max V. Kidalov*
ABSTRACT. Despite Congressional and Presidential emphasis on reducing
bundling and consolidation of defense contracts, recent studies cast doubt
on whether such practices are problematic for small contractors or the
defense acquisition system. Those studies proposed that bundling and
consolidation are generally positive tools to procure best value. This paper
tests these propositions by examining relevant U.S. Department of the Navy
(DON) contracts for Fiscal Year 2010, when Congress reported record
bundling and consolidation in U.S. defense contracting. Specifically, the
paper looks to performance of Navy and Marine Corps buying commands in
meeting small business goals and other good-government objectives s uch as
competition, performance-b ased acquisitions, preference for commercial
suppliers, and support for the U.S. defense industrial base. The paper
recommends improvement s in targeted good-government practices as
measures to reduce bundling and consolidation.
INTRODUCTION
Bundling and consolidation of purchasing requirements into large-
dollar, broad-scope, wide-geography contacts is commonly regarded
as a major barrier to entry into the Federal, and especially the
Department of Defense (D oD), procurement market (House Armed
Services Committee [HASC], 2012; Kidalov, 2011). Since 1997,
Congress and Presidential administrations championed a series of
laws and policies to restrict these practices to instances of
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* Max V. Kidalov, J.D., LL.M., is Assistant Professor of Procurement Law &
Policy, U.S. Naval Postgraduate School, Monterey, CA. His teaching and
research interests are in the law of publi c and defense contracting. This
paper should not be construed as expressing offi cial U.S. Government views,
or as an attempt to advance or hinder passage of any legislation.
Copyright © 2015 by PrAcademics Press
2 KIDALOV
documented and unavoidable business necessity (Kidalov, 2011).
While the DoD and its component Department of the Navy (DoN)
adopted numerous regulations over the years to reduce bundling and
consolidation (DFARS Subpart 207.1, 2010; NMCARS Subpart
5207.1, 2010), the Government Accountability Office (GAO) has
confirmed that these practices have continued in recent years. (GAO,
2013). Academic research done a decade ago strongly supported the
need for tough anti-bundling initiatives in order to enhance small
business opportunities and promote competition. (Small Business
Administration, Office of Advocacy [SBA Advocacy], 2002 and 2000).
However, some recent studies cast doubt on whether consolidation
and bundling are problems for small business contractors (Moore et
al., 2008; Nerenz, 2007; General Accounting Office [GAO], 2004). In
particular, two recent studies suggested that bundling and
consolidation may be positive or even best-practice purchasing
activities with major benefits for the defense acquisition system or
supplier base (Moore et al., 2008; Nerenz, 2007). This study
attempts to resolve the conflict among those prior studies by
analyzing data on bundled and consolidated contracts awarded by
the DoN during fiscal year (FY) 2010 (FPDS 2011) as reported in the
Federal Procurement Data System–Next Generation (FPDS-NG).
FY2010 was specifically chosen because, according to the HASC
Panel on Business Challenges within the Defense Industry, the
combined volume of bundling and consolidation in U.S. defense
contracting reported that year reached a recent 6-year record of 224
contracts worth $21.1 billion (HASC, 2012); of those, the DoN
reported share was 44 contracts (about 20%) worth well over $0.8
billion (about 4%). This study addresses these contracts’ features,
the buying commands’ actions, and those commands’ records on
achieving small business contracting goals in order to resolve the
conflicts between the above-referenced studies.
BUNDLING AND CONSOLIDATION: THE LEGAL FRAMEWORK
Contract bundling and consolidation are regulated by a
complementary legal framework. Initially, contract bundling was
recognized as an implied cause of action invoked under the
Competition in Contracting Act of 1984 (CICA) to protest contract
solicitations as unduly restrictive of competition (Kidalov, 2011).
Eventually, beginning with the Small Business Reauthorization Act of
MPACT OF CONTRACT BUNDLING AND CONSOLIDATION ON DEFENSE ACQUISITION SYSTEM 3
1997 and continuing with the National Defense Authorization Act for
Fiscal Year 2004, Congress passed and Presidents Bill Clinton and
George W. Bush signed two laws establishing specific criteria to limit
and regulate bundling and consolidation (Kidalov, 2011; Manuel,
2010). For reasons of data validity and regulatory implementation
delays (GAO, 2013), this study does not address the effects of any
post-FY2010 legislative or regulatory changes, such as changes in
various dollar thresholds or recodifications of Title 10 legislation into
the Small Business Act. Rather, this study reflects only the laws and
policies existing at the time. The legal concepts of bundling and
consolidation substantially overlap, although “the rules that apply to
bundling are more restrictive” (Department of Defense, Office of
Small Business Programs [DoD OSBP], 2007, p. 1-4). “In the most
general terms, for DoD, a consolidation is the combining of two or
more previous contracts into a single solicitation, and a bundled
contract is a consolidation that is unsuitable for award to a small
business as a prime contractor even though one or more of the
previous contracts was performed (or could have been performed) by
a small business. To put it another way, a solicitation that
consolidates requirements does not always bundle them, but a
solicitation that bundles requirements always consolidates them.”
(DoD OSBP, 2007, p. 1-4).
The Small Business Reauthorization Act of 1997, codified in the
Small Business Act at 15 United States Code (U.S.C.) Section 632
and implemented in Part 125 of the SBA regulations (2010), defines
a bundled contract as “a contract that is entered into to meet
requirements that are consolidated in a bundling of contract
requirements.” In turn, this statute defines bundling of contract
requirements as “consolidating 2 or more procurement requirements
for goods or services previously provided or performed under
separate smaller contracts into a solicitation of offers for a single
contract that is likely to be unsuitable for award to a small-business
concern due to—(A) the diversity, size, or specialized nature of the
elements of the performance specified; (B) the aggregate dollar value
of the anticipated award; (C) the geographical dispersion of the
contract performance sites; or (D) any combination of the factors
described in subparagraphs (A), (B), and (C).” The term separate
smaller contract is defined in Section 632 as “a contract that has
been performed by 1 or more small business concerns or was
suitable for award to 1 or more small business concerns.” Factors
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