Break It Up!

This story appears in the April 1997 issue of Entrepreneur. Subscribe »

A bill to prevent defense contract "bundling" could help small firms get more business.

In the first day of the new Congress, a January day that gave the season's first premonition of snow, Rep. Albert R. Wynn (D-MD) introduced an "anti-bundling" bill that had nothing to do with preventing the use of winter jackets.

Bundling is inside-the-beltway shorthand for the practice by which the federal government lumps lots of small contracts together so they can be given to one large company. Small businesses have become increasingly concerned that federal agencies are bundling as a way of saving administrative costs. "We don't think there ought to be only mega-contracts that [only] mega-companies can service," emphasizes Jody Olmer, director of domestic policy for the U.S. Chamber of Commerce. She recently wrote to Daniel Golden, administrator of NASA, to express concern about one of his bundling initiatives, the Consolidated Contracting Initiative.

In October 1995, the House Small Business Committee held hearings on two contract consolidations, one having to do with the General Services Administration's use of air freight transporters, the other with the Defense Department's moving of household goods between military bases.

Concerns about bundling have heightened markedly lately as federal agencies began implementing the Federal Acquisition Reform Act (FARA), which President Clinton signed in February 1996. Commenting on that bill in May, the Small Business Administration said, "The new focus on government efficiency gives greater latitude to contracting officers to limit competition and, in some circumstances, to use simplified procedures that do not require full and open competition."

Small-business advocates such as Olmer say they recognize the realities of government procurement in tight times and are not saying there is never a need for consolidation. "You don't have to keep the status quo necessarily," Olmer says, "but there has to be some balance."

In the last Congress, on the heels of her committee's hearings and the passage of FARA, Rep. Jan Meyers, then chair of the House Small Business Committee, introduced remedial legislation called the Small Business Opportunity Preservation Act (H.R. 4313). It was introduced on September 28, 1996, too late in the session for the bill to move forward.

With Meyers' retirement, it appears Rep. Wynn is picking up that cudgel. He has reintroduced Meyers' bill. But he is not on the Small Business Committee, where his bill has been referred, nor is he a Republican. Given that the GOP controls Congress, it will probably be necessary for a senior Republican on the committee to take the leading role Meyers had assumed on this issue.

The Wynn bill, which is strongly supported by small-business groups, requires federal contracts that are bundled to be "supported by findings and an assessment" whose requirements are listed. These include toting up the benefits of bundling, specific adverse impacts on small businesses, and specific actions to ensure the participation of small business in the bundled contract.

The committee staffer who handled the issue for Meyers says if the Wynn bill is to move forward, small business will have to come to Congress with some tangible evidence of a particularly egregious instance of federal government bundling. "That is what it would take to make this a high-profile issue again," he says.

At least some federal agencies appear to be making an effort not to give Congress an excuse to jump into this issue. Last October, John White, deputy secretary of the Defense Department, issued a memorandum on consolidation of contracts. "When we plan for the consolidation of several contracts or requirements into a single larger contract," he wrote, "we must consider the impact on small, small disadvantaged, and women-owned small businesses." White outlined a number of policy considerations that must be taken into account before small contracts are lumped together. For example, he said contracts could be consolidated only if doing so "reduced life-cycle costs, improved services, or both."

Susan Haley, deputy director of the Defense Department's Office of Small and Disadvantaged Business Utilization, says it is too early to tell whether the White memo had an impact in local Air Force, Army and Navy procurement offices. The Defense Department does not keep statistics on bundling. "The memo has been extremely well received by small-business groups," she says. "But the proof of the pudding will be in the eating."

SBA Update

Beginning July 1, if your business makes $50,000 or more in 1995 federal employment tax deposits, you must use the Electronic Federal Tax Payment System (EFTPS) to make federal business tax payments. Companies that are not enrolled by July 1 will face a 10 percent penalty.

The Small Business Administration, in partnership with payroll services company Automatic Data Processing (ADP) Inc., is making the transition process easier by sponsoring a series of seminars where small-business owners can learn how to comply with EFTPS regulations.

Seminars will be held nationwide throughout the year. To find out about dates and locations for seminars in your area or to receive the free information packet The EFTPS Transition Kit, call ADP at (800) 225-5237, ext. 5032.

Not sure if your company needs to comply with the new rules? The IRS will notify businesses that are mandated to comply. However, about 5 percent to 10 percent of businesses do not receive IRS mailings due to errors such as incorrect addresses; therefore, you may want to initiate the process yourself. To receive an information package and enrollment application, call the TAXLINK Helpline at (800) 829-5469.

Ginger Lew

SBA Deputy Administrator

Payment Plan

Payroll taxes could be on the rise.

All three of the recommendations from a high-level Social Security Advisory Council endorsed higher payroll taxes, a notion that leaves most small-business owners queasy.

One proposal advocates increasing the 12.4 percent payroll tax by 1.6 percentage points in the year 2045, calls for some additional tax increases in much earlier years, and allows the federal government to invest about 40 percent of the funds in the stock market. Currently, Social Security revenues are invested solely in federal government bonds.

The second option ups the tax by 1.52 percentage points in 1998 and diverts 5 percent of the total into a personal retirement account whose proceeds are invested at the recipient's discretion. The third increases the tax by 1.6 percentage points in 1998 and also sets up a personal retirement account, but lets the federal government do the investing.

"We would oppose any proposal to increase payroll taxes," says John Satagaj, president of the Small Business Legislative Council, a Washington, DC-based coalition of 100 trade associations. "We think they should be reduced. We don't have a position on privatization of individual retirement accounts, though my gut feeling is that our members would feel they could invest their Social Security savings better than the federal government could."

p> Stephen Barlas is a freelance business reporter who writes monthly Washington columns for 15 magazines.

Contact Sources

House Small Business Committee, 2361 Rayburn House Office Bldg., Washington, DC 20515, (202) 225-5821;

National Association of Manufacturers, 1331 Pennsylvania Ave. N.W., Washington, DC 20004, (202) 637-3000;

Rep. Albert Wynn, 407 Cannon House Office Bldg., Washington, DC 20515, (202) 225-8699.