WASHINGTON – Carmen Ortiz-Larsen is fighting for her share of the $234 billion federal contract pie.
Her Chevy Chase technology company, Automated Quality Applications and Systems, or AQUAS Inc., has done database management and information technology consulting for the U.S. Treasury and the Agriculture and Commerce departments.
But as more and more federal contracts are “bundled” — lumped together into one large contract — small businesses are being squeezed out of the picture, especially women and minority owned companies, said Ortiz-Larsen.
“Contract bundling does not work for small businesses that compete for federal contracts or for the American taxpayer,” said Hector V. Barreto, administrator of the Small Business Administration.
The White House offered a possible solution to the problem last week when it unveiled a new initiative that aims to increase small business involvement and reduce contract bundling. The nine-point plan essentially requires agencies to justify contract bundling and puts the responsibility for attracting minority- and women-owned businesses on department and agency heads.
The move is winning praise from both business groups and tax watchdogs.
National Taxpayers Union spokesman Pete Sepp said contract bundling has not delivered the promised savings, and it often excludes smaller companies with innovative and more efficient ideas. Sepp calls the new strategy a “smart step” to eliminating waste.
“It’s always been a challenge to find a balance between consolidation and conservation in spending,” Sepp said. “It’s apparent that the pendulum has swung too far in the direction of consolidation.”
Contract bundling happens when several federal contracts are grouped together and offered as one. Ortiz-Larsen, a member of the Maryland Hispanic Chamber of Commerce, said that the single contracts are often too large for small businesses to compete on against bigger companies.
“We could conceivably bid on it,” she said. “The people who are doing the assessments are no longer looking at our ability to do the job.”
The change is particularly important in Maryland, where businesses were awarded over $10 billion in federal contracts in 2001, and over the past five years received the fourth-highest amount of contract money in the nation.
Rep. Al Wynn, D-Largo, said contract bundling is the worst problem facing small businesses in Maryland.
“A lot of Maryland businesses depend on federal contracts to survive,” he said.
While current rules on contract bundling mandate that the work be subcontracted to minority- and women-owned businesses, Ortiz-Larsen said going to large companies is like “begging” and more of a “beauty contest.”
“When you have to subcontract for work from a big company, the question ultimately is, `How cheap can you go?'” she said. “You’re forced as a small business to take an approach that may not be beneficial to your company.”
The Small Business Administration reports that for every $100 awarded in a bundled contract, small businesses lose $33 because of cost-cutting in the bid process. Giovanni Coratolo, director of small business policy at the U.S. Chamber of Commerce, said that economies of scale do not allow small businesses to compete.
Small businesses “look for government contracts as a vehicle to start and grow their businesses,” Coratolo said. “Bundling doesn’t help.”
Coratolo said the president’s new policy is vague, but it will demand a greater level of accountability in subcontracting to smaller businesses.
“We know that small business can’t make a Boeing airplane or fighter jet alone, but a lot of them can do it together,” he said.
Wynn said he applauds Bush’s effort, but it does not go far enough.
“What we need is a mandate from the executive office saying, `Thou shall not bundle,'” he said.