“Bundle” of Joy?

1. “Bundle” of Joy? Contract Bundling: The Way Ahead NCMA NOVA Chapter Workshop 3 February 2005 Colonel Rick O’Keeffe U.S. Army Contracting Agency

2. Disclaimer • Opinions herein are expressed by me as an individual member of the legal profession. • They do not represent the views of the NCMA, the Army Contracting Agency, the Army, or the DoD. • This presentation is void where prohibited by law.

3. Agenda • 3 Bundling Challenges • 1 Harsh Reality • 3 Potential Solutions

4. First … the Bad News

5. Bundling will make you popular with your customers ....

6. 3 Bundling Challenges • Small Business Act • Sec. 801, 04 DoD Authorization Act • Competition in Contracting Act

7. What do these challenges have in common?

8. 3 Bundling Challenges • Small Business Act • Sec. 801, 04 DoD Authorization Act • Competition in Contracting Act

9. Small Business Act 15 U.S. Code Sec. 631(j)

10. Small Business Act –15 U.S. Code Sec. 631(j) • Agencies must “avoid unnecessary and unjustified bundling of contract requirements that precludes small business participation in procurements as prime contractors.”

11. Small Business Act –FAR 2.101(b)Bundling Definition • Consolidation of 2 or more requirements • Previously provided or performed under separate, smaller contracts • Into solicitation for a single contract • Likely to be unsuitable for SBC award • Due to diversity, size, specialized nature, dollar amount, geographical dispersion.

12. Small Business Act –FAR 7.107 Benefits Analysis • Standard: Bundling is necessary and justified if the Government obtains “measurably substantial benefits.” • Benefits must be quantified and explained. • Per se substantiality: 10%/5% rules. • SAE waiver for mission critical situations if acquisition strategy maximizes SBC participation.

13. Help is available

14. Sec. 801 Consolidations FY 04 DoD Authorization Act DFARS 207.170

15. Sec. 801 –DFARS 207.170-2 Consolidation Defined • Use of a solicitation to obtain offers for a single contract or a multipleaward contract; • To satisfy 2 or more requirements; • Previously provided or performed under separate, smaller contracts; • Into solicitation for a single contract; • This is lower in costthan the total cost of the contract for which the offers are solicited.

16. Sec. 801 –SAE Approval for Consolidations > $5MDFARS 207.170-3(a)(3) • Consolidation is “necessary and justified;” • Market research indicates benefits of consolidation “substantially exceed” those of “each possible alternative;” • In terms of quality, acquisition cycle, terms and conditions, or any other benefit; • Administrative or personnel savings alone are not enough.

17. Competition in Contracting Act (CICA) Bundling 10 U.S. Code Sec. 2304 41 U.S. Code Sec. 253

18. CICA Bundling Genealogy • In the beginning was Pacific Northwest Bell (1987) • Pacific Northwest Bell begat Airport Markings (1990) • Airport Markings begat National Customer Engineering (1993) • National Customer Engineering begat Better Service (1996) • Better Service begat Vantex (2002) • Vantex begat EDP Enterprises (2003)

19. Pacific Northwest 1987 “The Competition in Contracting Act of 1984 (CICA) generally requires that solicitations permit full and open competition and contain restrictive provisions and conditions only to the extent necessary to satisfy the needs of the agency. Because procurements on a total package basis can restrict competition, we have objected to such procurements where a total package approach did not appear to be necessary to satisfy the agency's minimum needs.” Echoes of the PastThis is nothing new

20. Pacific Northwest 1987 “The Competition in Contracting Act of 1984 (CICA) generally requires that solicitations permit full and open competition and contain restrictive provisions and conditions only to the extent necessary to satisfy the needs of the agency. Because procurements on a total package basis can restrict competition, we have objected to such procurements where a total package approach did not appear to be necessary to satisfy the agency's minimum needs.” EDP Enterprises 2003 “CICA generally requires that solicitations permit full and open competition and contain restrictive provisions and conditions only to the extent necessary to satisfy the needs of the agency. ...  Because of the restrictive impact of bundling, we will sustain a protest challenging a bundled solicitation, unless the agency has a reasonable basis for its contention that bundling is necessary.”  Echoes of the PastThis is nothing new

21. EDP Post-mortem – What went wrong? • A-76 cost comparison of Fort Riley Kansas logistics functions including food services, ammunition supply, and aviation maintenance • Small business set-aside • Doctrine-based bundling justification

22. EDP Post-mortem – What went wrong? • Issue No. 1: does the bundling restrict competition? • YES. • Issue No. 2: does this restriction “reflect the agency’s needs? • NO.

23. EDP Post-mortem – What went wrong? • Doctrine does not drive competition rules. • “The issue is not whether there are any potential offerors which can surmount barriers to competition by, for example, entering into teaming or partnering arrangements, but rather whether the barriers themselves -- here, bundling -- are required to meet the government's needs.”

24. Harsh Reality • Government customers really, reallylike consolidated contracts; • But, bundling rules are notoptional; • And, dealing with them is time-consuming, hard work; • PERIOD.

25. What is to be done?

26. Let a thousand (or three)flowers bloom • The “School Solution” • Divide and Conquer? • The Flagpole Test

27. The “School Solution”

28. The Air Force gets it right: Teximara, Inc. • A-76 study seeking to consolidate 9 engineering functions: housing, operation and maintenance, grounds and site maintenance, emergency management, utilities and energy management, engineering services, environmental management, resources management, and space management with • Community services, human resources, supply services, marketing and publicity, and weather support.

29. Aren’t we being just a liiiittle bit greedy?

30. Teximara, Inc. –Bundling Motivation • Manpower shortfall • Tight budget • Efficiency

31. Teximara, Inc. –Linkage Analysis – “Same old same old”? • “In addition, the linkage analysis included specific examples of the efficiencies generated from the overlap between the 14 functions in the RFP. Analyzing each function individually, the AF identified overlap with the other functions in terms of common skill sets, equipment, duplicate processes, and/or management and oversight, and cited examples of potential efficiencies and redundancies. For example, the AF compared the requirement for operations and maintenance with each of the other functions and identified areas of overlap and efficiencies. It then compared energy and utilities with each of the functions and identified areas of overlap and efficiencies, compared emergency management with each of the other functions, and so on for each of the 14 functions.”

32. Teximara, Inc. –GAO Praise – worth it? • “The record indicates that the underlying linkage analysis of functional overlaps and potential efficiencies was the result of several years of analysis, and that the resulting cost estimates reflected the considered opinions of technical and cost experts based on the statement of work, performance requirements documents, unit manpower documents, equipment and vehicle price lists, and their own expertise in consultation with other functional experts in the field. So on for each of the 14 functions.”

33. Divide and Conquer?

34. The “Divide and Conquer?” Concept • UNTESTED! • The Teximara route is very difficult and expensive. • Use a “market-driven” approach to harness the expertise of the commercial sector. • “You tell us” what is the smartest way to organize and administer multiple functions.

35. “Divide and Conquer?” How it could work • Solicitation advises potential offerors that Government may award one or more contracts containing all or combinations of the functions covered by the solicitation • Offerors required to propose plans for cross-training and cross-utilization of personnel among the functions. • Plans comparatively evaluated for award.

36. Evaluation challenge Does not eliminate, but only delays day of reckoning Customer pushback Solicitation is bulletproof Provides hard, defensible numbers Gives widest array of options to customer “Divide and Conquer”Turn-offsTurn-ons

37. The Flagpole Test

38. The Flagpole Test • UNTESTED! • May work best with consolidations that have been competed before. • Do as much “routine” market research as possible. • Look at what similarly-situated commercial firms do. • Thoroughly vet draft solicitation with industry. • Put out the solicitation and be prepared to fracture the combination if protests filed.

39. The Flagpole Test • DANGER! DANGER! DANGER! DANGER! • Appears cynical. • Use only with high degree of confidence based on best possible market research short of all-out Teximara analysis. • DANGER! DANGER! DANGER! DANGER!

40. The Flagpole Test -- Caution • Your mileage may vary.

41. Summary and Conclusion • Customers like bundled contracts often regardless of cost. • Bundling issues must be addressed. • There is more than one way to address the problem. • Take your lawyer to lunch frequently.

42. Questions/Discussion