Small businesses could do more work with the Pentagon if it eases up on the practice of bundling contracts, advocates for smaller contractors told lawmakers.
Linda Hillmer, chairwoman of the National Defense Industrial Association’s Small Business Division, told a House panel Monday that while the Pentagon is worried about a hollow force in the military, it should “also be concerned about a hollow small business industrial base.”
“One of the acquisition approaches bringing about this hollow small business industrial base is the increased use of bundling” contracts for weapons acquisitions, she told the House Armed Services Committee’s (HASC) Panel on Business Challenges within the Defense Industry.
She said bundling of contracts “appeared to be a logical answer to meeting wartime requirements” when the military was facing “a war on two fronts, increasing budgets, and a stretched acquisitions staff.”
“We’re now in a different time however, and different solutions are required,” said Hillmer, who also is the president and chief executive officer of Hillmer, Inc., a defense contractor.
She said bundling hurts small businesses by, for example, putting them in a “dependent subcontracting role, well hidden from government decision makers.”
“It keeps us at arms’ length from the government program managers who set the requirements,” she said. “It also means that the government contracting leaders who make all the acquisition strategy decisions do not see the small businesses who are performing the work under the primes.”
Hillmer maintained that bundling contracts hurts the Pentagon as well.
“Bundling means the government pays twice on overhead,” she testified. “It pays for the prime and again for the sub.”
She further argued that bundling “hurts the government by attacking quality,” because larger prime contractors are “putting the squeeze on small businesses” within fiscally constrained contracting arrangements.
“This may mean lower costs for DOD, but at what ultimate cost?” she asked.
Hillmer said she sees the practice of bundling as “a symptom of a much larger issue” at the Pentagon regarding its perception of small business.
“It’s an issue that requires the meaningful inclusion of small business in all funded requirements,” she said. “It needs to be the responsibility of three players: the requirements community, which has the need and the money and forecast requirements; the acquisition community, which commits the funding and sets the acquisition strategy; and the small-business directors, who have the responsibility to meet the federal small-business goals.”
Lynn Schubert, president of The Surety and Fidelity Association of America, a trade association of insurers who write surety bonds, also expressed concerns about defense contract bundling to the HASC panel on Monday.
“Bundling is a tremendous problem with (Department of Defense) DoD projects,” Schubert said. “While this may assist in administration of the contract for the DoD, it directly impacts the ability of small- and mid-size contractors to perform the contract and consequently to get the required surety bonds.”
She said to help small contractors, federal procurement rules should be changed to contain “both mandates and incentives to break construction contracts into smaller parts.”
The HASC created the Panel on Business Challenges within the Defense Industry last September, saying it will “examine the current defense business environment, to identify contracting or regulatory issues facing the defense industry; the use of incentives and mandates to meet established goals; structural challenges facing various sectors within of the industrial base, including universities and research institutes; impact of the current fiscal environment on the defense industry, at both the prime and subcontractor levels; and opportunities to reduce barriers to entry.”
Panel chairman Rep. Bill Shuster (R-Pa.) has said that while the panel is charged with looking at how all-sized businesses struggle to do business with the Pentagon, he is focusing on the small-and-mid-sized firms.