Federal Contract Bundling

An organization bundles the services that it purchases when it consolidates activities previously provided by separate sources and purchases the services through a single contract from a single provider. The Department of Defense is giving increasing attention to this practice because commercial firms report that bundling offers the potential for significant performance and cost benefits. However, the goals of the federal government differ from those of commercial firms in that federal regulations commit the Air Force and other federal organizations to place a fair proportion of purchases and contracts with small business enterprises and to maintain free and open competition among prospective providers of services to the federal government. Small businesses typically do not have the scale of operation or scope of expertise to provide bundles of services as prime contractors. The authors of this report discuss recent legislation designed to protect small businesses by ensuring that bundling occurs only when it is likely to generate measurably substantial increases in performance or reductions in cost to the federal buyer. After reviewing potential sources of such benefits, the authors propose a methodology that buying agencies could use to gather information on when and how to bundle the services they buy and justify those decisions in a way that satisfies the legislative requirements.