Small businesses concerned over the impact of the Federal Strategic Sourcing Initiative received a bit of good news from the Small Business Administration last week.

SBA ruled April 3 that the General Services Administration did not conduct an adequate assessment of the impact the Office Supplies 3 strategic- sourcing vehicle would have on small businesses. The Small Business Act requires agencies to determine whether new contracts would have a negative impact on small firms. The act also gives SBA the oversight to make sure this analysis is completed appropriately.

SBA provided its decision to the Government Accountability Office April 3 as part of GAO’s review of several protests of the OS3 request for proposals submitted by small businesses in February.

The protestors allege the office supplies strategic-sourcing vehicle would have and is having negative economic consequences on hundreds of companies who haven’t or likely aren’t going to receive one of these awards.

GSA said it expects to award more than 20 firms a spot on OS3 that could be worth $1.25 billion over five years.

Decision isn’t binding

More than a dozen small firms submitted a protest to GAO shortly after GSA issued the request for proposals for OS3. GAO asked for SBA to review GSA’s analysis and offer an opinion.

Tony Franco, a procurement attorney with the Washington law firm PilieroMazza, which specializes in small-business contracting, said SBA’s decision is not formal and doesn’t have a binding effect on GSA.

“The memorandum is certainly persuasive and well-grounded,” Franco said. “Based on the memorandum, the GAO has a strong basis to sustain the protests. This GAO protest and [SBA’s] memorandum highlight the tension between streamlining procurements and protecting federal contracting opportunities for small businesses.”

SBA said GSA’s impact analysis failed on two main accounts.

SBA said it disagreed on GSA’s claim that OS3 is a follow-on contract to OS2 and therefore is not a consolidation-of-contract-requirements subject to the provisions of the Small Business Act.

SBA also said GSA’s argument that it is “contrary to law” to provide an economic analysis on the consequences of small business on a consolidated contract is wrong.

“First, the plain language of the statute states that consolidation of contracts occurs when an agency combines two or more requirements of the federal agency for goods or services that have been provided to or performed for the federal agency under two or more separate contracts (performed by either small or large businesses) lower in cost than the total cost of the contract for which the offers are solicited,” the decision stated. “In this case GSA is combining several requirements of GSA and number other agencies that have been provided to or performed for GSA and numerous other agencies under more than two separate contracts, each undeniably lower in cost than the total cost of the contract of $1.25 billion. GSA’s own consolidation analysis acknowledges that agencies throughout the government have their own contracts or blanket purchase agreements for office supplies or purchase these items using the purchase card.”

SBA also says when Congress created the new contract consolidation provisions in the Small Business Act, it clearly wanted agencies to consider potential negative results these actions could have.

“In this case, GSA performed no negative impact assessment other than the following: ‘Another matter of interest is the impact of potential reduction in sales for small businesses not chosen as an OS3 CLIN provider. GSA has considered this potential negative impact on small businesses but has determined the benefits to be gained through OS3 CLINs will outweigh the negative impact,'” SBA stated. “The above two sentences hardly seem like the thoughtful analysis Congress would have wanted on this important issue.”

Multiple emails to GSA seeking comment on SBA’s decision about OS3 were not returned.

Four reasons why OS3 is ‘bad for taxpayers’

Rep. Sam Graves (R-Mo.), chairman of the Small Business Committee, said in an email to Federal News Radio, that SBA’s decision shows GSA continues to ignore the clear intent of Congress.

“The OS3 contract is a bad deal for taxpayers and small businesses for four reasons,” Graves said. “First, when GSA failed to properly identify OS3 as bundled or consolidated, it then ignored the statutory requirements that it justify and mitigate the decision to bundle or consolidate the contract requirements. The committee recently marked up H.R. 4094, the Contracting Data and Bundling Accountability Act of 2014, to address this very issue. Second, the way GSA structured OS3 circumvented all the tools provided by Congress to ensure that only legitimate small businesses benefit from preferences given to small firms. Third, this contract will force hundreds of small businesses out of the federal marketplace, which will limit competition for years to come. It is particularly disingenuous of GSA to claim that small businesses can still sell through Schedule 75, when GSA closed this contract to new companies several years ago, and the agencies responsible for approximately 90 percent of federal spend have committed to using OS3. Finally, including the requirements covered by OS2 in OS3 will not save taxpayers any money. The majority of the savings GSA accrued under OS2 came not from the OS2 awardees, but from other businesses on Schedule 75 reducing their prices. There are no projected savings for those parts of OS3 that were covered by OS2, which means that GSA is excluding hundreds of small businesses from a competition with no expectation of additional savings.”

But despite Graves’ claims that OS3 isn’t going to save money, GSA recently updated its Strategic Sourcing website detailing how agencies are faring in using OS2 and the three other vehicles under FSSI for the first quarter of fiscal 2014.

GSA said OS2 in 2014 has saved $8.9 million through FSSI and small firms have won 78.1 percent of all task orders, worth a total of $40.2 million.

The agency said it expects OS3 to save the government $65 million annually on administrative costs plus an additional $90 million in annual savings captured through lower prices.

One of the GSA’s goals under the Performance.gov site is to save $255 million by fiscal 2015 across all FSSI vehicles.

The President’s Management Advisory Board (PMAB) will hold its next meeting on April 25, where it likely will cover FSSI progress.

A broader cost-benefit analysis needed

But the negative impact the Federal Strategic Sourcing Initiative (FSSI) is having or could have on small firms has been central to the argument many are making for why this initiative isn’t good for the government no matter the cost savings.

“The SBA Letter effectively admitted that a cost-benefit analysis of the FSSI program was not performed to evaluate the impact on small business,” said Sam Bornstein, a professor of accounting and taxation at Kean University’s School of Business in Union, N.J., and a partner in Bornstein & Song, CPAs and Consultants, who has been one of the major critics of strategic sourcing over the last five years. “Bornstein & Song stresses that the most significant ‘cost’ is the economic and social cost of job loss. Not only will this ‘cost’ impact small businesses, as this will result from the FSSI displacement of small businesses, but even more important this ‘Cost’ will have a significant negative impact on the U.S. economy. Since Jobs are necessary for economic recovery, the damage caused by FSSI by the loss of jobs is most critical.”

Bornstein said neither GSA nor the Office of Management and Budget has performed a cost-benefit analysis which would have shown how damaging the FSSI has been for the initial FSSI for Schedule 75 office supplies.

Franco said should GAO uphold the protests, it would be “prudent” for GSA to conduct a more thorough analysis in the future.

“GSA and other agencies should ensure they fulfill the requirements of the Small Business Act in engaging in an analysis of the negative impact of a consolidated contract on small business concerns-or else this exact issue will continue to be raised in protests, and [SBA’s] memorandum will provide a good outline for those protestors,” he said.

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