Column: Bundled Deals--A Lose-Lose For Small Biz

Of the many hot-button issues that face small businesses, contract bundling may be the one that riles folks the most. Sure, consolidating several individual contracts into one big deal allows agencies to simplify the procurement process; but the downside for small businesses is that the bigger, more complex deals inevitably fall into the laps of huge, resource-rich systems integrators. And despite claims to the contrary from President George Bush, contract bundling isn't going anywhere anytime soon. But does that mean small businesses should devote time and resources to these alleged opportunities? Walk through a typical scenario and the answer is "not usually."

Let's say a federal agency incorporates a small-biz requirement into a bundled contract, probably as a feeble attempt to contribute to a quota set by the Small Business Administration. Of course, the designated amount doesn't come close to matching the scope of opportunities that existed before the consolidation of contracts, but that's besides the point.

Now suppose a small business decides to go for the deal. Before its name appears on any contract, that business needs to earn a place on a team that's bidding for the deal. Which team to choose?

The one with the greatest chance of winning the contract is led by an incumbent prime contractor that worked on another aspect of the project in the past or, in the case of a new initiative, has experience with the government agency on another project entirely. The odds are likely stacked in that team's favor, making the alliance an attractive option for the small business that wants a piece of the pie. But that also means more competition, as a plethora of other small businesses vie for the same valuable slot. Perhaps the small business sees that as too tough a way to get a foot in the door.

A second option for the small business is to ally itself with the team whose prime it has worked with before. If the previous partnership was a positive experience, the small business has a good shot at winning a space; if the partnership was a challenge, however, the small business and prime contractor may not want to go back down that road. But given that primes are typically enormous systems integrators, there's a good chance that the small business worked with a different division in the past than it would be working with now; if so, partnering with the same prime is as good as flying blind.

Let's be really optimistic and say that the small business earns a place on a team that wins the bid. Successful navigation of the bureaucratic system, right? Not necessarily. Revenue derived from the contract is minimal, at best, given that prime contractors often win bundled deals by shrinking the margin to nil.

Remember, the inclusion of the small business in that bundled contract was to satisfy a requirement--and little more. Sure, the prime is obligated to pass along work, but no one is peeking over the prime's shoulder to ensure that all players on the team get their fair share of the action. Instead, what usually happens is that the prime passes along a task order for $5,000 and is rarely heard from again.

Think that's an unrealistic scenario? Don't be so sure. Two companies listed as subcontractors for a large bundled deal right now stand as perfect examples. Their prime is Dell, the assigned task orders are few and far between, and the two companies are the contract's "token small businesses" (their term, not mine). That's not to say that either regrets signing on, or that the dollars that do filter in don't contribute to their respective bottom lines. But in a market where new opportunities arise from a proven track record, both companies concede that this particular contract does nothing to elevate their standing in the eyes of the federal customer or other systems integrators seeking skilled small-business partners. It may be tempting to blame Dell, if only other primes of bundled deals didn't handle them exactly the same way.

So, again, ask yourself the $100,000 question: Is going after these bundled deals really worth it for small solution providers? If you ask me, going after more conservative opportunities with fewer competitors and higher margins would be time better spent.