Behind the Spike in Contract Bundling and How It’s Hitting Small Businesses the Hardest

If LaJuanna Russell had to guess, she’s missed out on hundreds, if not thousands, of federal contracts throughout her career as a small federal contractor. And it’s not for a lack of expertise. 

Russell’s familiarity with what insiders dub govcon dates to the 1990s, when she worked at a number of federal contractors after graduating from college. By 2005, she’d decided to start her own. With Business Management Associates, out of Alexandria, Virginia, the entrepreneur provides HR services and data analytics to the government. Her firm, which sits “side by side the federal HR workers,” includes managing job descriptions and ensuring that the federal security classifications assigned to roles make sense.

The government apparently needs a lot of help with HR—BMA hit Inc.’s list of the fastest-growing private companies in America for four consecutive years beginning in 2015. 

But that success has been harder and harder to come by. In recent years, Russell says the work she pursues gets lumped in with other tasks, which then get lumped in again with other assignments, until the job snowballs into something that can’t be taken on by a small business such as BMA.

This practice of consolidating federal procurement contracts, known as contract bundling, is seen as spurring efficiencies and savings for agencies—and, by extension, taxpayers—as it can create economies of scale. But contract bundling also creates a barrier to entry, as scores of businesses like BMA can no longer vie for contracts, which can become too big and too complex once bundled.

“I would estimate there were 10 to 12 opportunities that we had to stop [pursuing] because of bundling,” says Russell. 

She’s not alone. In 2023, as the number of bundled government contracts hit a 10-year high at $79.6 billion, 558 small businesses were displaced, according to data from the U.S. Small Business Administration that obtained through a Freedom of Information Act request. A year earlier, 1,293 small businesses had been displaced from procurement. When bundling spiked more than 2,000 percent under the Trump administration, a prior SBA report found that in 2021 about 1,150 small businesses were displaced.

There were 104,355 small businesses working with the government in fiscal 2012. By fiscal 2023, there were 61,298.

Bundling, it seems, is bipartisan.

The Big Business of Bundling

The first mention of contract bundling on record appeared in 1982, when the Department of Defense released its first policy statement on bundling, formally referring to it as consolidation, and offered guidelines for what agencies must consider when bundling. The practice was so prevalent in the late 1990s that Congress passed legislation to curb it. The Small Business Act was amended in 1997 to, among other things, require federal agencies to submit reports to the SBA to justify their decisions to bundle contracts.

Even so, the practice has continued apace. While around $3 billion worth of contracts were bundled in 2018, a year later that number had spiked to $40.1 billion, and then hit $64 billion in 2020. The next year, bundling sank to $7.9 billion, but then quadrupled by 2022, rebounding to $29 billion. In 2023, bundling soared by more than $50 billion.

Part of the increase in bundling can be attributed to a then-budding business-efficiency concept known as category management. That movement to consolidate redundant spending within the government kicked off in earnest in 2017, according to Deniece Peterson, a senior director of federal market analysis at Deltek, a Herndon, Virginia-based software and information solutions firm.

Rather than have different agencies create duplicate contracts for the same products and services, category management has a single contract serve multiple entities. As a result, a good chunk of federal spending is going to indefinite delivery and indefinite quantity (IDIQ) contracts, or government-wide acquisition contracts, according to Peterson.