Velázquez, Chabot Challenge OMB on Procurement Policy

Nov 10, 2016

Washington, DC- Rep. Nydia M. Velázquez (D-NY), the Ranking Democrat of the House Small Business Committee, and Rep. Steve Chabot (R-OH), Chairman of the Small Business Committee, wrote to the Office of Management and Budget criticizing the implementation of Category Management, a procurement policy that has been shown to negatively harm small businesses.  

“Not only does Category Management lock entrepreneurs out of the federal marketplace, but it means agencies are paying more for goods and services, wasting taxpayer dollars,” Velázquez said. “I am proud to stand with small business contractors and join with Chairman Chabot in calling for an end to this harmful policy.”

“By moving ahead with its Category Management scam, OMB has decided to deny small businesses the ability to fully and fairly compete for federal contracts,” Chairman Chabot said. “I will continue to work with Ranking Member Velázquez and members of our Committee in a bipartisan manner to fight back against this destructive policy on behalf of American taxpayers and small businesses.”

The full text of the letter is below.

November 7, 2016

Ms. Darbi Dillion
Office of Federal Procurement Policy
Office of Management and Budget
1800 G Street NW
Washington, DC 20006

Re: Comments on Proposed New Office of Management and Budget Circular No. A-XX, “Implementing Category Management for Common Goods and Services.”

Dear Ms. Dillion:

We are writing this comment letter in our capacities as Ranking Member and Chairman of the House Committee on Small Business, which has jurisdiction over federal procurement matters that impact small companies.  We are alarmed that the Office of Federal Procurement Policy continues to move forward with Category Management despite its negative impact on not only small businesses but the agencies which use its contracting vehicles.

Earlier this year, we wrote a letter to Administrator Denise Turner Roth at the General Services Administration detailing the impact this strategy has had on small businesses.  In numerous hearings conducted by the Committee, we have found that though Category Management has been billed as the strategy that can get agencies the lowest price, all evidence points to the contrary.   Vendors on the Multiple Award Schedule (MAS) continually provide agencies with lower prices than those offered by Category Management contract holders.  Yet, agencies and contracting officers cannot take advantage of lower prices due to the fact that some Category Management vehicles have become mandatory by their agency. Ultimately, this results in wasteful spending of taxpayer dollars by agencies, forcing them to pay more than necessary for goods and services.  The proposed Circular will exacerbate this problem as it plans for mandatory vehicles government-wide.

Additionally, the contracting vehicles that have resulted from Category Management have reduced the overall number of businesses that have been able to compete for contracting opportunities.  Many of these vehicles have bundled so many goods together in one contract that previously qualified small businesses can no longer fulfill the requirements, despite having previously provided some of the goods or services under the MAS contracts. As a result, the number of small firms serving as suppliers to the government in certain areas has been reduced from hundreds to just a few handfuls.

This is worrisome for a number of reasons. First, it reduces competition between firms holding Category Management contracts, providing relatively little incentive to lower prices. Furthermore, the Category Management may reduce the industrial base as it is unclear whether firms not awarded a contract under Category Management vehicles will be able to keep their doors open.  With contracting officers and agencies forced to use Category Management contracts, many small firms will be excluded from the federal marketplace entirely, thus preventing robust competition that is needed to ensure agencies receive the best value for goods and services.

The issues of Category Management and strategic sourcing have been raised in numerous hearings before the Committee.  During these meetings, we have heard small businesses recount the severe and sometimes devastating impact these strategies have had not only on their bottom line and their employees but also their federal agency customers.  We have attached the transcripts of these hearings so that you may see the full impact these policies have on the small firms.  

Lastly, we would like to express our frustration at the process the Office of Federal Procurement Policy has used in soliciting comments for the proposed Circular.  Though this policy document will have far-reaching effects on businesses large and small as well as all federal agencies, your office decided to forego the customary 60-day comment period.  When Committee staff reached out your office to determine whether this period would be extended, they were told your office was working on a deadline and, as such, the November 7th deadline would stand.  This is simply unacceptable as many small businesses have not had opportunity to comment.  The process chosen has also not allowed for substantial analysis on the impact this policy could have on small business as no Regulatory Flexibility Act analysis occurred due to the nature of the change.  Furthermore, your office has not engaged in meaningful discussions with stakeholders as there has been no outreach done to either agencies or industry associations.

Therefore, we request that the Office of Federal Procurement Policy suspend any issuing of this proposed Circular until the office can evaluate the impact on small businesses.  Additionally, we request that the comment period be re-opened, allowing for more input from agencies as well as relevant industry stakeholders to be taken into consideration so as to ensure all businesses have access to contracting opportunities throughout the federal marketplace.

Sincerely,

Nydia M. Velázquez        
Ranking Member            

Steve Chabot
Chairman