Consolidation hindering small firms' opportunities

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Consolidation hindering small firms' opportunities

Bundling, vendor merges helps expedite choosing process, but practice makes access the biggest hurdle

By Marton Dunai
Contra Costa Times
December 29, 2006

For a small business, the most lucrative clients are large corporations and the government. However, as both began to restrict access to their procurement in recent years, hoping to get better deals, smaller contestants increasingly have been left out in the cold.

The process goes two ways. Vendor consolidation means corporations choose a handful of preferred suppliers, typically robust ones, to take the place of hundreds of jockeying contestants. They maintain competition, but reduce the time spent selecting the winner.

Bundling is the bulk form of procurement, when buyers purchase product groups, rather than individual products and services, hoping to get better deals.

According to a 2002 study sponsored by the Small Business Administration's Office of Advocacy, less than half of bundled prime contracts went to smaller firms, accounting for less than a fifth of the total dollar value. Both numbers show a decline.

Meanwhile, bigger businesses got more than a third of bundled contracts, accounting for 75 percent of the total dollar value. Both figures were on the rise.

The SBA study examined government procurement, but large corporations use many of the same methods to keep their costs down. They bundle contracts and consolidate supplier bases, too.

As fewer businesses get the chance to compete for larger contracts, smaller companies will have a harder time than ever to get deals. Even the law that defines bundled government contracts says they are "likely to be unsuitable for award to a small-business concern."

The reason: such contracts may involve too large a project, too much money or too wide a geographical stretch for small firms to handle.

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