Contract Bundling Pros and Cons

Name:
Instructor:
Course Title:Date:
CONTRACT BUNDLING PROS AND CONS
Introduction
Bundling is seen as the process of consolidating two or more requirements for goods or even services that were initially performed by separate businesses or entities. Bundling of contracts is mostly done to ensure there is a systematic, solid and suitable supplier of service or goods as opposed to small businesses that may lack the scope and capacity for contracting. A report by the Small Business Administration reveals the rate of bundled contracted awarded by federal agencies has attained an all-time high and thus hurting small enterprises (Congress Research Service, 2012). Contract bundling involves the accumulation of small tasks or crammed multiple tasks into single contracts in a way that small and medium-sized enterprises cannot send competitive bids for the contracts. It is important, however, to note that given that bundled contracts offer federal and state governments the capability to deal with a single supplier or contractor, they harbor multiple setbacks. This paper seeks to explore the benefits and demerits of contract bundling by both private and public sector entities. Of special concern for the paper will be to rely on particular sources of information including the Defense Federal Acquisition Regulation [DFAF], the Federal Acquisition Regulation [FAR], and other credible sources of information.
BENEFITS OF CONTRACT BUNDLING
Cost Saving to Sellers
Sources support that there are two major ways of making a purchase.

The first approach is the le carte and the second is through the packaged bundled. The former refers to smaller, independent and usually separate units of purchase whereby the customer can prefer one unit over another. A packaged bundle features an all-inclusive commodity or a whole unit that is void of smaller marginal costs associated with the le carte purchase strategy (Tjan 2). Based on the above two approaches, it is clear that bundled contracts awarded to enterprises offer significant advantages because the supplier can enjoy the inclusion of smaller marginal costs on the packaged bundle. Bundled contracts are therefore important particularly to sellers who may decide to include marginal costs or to charge the contract relatively higher than they would do on single, unbundled contracts. For instance, if the Department of Homeland Security wants to purchase 20 armored security vehicles, 50 sets of uniforms, 100 surveillance systems, and 500 different stationery, the department is likely to receive a higher price for all than from single units. Therefore bundled contracts can be expensive to the purchaser but attractive to sellers, mostly private sector businesses and corporations.
Single Bills over Multiple Bills
Contract bundling involves the consolidation of multiple contracts or tasks into a single contract. Bundled contracts are attractive to diverse procurement departments that may have problems tracking individual contracts and requirements. Bundling makes it possible to follow, finance, and communicate with a single contractor and track products or service from a single company or entity (Defense Department 4). As opposed to where three or more contracts are awarded to different suppliers, bundled contracts give federal agencies, government departments, and state corporations the ability to get a single bill that is easier to re-calculate and pay than three different bills from separate contractors. Contract bundling eases the process of procurement, it saves time on procurement officers and managers, and enable buyers (like companies and corporations) to track and monitor products and service more fluidly.
Negotiation
Perhaps the most instrumental aspect of procurement or even purchasing is negotiations. The negotiation process is a common scenario in organizations or corporations that procure on a regular basis. The process makes it easier to achieve significant cost-savings and to strike a deal that is appealing to the buyer and the seller. In situations of bundled contracts, Federal agencies, and public companies have to deal with a specific service provider or supplier – and thus ease the negotiation processes (Keyes 3). Some of the aspects considered in negotiations are the total quantity of goods and services, the price of each commodity, the time of delivery, and after-sale-privileges like assembling or maintenance. A principle advantage with bundled contracts is that they ease the negotiation process because buyers negotiate with a particular contractor – as opposed to multiple suppliers. By dealing with one contractor over a period, it would be faster, inexpensive, and time-savvy to negotiate on both large and small contracts. As such bundled contracts offer a negotiation privilege and enable two parties to build rapport over the long-term due to consistent or regular procurements and contracts.
LIMITATIONS OF BUNDLED CONTRACTS
Sticker Shocks
While consolidated contracts may attract cost saving, enable parties to negotiate and ease the procurement and tracking process, they feature a range of setbacks. The first limitation of bundled contracts is sticker shocks that result from the end of a promotion, the imposition of taxes on combined bills, and increased fees from the supplier. Sticker shock occurs when the supplier decides to raise the cost of products and commodities, when fees are imposed on consolidated contracts, and when taxes are levied on contracting bills. Therefore contract bundling may prove liability in the long-term due to changes in economy or transitions in the supply and distribution from established contractors. By working with single businesses and contracting them in the case of procurement requirements it is possible to achieve cost savings, and they may not necessarily feature sticker shocks like; end of promotions, increases in fees, and additional taxes on combined bills.
Need Matching
Contract bundling may not match the needs of a consumer or a buyer. The need to unbundle the contracts or to purchase through the le carte approach comes from the realization that one can acquire specific goods from different suppliers. Bundling contracts force the supplier to search for products and goods that are not at their disposal or warehouse. Contract bundling further pushes the supplier to find products that are not in their area of specialty. Consider a situation when a car manufacturer is awarded a contract by the United Nations Commission for Human Rights to supply trucks, tents, food-packaging materials, and car accessories and spare parts. The car manufacturer, based on the character of his line of work and the specialty of the profession, will best deliver the trucks and the car accessories. However, the supplier is not in a position to supply tents or food-packaging sacks and will have to outsource from a third-party. Unbundling or le carte procurement approach is significant as it prompts need-matching. More clearly contract bundling may not match the needs of the buyer given the diversity of the requested products, goods, or service.
Affects Small and Medium Enterprises
Contract bundling comes from the realization that the consolidation of different contracts will enable large corporations to track the supply and delivery of products easily. As opposed to a well-established firm, small businesses have challenges meeting the supply needs, partly because of the limited scope of operation and the size of the enterprise. Reports by scholarly sources support that bundling hurts small enterprises that do not have the capacity to meet the needs and requirements of consolidated contracts (Congress Research Service 2). As such, bundled contracts are seen as a reserve for large corporations with well-established market links, better supply chains and logistics, and experienced supplier personnel. Small and medium-sized businesses may not feature specific products in the bundled contract, they may not have the required logistics (like trucks and supply vehicles) to deliver and may fail to meet key pre-requisites set in the contract (Defense Department 3). As such contract bundling affects small and medium-sized enterprises as it, limit participation in open bids with competitive rates.
Conclusion
The practice of bundling contracts began when the Federal passed the Federal Acquisition Streaming Act at the middle of the 1990s. The legislation sought to ensure federal agencies and corporations could streamline both procurement and purchasing functions to enhance service delivery to the public (Congress Research Council 13). While bundled contracts prove a significant approach to procurement particularly to State corporations and Federal agencies, consolidation of contracts features multiple setbacks. The paper has discussed the pros and cons of bundled contracts revealing a range of findings. The contracts are imperative based on three key metrics; offer added-costs to suppliers, offer a single bill and make it easier to track goods, and finally feature negotiation privileges because the buyer deals with a single supplier. The cons of bundled contracts are identified as; they feature sticker shocks, bundles do not match needs, and they affect small businesses. The above analysis surmises the paper is adding insight and creating knowledge about the pros and cons of contract bundling.
Works Cited
Congress Research Service. (2012). Contract ‘’Bundling’’ under the Small Business Act. The Congressional Research Service: Prepared for the Members and the Committee of the Congress. 7-5700, R41133.
Defense Department. Federal Acquisition Regulation; Consolidation and Bundling of Contract Requirements. The Federal Register: The Daily Journal of the United States Government. Source https://www.federalregister.gov/documents/2015/06/03/2015-13421/federal-acquisition-regulation-consolidation-and-bundling-of-contract-requirementsKeyes, W N. Government Contracts Under the Federal Acquisition Regulation. St. Paul, MN: Thomson/West, 2003. Print.
Tjan, A. The Pros and Cons of Bundled Pricing. The Harvard Business Review Official. Source https://hbr.org/2010/02/the-pros-and-cons-of-bundled-p