WHEN WILL THE SBA GIVE “PRESENT EFFECT” TO STOCK SALES OR AGREEMENTS TO MERGE?

In a recent case at the Small Business Administration (“SBA”) Office of Hearings and Appeals, (“OHA”), the OHA clearly explained when “present effect” will be given to stock options, convertible securities and agreements to merge. This is important because such agreements deal with the power to control a concern, and hence impact affiliation of companies. Telecommunications Support Services, Inc., SBA No. SIZ-5953, August 17, 2018. The case involves a letter of intent (“LOI”) dated May 12, 2017 under which Acorn Growth Companies, LLC entered into with CIS Secure Computing, Inc. In the size protest, the issue was whether the LOI constituted an “agreement in principle” that was given present effect by the area SBA office, and which therefore found the two companies to be affiliated … Continue reading

SIZE PROTEST DEADLINES DO NOT APPLY IF AGENCY FLOUTS SEALED BIDDING PROCEDURES

Agencies must strictly adhere to the procurement method as set forth in the Federal Acquisition Regulation (“FAR”). Failure to do so may result in a sustained protest. The FAR provides two principal methods of procurement, sealed bidding (Part 14 of the FAR) and contracting by negotiation (Part 15 of the FAR). Although the majority of the contract dollars awarded by the government are through negotiated procurement, sealed bidding is still quite important. The elements of sealed bidding leave very little room for discretion on the part of a contracting officer making an award, and are as follows: Agency prepares the solicitation, an Invitation for Bids (“IFB”), that describes the requirements clearly, accurately and completely Agency publicizes the IFB Offerors submit sealed bids to the agency … Continue reading

TERMINATION OF AN 8(A) CONTRACTOR FOR FAILURE TO PAY A SUBCONTRACTOR

A recent decision by the Small Business Administration’s (“SBA”) Office of Hearings and Appeals (“OHA”) sustained the SBA’s termination of an 8(a) contractor for failing to pay a subcontractor $68,688.53, citing this failure as a lack of business integrity. Corporate Portfolio Management Solutions, SBA No. BDPT-567, Feb. 15, 2018. OHA noted that the failure to pay the subcontractor, Procon, and failure to comply with either an arbitration agreement or a civil judgment entered against Corporate Portfolio, amounted to conduct indicating a lack of business integrity. Because there was no basis for determining that the SBA’s decision was arbitrary, capricious or contrary to law, OHA dismissed Corporate Portfolio’s appeal and declined jurisdiction. By regulation, SBA accepts a business into the 8(a) program for 9 years, so … Continue reading

WHAT IS A FAIR MARKET PRICE IN SET-ASIDES?

What is a fair market price, or a fair and reasonable price? The Federal Acquisition Regulation (“FAR”) requires that in a small business set-aside, the government must have a reasonable expectation that the award price will be reasonable, i.e., award will be made at “fair market prices:” FAR 19.502-2 Total small business set-asides. [] (b) [] The contracting officer shall set aside any acquisition over $150,000 for small business participation when there is a reasonable expectation that— (1) Offers will be obtained from at least two responsible small business concerns offering the products of different small business concerns [] and (2) Award will be made at fair market prices. Partial set-asides include the same “fair market price” requirement: 19.502-3 Partial set-asides. (a) The contracting officer … Continue reading

A BUSINESS CONTROLLED BY A MAN IS NOT “WOMAN-OWNED”

The Small Business Administration (“SBA”) Office of Hearings and Appeals (“OHA”) recently considered whether a business was a “Women-Owned Small Business” (“WOSB”). One section of the SBA rules on WOSBs is 13 CFR § 127.201, and this requires that one or more women must unconditionally and directly own at least 51 percent of the concern. In addition, the SBA rules require that the management and daily business operations of the concern must be controlled by one or more women, 13 CFR § 127.202(a), and a woman must hold the firm’s highest officer position. 13 CFR § 127.202(b). Although a woman met the 51 percent ownership requirement, she did not have control of the company, and OHA ruled that the concern was not a WOSB under … Continue reading

PRIME MAY VIOLATE OSTENSIBLE SUBCONTRACTOR RULE EVEN IF IT PERFORMS PRIMARY AND VITAL REQUIREMENTS OF CONTRACT

The Small Business Administration (“SBA”) size regulations include an “ostensible subcontractor” rule. This rule provides that when a subcontractor is actually performing the primary and vital requirements of the contract, or when the prime contractor is “unusually reliant” upon its subcontractor, the two firms are affiliated (and frequently are “not small”) for purposes of the procurement. 13 CFR § 121.103(h)(4). This rule is designed to prevent “false fronts”—situations where large firms form relationships with small firms to evade SBA’s size requirements. To determine if a prime-sub relationship creates an ostensible subcontractor, all aspects of the relationship are examined. In a recent case, Charitar Realty, SBA No. SIZ-5806 (Jan. 25, 2017), the SBA found a violation of the ostensible subcontractor rule where a prime contractor was … Continue reading

WHO IS THE MANUFACTURER IN A SMALL BUSINESS SET-ASIDE?

When a manufacturing or supply contract is set aside for small businesses, the Small Business Administration (“SBA”) size regulations require that the prime contractor either be the manufacturer of the end item being procured (and the end item must be manufactured or produced in the United States); or must comply with certain nonmanufacturer exceptions. 13 CFR § 121.406. A recent Size Appeal at the SBA Office of Hearings and Appeals (“OHA”) considered what type of actions by a company qualifies it as a “manufacturer.” Size Appeal of MPC Containment Sys., LLC and GTA Containers, Inc., SBA No. SIZ-5802, Jan 11, 2017. The Defense Logistics Agency was procuring collapsible fuel tanks, and set aside the procurement for small businesses in a North American Industry Classification System … Continue reading

AFFIDAVITS ARE GENERALLY ACCEPTABLE IN SIZE APPEALS

The following saga of two appeals demonstrates the importance of sworn affidavits in size protests and size appeals. In the first appeal, CoSTAR Services, Inc., SBA No. SIZ-5745 (2016), the Small Business Administration (“SBA”) Office of Hearings and Appeals (“OHA”) considered two protests that Mark Dunning Industries, Inc. was not small because of affiliation with 24 different entities. The protesters (CoSTAR and Inuit) alleged that affiliation was based on family identity of interest, common investments, common ownership and common management. OHA held that there was no affiliation based on most of the allegations, but remanded the case to the Area Office to render a more complete analysis on whether there was affiliation between two individuals (Mr. Dunning and Mr. White) based on common investment. On … Continue reading

The PCI Network – Three Keys to a Winning Proposal

The next episode of The PCI Network is all about putting together a winning proposal. Lou Chiarella, Director and Faculty at PCI, shares three tips to help you craft a winning proposal. Mr. Chiarella is an attorney in the Washington, D.C. area with 20 years of experience specializing in all aspects of Government contracting.  In addition to his current position, his previous experiences include: Professor of Contract and Fiscal Law, U.S. Army Judge Advocate General’s School, Charlottesville, Virginia; Chief of Administrative and Civil Law, Fort Carson, Colorado; and Trial Attorney, U.S. Army Contract Appeals Division, Arlington, Virginia.

REMINDER: ALASKA NATIVE CORPORATIONS ARE EXEMPT FROM CERTAIN SIZE RULES

Before submitting a size protest, small businesses would be advised to consider that Alaska Native Corporations (“ANCs”) are exempted from a number of the Small Business Administration (“SBA”) size affiliation regulations. A recent protest urged the SBA Office of Hearings and Appeals to find that an ANC had a “substantial unfair competitive advantage,” but OHA dismissed the appeal because only the SBA Administrator could make such a finding. Size Appeal of The Emergence Group, SBA No. SIZ-5766, July 28, 2016. In Emergence Group, the protester asserted that Olgoonik Federal, LLC (“Olgoonik”), awardee in a total small business set-aside, was part of the Olgoonik family of “large” companies which, during 2015 received $200 million in federal contracting dollars. Even if the allegations were true, the SBA … Continue reading