FAA ODRA Applies SBA Ostensible Subcontractor Rule

The Federal Aviation Administration is exempt from the Small Business Act and the SBA’s size regulations, but this does not mean that the SBA’s ostensible subcontractor affiliation rule does not apply in FAA procurements.

In a recent decision, the FAA’s Office of Dispute Resolution for Acquisition applied the ostensible subcontractor rule–and SBA Office of Hearings and Appeals decisions interpreting that rule–in arriving at the conclusion that a contract awardee was an eligible small business.

The FAA ODRA’s decision in Protest of Alutiiq Pacific LLC, No. 12-ODRA-00627 involved a FAA procurement for security officer services.  The solicitation (or “Screening Information Request,” in FAA parlance), called for a tiered evaluation system under which small business awards would be prioritized.

After the FAA awarded the contract to American Eagle Protection Services, or AEPS, a competitor, Alutiiq Pacific LLC, filed a protest with FAA ODRA.  Alutiiq’s protest contended, in part, that AEPS was not an eligible small business because its relationship with its subcontractor, Paragon Systems Inc., violated the ostensible subcontractor rule.

Addressing this allegation, the FAA ODRA noted, “[b]y law the FAA is exempted from the normal small business contracting rules for Government procurements.”  For this reason, “Small Business Administration (“SBA”) rules, regulations, and decisions are therefore not binding on the FAA.”  FAA ODRA continued, “[t]hey may, however, be viewed as persuasive authority as long as they do not conflict with the principles of the [Acquisition Management System].”

The FAA ODRA proceeded to cite a number of SBA OHA decisions interpreting the ostensible subcontractor rule.  Applying these decisions, the FAA ODRA determined that “AEPS and not Paragon will exercise substantial control over management of the project.”  The FAA ODRA wrote that proposal references to AEPS and Paragon as a “team” did not establish a violation of the ostensible subcontractor rule, and found that AEPS would provide key personnel.

Based on these determinations, the FAA ODRA held that “Alutiiq has not demonstrated by substantial evidence that the use of Paragon by AEPS creates an ostensible subcontractor relationship.”  The FAA ODRA denied Alutiiq’s protest.

In the government contracts world, the FAA occupies a unique position, operating primarily under its own regulations and administrative authority.  However, as the Alutiiq Pacific case demonstrates, even in the FAA’s unique world, the SBA’s size regulations and policies–including the ostensible subcontractor rule–may play an important role in how the FAA and the FAA ODRA interpret and decide small business size matters.

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