Ostensible Subcontractor Affiliation: SBA Must Review Final Proposal

To determine whether ostensible subcontractor affiliation exists between a prime contractor and its subcontractor, the SBA must use the prime contractor’s final proposal revision.

In a recent size appeal decision, the SBA Office of Hearings and Appeals overturned an SBA Area Office affiliation determination that did not contemplate an offeror’s final proposal.

OHA’s decision in GaN Corp., SBA No. SIZ-5658 (May 20, 2015) involved a small business set-aside solicitation for technological support services.

GaN, a small business under the pertinent NAICS code, submitted its initial proposal on June 17, 2014.  The proposal specified GaN’s employees would perform most of the contract work; however, a number of its subcontractor’s employees were to serve as key personnel.  Final proposals were due on October 28, 2014, and GaN timely submitted final proposal revisions.

GaN was awarded the contract on January 6, 2015.  Three days later, a competitor filed a SBA size protest, alleging GaN’s reliance on subcontractor employees violated the ostensible subcontractor rule.  While the competitor’s challenge was dismissed as untimely, the SBA Area Office initiated its own protest on the same grounds.

Confining its consideration to GaN’s initial proposal, the Area Office concluded that GaN’s dependence on subcontractor personnel was in violation of the ostensible subcontractor rule.  The affiliation finding resulted in GaN being ineligible for the contract.

GaN filed a size appeal.  OHA concluded that the facts relied upon by the SBA Area Office did not support a finding of ostensible subcontractor affiliation.  Additionally, OHA held that the SBA Area Office had erred by failing to consider GaN’s final proposal.  “[I]n order to properly examine [GaN’s] compliance with the ostensible subcontractor rule, the Area Office should have obtained and reviewed [GaN’s] complete proposal, including proposal revisions.” OHA wrote.

Although “the findings in the size determination do not suffice to show that [GaN] is unusually reliant upon” its subcontractor, GaN’s “final proposal for [the set-aside award] has not been reviewed, and may reveal new or different issues regarding [GaN’s] compliance with the ostensible subcontractor rule that have yet to be explored.”  OHA granted GaN’s size appeal, vacated the SBA Area Office’s size determination, and remanded the case to the SBA Area Office for consideration of GaN’s final proposal revision.

In most cases, affiliation is evaluated based on the prime contractor’s initial priced offer.  But as the GaN Corp. case demonstrates, when it comes to ostensible subcontractor affiliation, it is the final proposal revision that governs.

Ian Patterson, a summer law clerk with Koprince Law LLC, was the primary author of this post. 

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