Small Business Status: Ongoing Fiscal Year Usually Isn’t Included

Under the SBA’s size regulations, when a size standard calls for a company’s size to be determined by its average annual receipts, the company’s ongoing fiscal year usually isn’t included.

In a recent size appeal decision, the SBA Office of Hearings and Appeals rejected an argument that the SBA’s evaluation of a company’s size should have included receipts from the company’s current fiscal year.

OHA’s decision in Size Appeal of Nordstrom Contracting & Consulting Corp., SBA No. SIZ-5891 (2018) involved a VA IFB for the replacement of air handling units at a VA Medical Center.  The solicitation was issued as an SDVOSB set-aside under NAICS code 236220 (Commercial and Institutional Building Construction), with a corresponding $36.5 million size standard.  Bids were due November 28, 2017.

The VA opened bids on November 28 and announced that Williams Building Company, Inc. was the apparent successful offeror.  Nordstrom Contracting & Consulting Corporation then filed a size protest against WBC, alleging that WBC’s receipts exceeded that $36.5 million size standard.

The SBA Area Office evaluated the size protest.  Because WBC had submitted its bid in November 2017, the Area Office used WBC’s last three completed fiscal years–2014, 2015, and 2016–as the basis of its measurement.  After running the numbers, the Area Office concluded that WBC fell below the $36.5 million size standard.

Nordstrom filed a size appeal with OHA.  Nordstrom pointed to information from USASpending.gov indicating that WBC was awarded federal contracts exceeding $50 million in 2017.  Nordstrom contended that the Area Office should have included WBC’s 2017 receipts because the Area Office’s size review was conducted in January 2018.

OHA wrote that, under 13 C.F.R. 121.404(a), a company’s small business size status ordinarily is determined “as of the date the concern submits a written self-certification that it is small to the procuring activity as part of its initial offer (or other formal response to a solicitation), which includes price.”  Additionally, under 13 C.F.R. 121.104(c), the SBA ordinarily calculates size under a receipts-based size standard by examining “the total receipts of the concern over its most recently completed fiscal years divided by three.”

In this case, “it is undisputed that WBC self-certified as a small business with its bid on November 28, 2017.”  OHA continued:

Therefore, WBC’s three most recently completed fiscal years were 2014, 2015, and 2016.  Fiscal year 2017 was not yet complete at the time of WBC’s self-certification, and thus is not included in the period of measurement.  Accordingly, the Area Office correctly based its review on WBC’s average annual receipts over the time period 2014-2016.

OHA denied Nordstrom’s appeal.

As with many rules in government contracting, the rule discussed in the Nordstrom Contracting case has an exception: when a company has been in business less than three complete fiscal years, the SBA will use an alternate formula that includes revenues generated in the ongoing fiscal year.  But as the Nordstrom Contracting size appeal demonstrates, a company’s size under a receipts-based size standard usually turns on the average of the last three completed fiscal years–and excludes revenues generated in the ongoing fiscal year.