Yes, Foreign-Owned Entities Can Be Small Businesses Under SBA Government Contracting Rules

Government contractors often assume that a foreign-owned company cannot qualify as a small business under the SBA’s government contracting size rules.

Not so.  As demonstrated by a recent SBA Office of Hearings and Appeals size appeal decision, a foreign-owned entity can qualify as a small business, provided that it has a physical location in the United States and contributes to the U.S. economy.

OHA’s decision in A&Y Government Services, LLC, SBA No. SIZ-5966 (2018) involved an Army solicitation for vehicles and spare parts.  The solicitation was issued as a small business set-aside under NAICS code 336112.

After evaluating proposals, the Army announced that Bukkehave, Inc., or “BHI,” was the apparent successful offeror.  BHI is based in Florida, and is a wholly-owned subsidiary of a Danish company, Bukkehave Corporation.  An unsuccessful competitor, A&Y Government Services, LLC, then filed a size protest challenging BHI’s small business status.

The SBA Area Office noted that BHI was affiliated with its parent company and several other entities.  However, when combined with its affiliates, BHI’s employee count still fell below the 1,500-employee threshold for NAICS code 336112.  The SBA Area Office issued a size determination finding BHI to be an eligible small business for purposes of the Army contract.

A&Y filed an appeal with OHA.  A&Y’s appeal stated that BHI “is merely a sales office owned by a FOREIGN corporate entity.”  Awarding the work to BHI, A&Y argued, would mean that the money paid by the Army “will go to Denmark.”

OHA wrote that, contrary to A&Y’s apparent misconception, “SBA regulations . . . do not bar a foreign owned concern from participating in a small business set-aside, provided that the concern is based in the U.S. and contributed to the U.S. economy through the payment of taxes or otherwise.”  In support, OHA cited 13 C.F.R. 121.105(a)(1), the SBA’s regulation defining a “business concern.”

In this case, OHA wrote, “BHI is a corporation based in the state of Florida, and . . . BHI contributes to the U.S. economy by paying taxes.”  OHA denied A&Y’s size appeal, writing that there was “no basis to conclude that BHI is ineligible for this procurement.”

In my experience, many government contractors believe that a foreign-owned entity can never qualify as a small business for purposes of the SBA’s government contracting rules.  But as the A&Y Government Services case demonstrates, the truth is more nuanced.  It’s not foreign ownership that is the test, but rather a U.S. location and contribution to the American economy.