The SBA ostensible subcontractor affiliation rule has long confused contractors and their attorneys alike because its standards were not very clear. It was based on whether, in a small business contract, a subcontractor performs the “primary and vital requirements of a contract” or the prime contractor was “unusually reliant” on the subcontractor. SBA’s Office of Hearings and Appeals filled in the gaps on these terms. But in 2023, SBA updated its definition for these rules, declaring that if a small business prime contractor (other than under a general construction contract) met the limitations on subcontracting, it basically was not violating the ostensible subcontractor rule. A recent case looked at a circumstance where a small business prime contractor was not meeting the limitations on subcontracting.

In Spartan Medical, Inc., SBA No. VSBC-366-P (2024), SBA reviewed an SDVOSB protest concerning “Intraoperative Neuromonitoring (IONM) technicians and associated instrumentation to support and monitor complex surgical procedures.” “Risen’s proposal identified Risen’s owner” as a project manager and “[n]o other Risen employees are discussed in the proposal. Of the [proposed] IONM technicians, all are employees of [subcontractor] SpecialtyCare. All of the proposed remote monitoring physicians also are SpecialtyCare employees.”

The protester (Spartan) alleged that the awardee (Risen) would “be unusually reliant upon a non-SDVOSB subcontractor to perform the contract” and violate the ostensible subcontractor rule found in 13 C.F.R. § 128.401(g). Risen’s response, in part, stated that the “staff works [] under the management and supervision of Risen” and that “Risen alone will perform “’all of the day-to-day management services’”. In addition, “Risen argues that the ‘“’management and professional support services’”’ Risen will perform are key to the procurement.”

Upon review, OHA noted that “Risen’s own proposal, which confirms that all of the proposed IONM technicians, as well as all of the proposed remote monitoring physicians, will be SpecialtyCare employees.” And Risen only had one employee, its owner. Plus, Risen “fails to offer any persuasive explanation as to how it will comply with the limitations on subcontracting restrictions set forth in 13 C.F.R. § 125.6.”  Instead, “Risen itself concedes it will subcontract [a majority] to SpecialtyCare.” Therefore, it won’t meet the limitations on subcontracting.

Risen also argued that it will handle all “management and professional support services”. But OHA did not accept this argument. Rather, OHA found that this argument is meritless since the RFP calls for “On-site Intraoperative Neuromonitoring and Instrumentation Services”, not managerial services. Indeed, the RFP did not require offerors to propose any managerial personnel, nor are there any specific managerial tasks discussed in the RFP. The fact that the CO assigned the RFP NAICS code 621399, Offices of All Other Miscellaneous Health Practitioners, further connotes that the principal purpose of this procurement is medical support services.

Finally, OHA has “consistently held that a prime contractor does not perform the primary and vital requirements of a contract merely by supervising its subcontractors in their performance of work.”

This case makes clear that the proposal language is crucial in responding to a size or status protest where a subcontractor is involved. The proposal must make clear that the prime contractor is not subcontracting more work than is allowed under the limitations on subcontracting. To do otherwise risks losing an ostensible subcontractor challenge.

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