Size and status protests, which are reviewed by the SBA’s Office of Hearings and Appeals (OHA), are far less common than GAO protests which protest an evaluation aspect of a solicitation or award. But when they are used they can be a powerful tool to keep contracting dollars intended for small businesses to stay with small businesses. In the case of Winergy, LLC, OHA takes a look at an award intended for SDVOSBs, to determine if the awardee is in compliance with the ostensible subcontractor rule or if it is subcontracting out the primary and vital parts of the contract. The lesson? If you want to keep an award, be sure that you, or a similarly situated subcontractor, will be performing the primary and vital parts of the contract and that you can support that assertion with evidence.
For those unfamiliar with the ostensible contractor rule, here is a quick rundown. An ostensible subcontractor is a subcontractor that is not a similarly situated entity that performs the “primary and vital” parts of the contract or an order or is a subcontractor that the prime contractor is unusually reliant upon. 13 C.F.R. 121.103(h)(3)(i). SBA will find that a prime contractor on a set-aside contract is not violating the rule when it can demonstrate that it and any of its similarly situated subcontractors will meet the limitations on subcontracting found at 13 C.F.R. 125.6. And how is compliance with the limitations on subcontracting determined? By looking at the contracting dollars received by the prime contractor from the government as compared to the dollars paid to non-similarly situated entities.
Why is this important? Well, if a small business prime contractor is found to have an ostensible subcontractor, the prime and subcontractor are found to be affiliated, and their sizes will be combined for the contract at issue. This affiliation could lead to the small business exceeding its size for the procurement/contract. But size isn’t the only aspect that can be affected by the ostensible subcontractor rule. As Winergy, LLC, SBA No. VSBC-424-P, 2025 (Feb. 11, 2025) shows, it is not the size that is being challenged, it is the awardee’s status as an SDVOSB.
The solicitation at issue was set aside for SDVOSBs under NAICS code 541690 and a size standard of $19 million. The contractor was to provide “all parts labor, transportation, parts, equipment, supervision, and expertise to perform on-site bi-annual inspections and certifications of Government-Owned Fume Hoods, Ventilation Devices, Biological Safety Cabinets (BSC), Laminar Flow Devices, Isolators, Biosafety Hazard Hoods, Sterile Workbenches, Radiation Safety Hoods, Buffer, Ante spaces, and Pharmacy Clean Rooms.” One of the terms of the solicitation required the contractor personnel, performing the certification services, to be “fully accredited and certified to conduct tests, evaluations and certifications of the equipment.” This required contractor personnel to “have validated Certificate of Accreditation from National Sanitation Foundation (NSF) International: Biohazard Cabinet Field Certifier Accreditation Program.”
Awardee, Atlantic First Industries Corporation’s (AFIC) proposal stated that it “is a compliance and facility inspection services company that specializes in healthcare, commercial, and manufacturing projects.” The proposal did not make mention of use of planned subcontractors and throughout the proposal there was language stating that “our technicians” would be performing the work. The proposal stated that it would include a “team of four highly trained technicians [who] are accredited by NSF” and that these technicians “collectively possess over 55 years of experience in delivering testing and certification services, ensuring we can provide the prompt and professional service required by the [VA] Greater Los Angeles Healthcare System.” Additionally, “[w]ith six technicians located within a 50-mile radius, we can respond to emergencies within 48 hours’ notice.” According to the proposal, AFIC “maintain[s] an extensive network of distributors for prompt access to replacement parts.” Finally, the proposal included copies of its technicians’ certifications from NSF. On those, all three technicians are identified as employees of Controlled Environment Management, LLC (CEM), a subsidiary of Technical Safety Services LLC (TSS).
Protester filed a protest challenging AFIC’s service-disabled veteran owned small business status three days after the award to AFIC. The protest was based on the solicitation’s requirement that the contractor utilize NSF-certified technicians, but AFIC was not listed in the NSF certification system nor does it have any NSF-certified employees. If true, that would mean that AFIC would have to subcontract out the work that protester claims is the primary and vital requirements of the contract. And, because AFIC was located in New York, while this work would be performed in California, protester pointed out that any overseeing by AFIC would happen from across the country. This would, in turn, make NSF unduly reliant on subcontractors. Further, the likely subcontractor, TSS, was not an SDVOSB.
AFIC, in its response, claimed the protester was abusing the protest process by filing “frivolous and unfounded protests” against AFIC. AFIC believed that the protester essentially had it out for them, as it had filed three unsuccessful bid protests against AFIC and a SDVOSB status protest that was dismissed as untimely.
About a month later, OHA issued an Order requesting AFIC to respond to the claim that TSS was its ostensible subcontractor. More specifically, AFIC was required to address whether it would self-perform the primary and vital aspects of the procurement, because the proposal indicated that the certified personnel that would be performing the inspections were employees of TSS or its subsidiary, not AFIC. As noted by OHA, AFIC did not respond to the merits of the protest, but rather focused on protester’s previous protests against AFIC in its initial response.
AFIC then addressed the claims and provided payments that AFIC had made, or would make, to TSS for this procurement and nine other procurements. AFIC was sure to point out that its payments to TSS would not exceed 50% of the total contract dollar value. Why 50%? Well, that just so happens to be the limitation on subcontracting relevant for the work to be provided via the contract.
AFIC asserted that it was not in violation of the ostensible subcontractor rule because it meets the standard in 13 C.F.R. § 128.401(g)(2). That states:
In the case of a contract or order for services, specialty trade construction or supplies, SBA will find that a prime VOSB or SDVOSB contractor is performing the primary and vital requirements of the contract or order, and is not unduly reliant on one or more subcontractors that are not certified VOSBs or SDVOSBs, where the prime contractor can demonstrate that it, together with any subcontractors that are certified VOSBs or SDVOSBs, will meet the limitations on subcontracting provisions set forth in § 125.6 of this chapter.
However, OHA found that the record did not show that AFIC had demonstrated that it would comply with the limitations on subcontracting. AFIC didn’t identify tasks that it would self-perform, nor did it identify any of its own employees that would be involved in contract performance. Although AFIC claimed that it intended to pay TSS less than 50% of the contract price, there were no sworn statements, subcontracts, or other information that supported that claim.
In the end, OHA determined that AFIC failed to meet the burden of proof. And without additional documentation and support, AFIC was unable to show that it was performing the primary and vital parts of the contract in contravention of the ostensible subcontractor rule.
So, what are the important takeaways here? Small businesses must ensure that they, or a similarly situated subcontractor, will be performing the primary and vital parts of a contract, and must be able to support that assertion with evidence. Here, the subcontractor was not an SDVOSB, but it would be performing the primary and vital parts of the contract, while the prime contractor/SDVOSB oversaw the performance from across the country. Had AFIC been located in closer proximity to the worksite, or had TSS been an SDVOSB, the outcome may have been different.
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