I travel with some frequency, but will readily admit that I hate flying (I trace it largely to an unpleasant incident several years ago involving a rapid cabin depressurization and emergency landing).  I’ve been known to pay a few dollars more to take a direct flight rather than a less expensive option involving a connection.  For me, while price is an important factor, other factors, like convenience–and fewer takeoffs and landings–matter, too.

A recent size appeal decision issued by the SBA Office of Hearings and Appeals demonstrates that, like my flying arrangements, price is not the only factor when it comes to determining whether a prime/subcontractor team has violated the ostensible subcontractor rule.  As this size appeal decision shows, in some cases, there may be no ostensible subcontractor affiliation even if the subcontractor will perform the bulk of the overall contract value.

SBA OHA’s decision in Size Appeal of iGov Technologies, Inc., SBA No. SIZ-5359 (2012), involved a U.S. Special Operations Command  solicitation for production, logistics, and sustainment support services for the Tactical Local Area Network (TACLAN) program.  The RFP explained that TACLAN is a modular and scalable family of computer networking equipment and workstations which enables timely and secure exchange of information in support of Special Operations Forces missions.  The solicitation called for the successful contractor to produce large quantities of TACLAN equipment and manage, support and service the equipment.  The solicitation was designated with NAICS code 541519 (Other Computer Related Services).

After USSOCOM identified Arma Global Corporation as the apparent successful offeror, iGovTechnologies, Inc., a competitor, filed a SBA size protest.  iGov alleged that Arma was affiliated with its subcontractor under the ostensible subcontractor rule.

The SBA Area Office found Arma to be an eligible small business, and iGov appealed to SBA OHA.  iGov argued, in part, that Arma and its subcontractor must be violating the ostensible subcontractor rule because the subcontractor would perform all of the TACLAN production, which accounted for the bulk of the overall contract value.

SBA OHA disagreed, and found that the SBA Area Office had properly deemed Arma an eligible small business, even though its subcontractor would perform work amounting to the majority of the overall contract value.  SBA OHA noted that the solicitation carried a services NAICS code, indicating that USSOCOM viewed the management, maintenance and servicing components of the solicitation–which Arma would primarily perform–as the “primary and vital” portions of the contract.

SBA OHA wrote that, “whether a subcontract constitutes the bulk of the contract’s dollar value does not dispose of the inquiry into whether the subcontractor is performing the contract’s primary and vital requirements.”  OHA continued,  “[i]n this case, although computer hardware may comprise the bulk of contract dollar value, the components themselves have little value unless properly engineered and integrated into an effective network.  Thus, the importance of ensuring interoperability and providing support over the life of the TACLAN systems overshadows the quantitative factor of dollar value.”  SBA OHA denied iGov’s size appeal.

The iGov Technologies SBA size appeal decision demonstrates that although the value of the subcontract is an important factor in determining whether a violation of the ostensible subcontractor rule has occurred, it is not the only factor–and may be overshadowed by evidence demonstrating that the small business will perform the primary and vital portions of the contract.

Finally, you may be wondering whether Arma’s arrangement with its subcontractor violated the FAR’s subcontracting limits.  Although SBA OHA’s decision did not discuss the matter, it is quite possible that the arrangement passed muster.  Remember that under a services contract, the small business’s required work share is determined by looking to the cost of the contract incurred for personnel.  In this case, it is possible that the subcontractor’s production costs included large line items for materials and other non-personnel costs, bringing the arrangement into compliance with the FAR’s limitations on subcontracting.