Category Archives: SBA Size Protests

Three Website Mistakes Small Government Contractors Should Avoid

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The late, great Whitney Houston famously mused, “How will I know?”  Whitney was singing about the uncertainty of love, but small government contractors often ask the same question in a different sense—that is, “How will I know if my competitor is too large for a particular size standard?”

There are plenty of places to research a competitor’s size, but one of the most fruitful may be the competitor’s own website.  Of course, small government contractors should be aware that their competitors know how to use Google, too.  Often, SBA size protests arise from information a government contractor should have thought twice about posting on its website.

Here are three common website mistakes small government contractors make, sometimes leading to SBA size protests.

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Three Common SBA Size Protest Mistakes

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Nobody’s perfect, the old saying goes.  While I might beg to differ in the case of my daughter (who, in my unbiased opinion, is perfectly adorable), the saying definitely holds true when it comes to SBA size protests.

I read every published SBA Office of Hearings and Appeals decision (I’m sure you are jealous), and I see many of the same mistakes repeated over and over,  Often, these mistakes cost the protester its chance at a successful size protest.

So, without further ado, here are my top three most common SBA size protest mistakes.

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SBA Affiliation Rules and Control: The Minority Owner Trap

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Does a person who owns a minority share of a company “control” the company under the SBA affiliation rules?  Yes, if the company has no majority owner and the minority share owned by the individual in question is the largest, or is similar in size to, the largest other minority shares.

Get all that?  An example may help.  The decision of the SBA Office of Hearings and Appeals in Size Appeal of Advent Environmental, Inc., SBA No. SIZ-5325 (2012), demonstrates how this rule can be a trap for the unwary.

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SBA Size Protests and the Ostensible Subcontractor Rule: The Task Order Loophole

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The tax code is famous (or infamous) for perceived loopholes, but the IRS isn’t the only regulatory agency with a loophole in its regulations.   The SBA’s affiliation rules contain—or at least used to contain (more on that later)—a gaping loophole when it comes to Multiple Award Task Order Contracts, or MATOCs, and the ostensible subcontractor rule.

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SBA OHA: Inter-Affiliate Transactions Exception Does Not Apply to a Division

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SBA Office of Hearings and Appeals cases frequently involve contractors trying to argue that they are not affiliated with other entities.  But in Size Appeal of The Associated Construction Co., SBA No. SIZ-5314 (2011), the contractor at issue attempted to argue the opposite—that it was affiliated with another entity, namely, a division of itself.

This strange case came about because the contractor hoped to take advantage of the so-called “inter-affiliate transaction exception” under 13 C.F.R. § 121.104(a), which allows contractors to deduct “proceeds between a concern and its domestic or foreign affiliates” from its average annual receipts for size purposes.  Unfortunately for the contractor, SBA OHA held that a company cannot be affiliated with its own division—meaning that the exception did not apply.

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Technically Unacceptable? No SBA Size Protest for You!

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Remember the famous “Soup Nazi” episode of Seinfeld?  The mustachioed title character, brilliantly played by Larry Thomas, will forever be known for barking, “no soup for you!” to anyone who dared break his many rules.  In the SBA size protest arena, as in the Soup Nazia’s restaurant, technical rules abound.  For instance, if your proposal was technically unacceptable, “no SBA size protest for you!”

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SBA Affiliation Rules, the Passive Investor, and Weekend at Bernie’s

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Remember Weekend at Bernie’s, the 1980s comedy about a couple of young corporate employees who pretend their murdered boss is still alive?  (Random note: did you know that they made a Weekend at Bernie’s 2 in 1993?  Neither did I, until I was writing this post).

What does Bernie have to do with the SBA affiliation rules?  In the movie, Bernie appears to control his company—even though he is not exactly in a position to make executive decisions.  Like Bernie, in the SBA’s eyes, a person can be deemed to control a company, even if he or she does not actually exercise any power.  The decision of the SBA Office of Hearings and Appeals in Size Appeal of BR Construction, LLC, SBA No. SIZ-5303 (2011) shows that SBA affiliation problems can arise when bylaws and operating agreements contain certain provisions that the SBA will find give legal control to a minority owner, even if that minority owner, in practice, acts as a passive investor.

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