SBA to Small Businesses: Be Careful with Ostensible Subcontractors on SBIR Awards

In a recent decision, the Small Business Administration (SBA) Office of Hearings and Appeals (OHA) examined a company that received two Small Business Innovation Research (SBIR) grant awards. The SBA Area Office had determined that the awardee was not an eligible small business due to ostensible subcontractor affiliation and other reasons. This decision is an important reminder for SBIR candidates on how they should structure subcontracting teams, as SBA will examine SBIR awardee eligibility.

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Nonprofit Parent Companies do not Automatically Cause Affiliation for SBA Size Determinations

The Office of Hearings and Appeals, more commonly referred to as OHA, is tasked with deciding size determination appeals that arise under the Small Business Act of 1958, as well as 13 C.F.R. parts 121 and 134. When an unsuccessful offeror raises a question, via a size protest, regarding an Awardee’s size under the North American Industry Classification System (NAICS) code on any given solicitation, the SBA Area Office will review the protest and issue a size determination. Then, a losing party can appeal the size determination to OHA.

Affiliation is a common topic that OHA addresses. In a recent decision, OHA looked at the question of how nonprofits fit into the affiliation rules. Since a small business has to be a for-profit entity, can a small business be affiliated with a nonprofit parent company?

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OHA Remands Size Determination Because Area Office Failed to Provide Due Process to Protested Concern

SBA’s Office of Hearing and Appeals (OHA) recently said that the SBA Area Office should have informed the protested concern of the issues its adverse size determination focused on before ruling against the concern’s size eligibility on that basis. In addition to its lesson on due process, OHA also took this opportunity to distinguish totality of the circumstances affiliation (the basis on which the Area Office found affiliation here) from ostensible subcontractor affiliation (the basis for affiliation alleged in the size protest). OHA vacated and remanded the Area Office’s decision.

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Back to Basics: Size Protests and Appeals

When a business is poised to win a federal contract award set aside for small businesses, there is always the potential for a competitor to challenge that award on the basis that the proposed winner is not actually a small business based on SBA’s size and affiliation rules. Or, if your company just lost an award, you may consider challenging that the proposed winner is a small business. Either way, it pays to know the basics behind size protests and appeals. While you could read through my recent handbook on Procedures and Pitfalls of Size Protests and Appeals (it’s a good read!), here are some key things to keep in mind when considering size protests and appeals.

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Back to Basics: The Nonmanufacturer Rule

To qualify as a small business under most set-aside or sole-source contracts seeking manufactured products or supplies, SBA’s regulations require an offeror to be the item’s manufacturer or, alternatively, comply with the nonmanufacturer rule.

In this post, we’ll discuss qualifying under the nonmanufacturer rule.

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SBA Confirms that Size Status Relates Back to Time of Offer, Even After Sale of Small Business

Over the years, SBA size regulations have included the general rule that the size status of a business generally relates back the time of initial offer on a contract. Therefore, a small business generally stays small for the duration of a federal contract, with some exceptions. However, there was also language in the rule that required small businesses to recertify their size status after being acquired or going through similar transactions. The effect of this recertification requirement was always a little unclear. If you recertify as large, does that have any effect on your small business status for orders under contracts awarded when the business was small? Now, OHA has answered that concern.

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2022 NDAA Requires Prompt SAM Update If SBA Issues Adverse Size Determination

If, as the result of a size protest or appeal, the SBA makes a final determination that a company is not a small business, the company will be required to update SAM within two days to reflect that it is no longer small. And if the company doesn’t recertify within two days, the SBA will do the honors and update the company’s SAM profile.

This tough new requirement is part of the compromise version 2022 National Defense Authorization Act, which is likely to be signed into law in the coming weeks, although it is unclear when the SBA’s regulations will be revised to implement the change.

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