Unanimity and supermajority voting requirements are one of the most common ways for a service-disabled veteran-owned small business to find itself on the wrong end of an eligibility protest (or, in the case of the VA, a CVE verification denial). Case in point: the decision of the SBA Office of Hearings and Appeals in SDVOSB Appeal of Rush-Link One Joint Venture, SBA No. VET-228 (2012).
Category Archives: SBA OHA Decisions
Includes decisions of the SBA Office of Hearings and Appeals, including size appeal decisions, service-disabled veteran-owned small business appeal decisions, NAICS code appeal decisions, and women-owned small business appeal decisions.
NAICS Code Appeals: A Quick Timeliness Reminder
If you Google the simple phrase “10 days,” the top result is the IMDb page for the movie How to Lose a Guy in 10 Days. I haven’t seen this 2003 Matthew McConaughey/Kate Hudson romantic comedy, and Lord willing, never will (though I recall that my 80-something grandmother thoroughly enjoyed it).
Even though NAICS code appeals didn’t pop up first on the Google rankings, actors with a penchant for the Texas Longhorns aren’t the only thing that can be lost in 10 days. If you want to file a NAICS code appeal with the SBA Office of Hearings and Appeals, act quickly. Under the SBA OHA regulations, NAICS code appeals must be filed and served within 10 days after the issuance of the solicitation. Any later, and you will lose your right to appeal, as one would-be appellant recently learned.
SBA Affiliation Rules and Control: The Minority Owner Trap
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.
SBA Affiliation Rules and the Present Effect Rule: When Does an Agreement Arise?
Under the SBA affiliation rules, the SBA will apply the so-called “present effect rule” when it examines an agreement for a merger or acquisition, including an agreement in principle. Under the present effect rule, such an agreement is presently effective with respect to the question of control–which can present a big problem under the SBA affiliation rules.
For example, if Company A has agreed to purchase Company B, the SBA deems Company A to control Company B from the moment the agreement is reached, even if the deal does not close until months later. This makes Companies A and B affiliates from the date their agreement is reached for purposes of the SBA affiliation rules.
The present effect rule makes sense, but when does an “agreement” arise for purposes of the rule? The SBA Office of Hearings and Appeals examined this issue in Size Appeal of Nuclear Fuel Services, Inc., SBA No. SIZ-5324 (2012). If you are in discussions or negotiations for a merger or acquisition, and are worried about potential affiliation, SBA OHA’s decision will leave you breathing a sigh of relief.
Subcontractors, NAICS Codes and Small Business Status: The Prime Decides
George W. Bush famously declared himself to be “the decider.” Although some comedians had fun with the phrase, it’s hard to argue with Bush’s underlying assessment; as head of the government, the President has a lot of decisions to make. But when it comes to whether you qualify as “small” for purposes of a federal subcontract, it may surprise you to learn that the government isn’t the decider at all.
For a subcontract, the prime contractor—not the government—decides what NAICS code (and corresponding size standard) applies. The NAICS code the prime contractor selects for your subcontract need not be the same NAICS code assigned to the prime contract as a whole, and you may have the opportunity to lobby the prime contractor to change the NAICS code to one you believe is better-suited for the procurement–and your small business eligibility.
SBA Size Protests and the Ostensible Subcontractor Rule: The Task Order Loophole
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.
SBA OHA: Inter-Affiliate Transactions Exception Does Not Apply to a Division
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.