If your small business is thinking about acquiring all or most of another company by way of an asset purchase agreement, you may wonder what effect it will have on your small business size status. Yes, your company will be bigger now that it used to be, and will have to take that into account going forward. But you may not be aware that an asset purchase agreement could create an affiliation problem and affect your size status looking backward, too.
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.
SBA Affiliation Rules and Spin-Offs: Beware ‘Newly Organized Concern’ Affiliation
When a small business draws close to its size standard ceiling, it may consider forming a small business “spin-off” company as one way to keep itself in the small business set-aside game. Done right, a spin-off may be able to successfully compete for and win small business set-aside contracts.
But be careful: if the spin-off doesn’t pass muster with the SBA, the “newly organized concern” affiliation rule may cause the spin-off to be ineligible for small business set-aside contracts, as occurred in Size Appeal of eTouch Federal Systems, LLC, SBA No. SIZ-5280 (2011), a decision of the SBA’s Office of Hearings and Appeals.
SBA OHA Dismisses SBA Size Protest Based on Contractor’s CCR Profile
To survive dismissal, a SBA size protest must be “specific,” that is, it must explain why the protested contractor is not small, and (in many cases), provide third-party evidence supporting the claim.
In Size Appeal of SoftConcept, Inc., SBA No. SIZ-5197 (2011), the SBA’s Office of Hearings and Appeals held that a SBA size protest was insufficiently specific when the protester alleged that the contract awardee did not list the NAICS code in question, NAICS code 541519, in its Central Contractor Registration profile.
SBA Affiliation Rules and Unanimity Provisions: Some SBA OHA Guidance
A company’s minority owners often insist that certain actions be approved unanimously or on a supermajority basis, giving the minority owner the ability to control (or at least veto) those actions.
But small government contractors must tread very carefully when it comes to unanimity or supermajority provisions in their bylaws, operating agreements, or other governing documents. Although the SBA permits unanimity or supermajority provisions regarding certain “extraordinary” corporate actions, other unanimity or supermajority provisions may result in a finding that the minority owner exercises undue negative control over the company, leading to affiliation problems with other companies controlled by that minority owner.
The decision of the SBA’s Office of Hearings and Appeals in Size Appeal of DHS Systems, Inc., SBA No. SIZ-5211 (2011) offers some guidance as to which provisions pass muster under the SBA affiliation rules, and which do not.
SDVOSB Eligibility: Veteran “Controls” Company Despite Living 900 Miles From Headquarters
A service-disabled veteran “controlled” his company within the meaning of the SBA’s service-disabled veteran-owned small business regulations, despite living more than 900 miles from the company’s headquarters, according to a SDVOSB appeal decision of the SBA’s Office of Hearings and Appeals.
In SDVOSB Appeal of Command Languages, Inc., SBA No. VET-149 (2009), the SDVOSB performed contracts around the world, leading SBA OHA to conclude that the service-disabled veteran’s physical location was largely irrelevant to his ability to control his company.
SDVOSB Protests Cannot Be Filed By Telephone
If you want to file a SDVOSB protest with the SBA, put down the cell phone, because you cannot phone it in.
The SBA’s regulations governing size protests permit a protester to “file” its protest by telephone (and follow up by putting the protest in writing). But the same regulations do not apply to protests of a service-disabled veteran-owned small business’s eligibility.
In SDVOSB Appeal of Veterans Construction of South Carolina, LLC, SBA No. VET-164 (2009), the SBA Office of Hearings and Apepals held that the regulation governing SDVOSB eligibility protests “simply does not allow protests by telephone.” SBA OHA upheld the SBA’s dismissal of a SDVOSB protest because the protester had attempted to file by telephone.
When it comes to SDVOSB protests, the rule is simple: put it in writing.
See Ya! Contractor Wipes Out Two-Thirds of Its Potential Competitors with Successful NAICS Appeal
Of all the many “protest” tools available to small government contractors, NAICS code appeals can be one of the most powerful. Unfortunately, many contractors don’t fully understand the NAICS appeal process, or how it can help them reach their procurement goals. The decision of the SBA Office of Hearings and Appeals in NAICS Appeal of 1st American Systems & Services, LLC, SBA No. NAICS-5119 (2010) provides a compelling example of how a savvy small business contractor can use the NAICS appeal process to vastly narrow the competitive playing field.