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, 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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SBA OHA OK’s “Mystery Subcontractor” SBA Size Protests

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Can a contractor file an SBA size protest alleging so-called “ostensible subcontractor” affiliation, without knowing the identity of the subcontractor in question?  Yes.  According to the SBA Office of Hearings and Appeals, a size protest should not be dismissed as “non-specific” just because it alleges ostensible with an unknown subcontractor–or a “mystery subcontractor,” if one is inclined to be a bit more dramatic.

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The Non-Manufacturer Rule: More Than Employees

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Back in 1976, Boston (the band, not the city), released its self-titled debut album, featuring the hit “More Than a Feeling.”  The tune is still a staple on classic rock stations everywhere.  Before you curse me for getting the song stuck in your head, think of it as an easy way to remember a critical aspect of the “non-manufacturer” size rule.  Simply put, it’s about more than employees.

When an agency issues a solicitation for supplies or products, it’s easy for small businesses to assume that non-manufacturer rule applies, meaning that a business qualifies as “small” so long as it has less than 500 employees.  But, as the SBA’s Office of Hearings and Appeals has confirmed, a company can only submit a valid offer if your company meets all five “prongs” of the non-manufacturer rule.  Having less than 500 employees only gets you part of the way there.

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Asset Purchases and SBA Affiliation: Buyer Beware

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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.

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SBA Affiliation Rules and Spin-Offs: Beware ‘Newly Organized Concern’ Affiliation

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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.

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SBA OHA Dismisses SBA Size Protest Based on Contractor’s CCR Profile

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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.

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SBA Affiliation Rules and Unanimity Provisions: Some SBA OHA Guidance

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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.

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