GAO: Ostensible Subcontractor Rule Not Part of Set-Aside Decision

When deciding whether to set aside a solicitation for small businesses, procuring agencies need not consider whether prospective small business offerors can perform the contract without violating the SBA’s ostensible subcontractor rule.

This was the ruling of the GAO in a recent bid protest decision, in which the GAO held that a procuring agency had properly set aside a contract for small businesses without prior consideration of the ostensible subcontractor rule.  The GAO’s decision aligns with the one discussed in yesterday’s post, in which the GAO held that an a procuring agency need not consider the individual capabilities of potential small business offerors to meet all solicitation requirements before setting aside a solicitation.

The GAO’s decision in Marshall & Swift-Boeckh, LLC, B-407329; B-407329.2 (Dec. 18, 2012) involved a HUD solicitation for cost-estimating software and related licenses and services.  After performing market research, HUD determined that a reasonable likelihood existed that it would receive offers from two or more small businesses.  Based on its market research, HUD issued the solicitation as a small business set-aside.  Six small businesses ultimately submitted proposals.

Marshall & Swift-Boeckh, LLC, a large business, filed a GAO bid protest challenging HUD’s decision to issue the solicitation as a small business set-aside.  Marshall argued, in part, that HUD’s market research did not take into account likely affiliation issues that could arise from small businesses performing the work, including affiliation under the ostensible subcontractor rule.  Marshall contended that before issuing the solicitation as a set-aside, HUD should have asked the SBA whether these potential teaming arrangements would violate the ostensible subcontractor rule.

The GAO rejected Marshall’s argument, writing, “Marshall confuses the standard for determining whether an agency may accept on its face a small business’s self-certification when its offer is being considered for award, and whether there is a reasonable expectation that two or more offers will be submitted by capable small businesses.”  The GAO denied Marshall’s protest.

The GAO reached the only reasonable conclusion in the Marshall & Swift-Boeckh protest.  Under the ostensible subcontractor rule, the SBA is to consider “all aspects” of the relationship between the prime contractor and its subcontractor, including the proposal and teaming agreement.  Such an analysis would be impossible at the time a set-aside determination is made, because the prospective small businesses in question would not yet have created their proposals, and probably would not have executed teaming agreements, either.  In other words, this early in the procurement process, the SBA simply would not have the information necessary to make a reasonable judgment as to ostensible subcontractor affiliation.

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