SBA “Adverse Impact” Analysis Not Required For Large Business

The SBA was not required to conduct an “adverse impact” analysis before placing a procurement under the 8(a) program because the company requesting the adverse impact analysis was not a small business under the incumbent contract.

In a recent bid protest decision, the GAO held that the incumbent contractor–which, according to the SBA, had violated the ostensible subcontractor affiliation rule–was not entitled to insist on an adverse impact analysis.

The GAO’s decision in Professional Security Corporation, B-410606 (Jan. 13, 2015) involved a procurement for security guard services at two Centers for Disease Control and Prevention offices.  The procurement combined the requirements of two previous contracts for guard services–one in Atlanta, and the other in Fort Collins, Colorado.

Historically, the Atlanta-area guard services requirement had been performed by a large business, Walden Security.  In 2012, the CDC decided to re-procure the Atlanta guard services using a small business set-aside solicitation.

Professional Security Corporation was awarded the Atlanta contract.  PSC proposed to use Walden–the incumbent large business–as its major subcontractor.

A competitor filed a size protest, alleging that PSC was unduly reliant on Walden for performance of the contract and was largely incapable of performing the contract without Walden.  The SBA held that PSC was affiliated with Walden under the ostensible subcontractor affiliation rule.  The size determination was upheld by the SBA Office of Hearings and Appeals.

At the time that OHA reached its final determination, PSC and Walden were in the midst of performing the base year of the contract.  The CDC allowed the base term to continue, but in light of the SBA’s findings, elected not to exercise the remaining options of the contract.

Instead of re-procuring the Atlanta services under a separate solicitation, the CDC elected to consolidate the requirement with a guard services requirement being performed by Chenega Total Asset Protection LLC, an ANC, under an 8(a) vehicle.  In September 2014, the CDC informed PSC that the Atlanta requirement had been awarded to Chenega through the 8(a) Program.

PSC filed a GAO bid protest.  PSC primarily argued that the placement of the Atlanta guard requirement in the 8(a) Program was improper because the SBA failed to conduct an adverse impact analysis.  Under the SBA’s 8(a) Program regulations, the SBA may not accept any procurement for award as an 8(a) contract if doing so would have an adverse impact on an individual small business, a group of small businesses in a specific geographic location, or other small business programs.

The CDC and SBA argued, in part, that no adverse impact analysis was required because PSC was not a small business with respect to the incumbent Atlanta guard contract.  The agencies noted that the SBA had deemed PSC to be a large business for purposes of that contract due to ostensible subcontractor affiliation, and thus PSC “should not benefit from a scheme designed to protect small business concerns.”

The GAO agreed with the CDC and SBA.  The GAO noted that “SBA conclusively found that PSC is not a small business for purposes of its performance on the incumbent Atlanta-area guard services contract.”  The GAO concluded, “[s]ince PSC was found to be other-than-small by SBA’s OHA with respect to its prior contract for the Atlanta-area guard services, we agree with the SBA that the agency was not required to consider any adverse impact on PSC owing to its performance on that contract.”  The GAO denied PSC’s protest.

The adverse impact rule provides an important protection for small businesses who might lose the opportunity to re-bid on incumbent work if that work is moved to the 8(a) Program.  But as the Professional Security Corporation case demonstrates, the adverse impact rule does not protect large incumbent contractors–including an incumbent that is “large” due to ostensible subcontractor affiliation.

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