SBA Size Determination “Not Relevant” To Subcontracting Limitation Allegation

A SBA size determination, in which the SBA found a contractor to be an eligible small business for purposes of a particular procurement, was irrelevant to the question of whether the same contractor would violate the limitation on subcontracting under a different solicitation.

In a recent bid protest decision, the GAO (correctly) rejected the procuring agency’s argument that a recent SBA size determination was evidence that a contractor would comply with the subcontracting limitation.

The GAO’s decision in in Geiler/Schrudde & Zimmerman, B-412219 et al. (Jan. 7, 2016) involved a VA procurement to upgrade the chiller plant at the VA Medical Center in Lexington, Kentucky.  The VA issued the solicitation as a SDVOSB set-aside, and assigned a general construction NAICS code.

As required for VA SDVOSB set-asides, the solicitation included VAAR 852.219-10 (VA Notice of Total Service-Disabled Veteran-Owned Small Business Set-Aside).  VAAR 852.219-10 establishes the limitations on subcontracting for VA SDVOSB set-asides.  For general construction contracts, VAAR 852.219-10 requires the SDVOSB prime contractor to agree that at least 15 percent of the cost of contract performance incurred for personnel will be spent on the employees of the SDVOSB prime contractor or other eligible SDVOSBs.

After evaluating competitive proposals, the VA made award to Innovative Support Solutions, Inc.  Geiler/Schrudde & Zimmerman JV, an unsuccessful competitor, subsequently filed a GAO bid protest.  GSZ contended, in part, that ISS’s proposal, “on its face,” should have led the VA to conclude that ISS did not intend to comply with the subcontracting limits under VAAR 852.219-10.

Instead of directly responding to this argument, the VA submitted a size determination issued by the SBA for ISS in connection with a different procurement.  The VA argued that GSZ’s protest should be denied because the “SBA recently affirmed ISS as a small business” and found that ISS “is not unusually reliant on its subcontractors to complete the work required.”

The GAO rejected this contention.  It wrote that “the SBA’s size determination is not relevant to GSZ’s arguments here because it pertains to an entirely different procurement, which was issued under a different [NAICS] code, with a different corresponding size standard, and which had a different statement of work.”  The GAO continued, “[t]he SBA’s size determination is also not relevant because it does not address GSZ’s arguments here, which pertain to the technical acceptability of ISS’s proposal, not its status as a small business concern.”

However, although the GAO concluded that the prior SBA size determination was irrelevant, the GAO found that there was nothing on the face of ISS’s proposal that should have caused the VA to conclude that ISS would violate the limitation on subcontracting.  The GAO denied GSZ’s protest.

The GAO’s decision doesn’t explain why the VA submitted a SBA size determination in connection with this GAO bid protest.  My best guess is that the VA didn’t really understand how the SBA’s size rules work.  It is a common misconception that, if the SBA has recently determined that a contractor is a small business, that contractor has been “certified” as small by the SBA for other procurements.  Not so.

As the GAO confirmed in Geiler/Schrudde & Zimmerman, a size determination issued in connection with a particular procurement applies to that procurement–no more, and no less.  Just because a contractor has been determined to be a small business for purposes of one contract doesn’t mean it is eligible for another.  This makes sense: not only do solicitations vary greatly, but a small business’s proposed subcontracting practices can also vary considerably from one project to another, too.

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