Inexperienced small government contractors sometimes rely primarily (or completely) on larger subcontractors to boost their past performance scores. Although this practice sometimes results in better past performance scores, there are two risks small government contractors should be aware of when it comes to relying on a subcontractor’s past performance: poor evaluations and ostensible subcontractor affiliation.
A recent GAO bid protest decision, coupled with a decision of the SBA Office of Hearings and Appeals, demonstrates how each risk may affect a small government contractor.
The GAO bid protest decision, West Construction, Inc., B-406511 (June 15, 2012), involved a VA solicitation for design-build construction services. West Construction, Inc., which had no design-build experience of its own, submitted a proposal. The VA downgraded West’s proposal, stating that West had no design-build experience, and awarded the contract to one of West’s competitors.
West filed a GAO bid protest, alleging that the VA had improperly downgraded its proposal because West’s teammates had design-build experience. The GAO rejected this basis of protest, explaining that the agency could properly assess whether West itself, as the prime contractor, possessed the relevant experience.
West’s situation is a good reminder that although FAR 15.305 states that procuring agencies “should” take into account the past performance of critical subcontractors, agencies are not required to allow a prime contractor to substitute a subcontractor’s experience for its own. Particularly in small business set-asides, when agencies know that the prime contractor must perform a significant portion of the work with its own forces, the agency may be hesitant to assign the team high past performance marks based solely on the subcontractor’s experience.
If being downgraded for insufficient past performance is bad, being kicked out of the competition due to a successful size protest is even worse. However, as seen in the decision of the SBA Office of Hearings and Appeals in Size Appeal of Earthcare Solutions, Inc., SBA No. SIZ-5183 (2011), relying on a large subcontractor for key past performance can be a major risk factor for ostensible subcontractor affiliation.
The Earthcare Solutions SBA size appeal involved an EPA solicitation for emergency rapid response services. Earthcare Solutions, Inc. submitted a proposal, identifying a large business, WRS, as its major subcontractor. After the EPA announced that Earthcare was the apparent successful offeror, a competitor filed a SBA size protest, alleging in part that Earthcare lacked sufficient experience in its own right to perform the contract without undue reliance on WRS.
The SBA reviewed Earthcare’s proposal, focusing on the past performance section. It noted that Earthcare had listed six of its own contracts, but that none of them called for the provision of emergency and rapid response remediation services involving hazardous materials. In contrast, the proposal identified ten of WRS’s previous efforts–nine of which involved the type of work to be performed under the EPA contract.
Based on the past performance information and other factors, the SBA Area Office found Earthcare and WRS affiliated under the ostensible subcontractor rule. On appeal, SBA OHA agreed. It wrote:
“It is also clear from Appellant’s proposal that Appellant relied heavily upon WRS’s experience to establish the team’s relevant past performance. Only the contracts listed for WRS’s past performance involved emergency and rapid response remediation services involving hazardous materials. Appellant’s own contracts involved mostly transportation and disposal of non-hazardous materials and soil excavation, and the contracts performed by Appellant’s other subcontractor involved demolition and environmental remediation. Thus, without WRS’s experience, the team would have no experience with emergency and rapid response remediation services involving hazardous materials, the primary and vital contract task.”
SBA OHA upheld the SBA Area Office’s finding that the team had violated the ostensible subcontractor rule, causing Earthcare to be excluded from the competition for size reasons.
Working with a large and experienced subcontractor can bring significant benefits, but as the West Construction and Earthcare Solutions cases demonstrate, undue reliance on a subcontractor’s past performance can carry risks, as well. Small government contractors should be aware of the risks, and plan accordingly when establishing teaming relationships with more experienced companies.