Late SBA Size Protest Response Sinks Contractor’s Small Business Eligibility

No matter a company’s actual size, the company will be deemed an ineligible large business if it fails to timely respond to a SBA size protest.

Just ask American Blanching Company, which was recently found ineligible for a small business set-aside contract because it did not respond to a SBA size protest within the short size protest response window.

The decision of the SBA Office of Hearings and Appeals in Size Appeal of American Blanching Co., SBA No. SIZ-5430 (2012) involved a Department of Agriculture set-aside solicitation for peanut products.  After evaluating competitive proposals, the agency awarded the contract to American Blanching Company, or ABC, on September 13, 2012.

On October 16, 2012, the agency’s Contracting Officer filed his own SBA size protest, challenging ABC’s eligibility.  (As I have noted previously, contracting officers can and do file size protests–and COs are not bound by the five-day timeliness rule that applies to competitors).  The CO contended that ABC was not an eligible small business because it is owned by a large company.

On October 18, 2012, 2012, the SBA Area Office sent a letter to ABC notifying it of the size protest.  The letter directed ABC to provide the standard documentation required in a size protest: SBA Form 355, a copy of the company’s bylaws, financial statements, and so on.  The letter stated that all of the requested documents must be provided to the SBA Area Office within three working days of ABC’s receipt of the letter, and further stated that if ABC did not provide the requested documentation within the three-day period, “SBA may determine your company to be other than a small business.”

By October 25, 2012, the SBA Area Office had received no response to its letter.  The SBA Area Office issued a size determination finding ABC to be an ineligible small business under the so-called “adverse inference rule,” which allows the SBA to assume that if a protested company has failed to provide relevant requested information, that information would demonstrate that the company is not a small business.

On November 7, 2012, ABC appealed the size determination to SBA OHA.  ABC contended that its failure to respond to the SBA Area Office should be excused because this was its first encounter with the SBA, and because ABC believed that it had previously answered all relevant questions regarding its size during discussions with the CO.  ABC asked SBA OHA to consider evidence that ABC said demonstrated that the large business in question did not control ABC.

SBA OHA held that the SBA Area Office had properly applied the adverse inference rule, writing that the case “presents the clearest factual scenario possible for an application of the adverse inference rule–the protested concern failed to submit any response to the protest or any documentation at all to the Area Office.”  SBA OHA continued, “[w]ithout any information from the protested concern, the Area Office was unable to conduct a size determination and had no choice but to apply the adverse inference rule.”

SBA OHA rejected ABC’s argument that its untimely response should be excused.  “The regulation clearly requires that the protested concern communicate with the SBA,” SBA OHA wrote.  “[T]here is no second bite at the apple for a concern that did not take the trouble to understand the regulation the first time.”  SBA OHA refused to consider ABC’s evidence regarding its relationship with the large business, holding that ABC’s failure to timely respond to the SBA size protest essentially waived ABC’s right to present such evidence.  SBA OHA denied the size protest.

Was American Blanching Company actually a small business?  There is no way to know.  For the SBA’s purposes, ABC’s failure to timely respond to the SBA size protest rendered ABC an ineligible large business, regardless of ABC’s actual size.

The American Blanching Company SBA size appeal decision demonstrates the critical importance of timely responding to a SBA size protest.  Typically, the SBA Area Office only allows three business days for a response, although a small business may be able to get a few more days if it requests an extension.  However, as seen in American Blanching Company, failing to timely respond within the allotted time can be fatal–with no second bite at the apple.

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