No SBA Prior Approval of Teaming Agreement Leads to 8(a) Program Termination

In a case that ought to make 8(a) participants sit up and take notice, an 8(a) company was terminated from the 8(a) program for failing to obtain the SBA’s prior approval of its teaming agreement for an 8(a) contract–and the SBA Office of Hearings and Appeals upheld the termination.

SBA OHA’s decision in Appeal of Accent Services Co., Inc., SBA No. BDP-421 (2011) involved an 8(a) program participant, Accent Services Co., Inc.  Accent was admitted to the 8(a) program in 2003.

Like all new 8(a) participants, Accent signed an 8(a) Participation Agreement.  The 8(a) Participation Agreement provided that Accent could be terminated for the program for a wide variety of reasons, including “failure by the concern to obtain prior SBA approval of any management agreement, joint venture agreement or other agreement relative to the performance” of an 8(a) contract.

In 2004, Accent entered into a Master Subcontract Agreement, or MSA, with a company named Teltara, LLC.  In 2005, Accent entered into a Teaming Agreement with Teltara.  According to the Teaming Agreement, Accent would “serve as Prime contractor on behalf of the Team (Accent and Teltara) in connection with Unrestricted Small Business and 8(a) set aside and sole source requirements.”  Accent did not seek or obtain the SBA’s approval before entering into the MSA or Teaming Agreement with Teltara.

In 2009, the SBA discovered the existence of the MSA and in 2011 the SBA learned of the Teaming Agreement.  The SBA subsequently notified Accent of the SBA’s intent to terminate Accent from the 8(a) program.  Among the reasons for the proposed termination was the SBA’s allegation that Accent had violated its Participation Agreement by failing to obtain the SBA’s prior approval of the Teaming Agreement.

Accent responded to the termination notice by arguing that, according to the SBA’s own 8(a) Standard Operating Procedure, or SOP, the SBA “is not normally involved with” teaming agreements “and “is not required to review or approve them.”  Accent argued that it was entitled to rely upon the SOP and had done nothing wrong by failing to seek the SBA’s prior approval of the Teaming Agreement.

The SBA rejected Accent’s explanations and issued a letter terminating Accent from the 8(a) program.  Accent then appealed its termination to SBA OHA.

SBA OHA agreed with the SBA, holding that “[Accent’s] contention that it was not required to obtain prior approval for the Teaming Agreement is meritless.”  SBA OHA pointed out that, by its terms, the Teaming Agreement is “related to the performance of a Section 8(a) contract,” precisely the standard for prior approval contained in Accent’s 8(a) Participation Agreement.

SBA OHA wrote that Accent was not entitled to rely on the 8(a) SOP as a basis to withhold its Teaming Agreement from the SBA, because “the SOP cannot override the regulation.”  SBA OHA explained that “the applicable regulation provides that a Participant may be terminated from further participation in the 8(a) BD Program if the Participant materially breaches any of the terms and conditions of the 8(a) BD Program Participation Agreement.”  In this case, despite the language contained in the 8(a) SOP, “[i]t is clear that [Accent] breached its 8(a) BD Program Participation Agreement when [Accent] did not seek and obtain prior approval from the SBA before entering the Teaming Agreement.”

Having found that Accent breached its 8(a) Participation Agreement, SBA OHA then held that the breach was material, such as to justify termination from the 8(a) program.  SBA OHA wrote, “[b]ecause a teaming agreement has the potential to negatively affect the continued eligibility of a Participant it is important that these agreements, as they relate to the performance of a section 8(a) contract, be submitted to the SBA by the Participant prior to entering into them.  That is why this provision was included in the Participation Agreement.”  SBA OHA upheld the SBA’s decision terminating Accent from the 8(a) Program.

My initial reaction to the Accent Services Co. case is sympathy for Accent.  After all, countless 8(a) participants have entered into teaming agreements without the SBA’s prior approval and have not been terminated from the 8(a) program.  In that respect, Accent got a raw deal.

That said, the Accent Services Co. case is perfectly clear: an 8(a) participant can be validly terminated from the 8(a) program for failing to obtain the SBA’s prior approval of a teaming agreement.  Current 8(a) participants would be wise to take SBA OHA’s decision to heart and consult with their SBA representatives before entering into teaming agreements, or run the risk–even if the risk is small–that an unapproved teaming agreement could spell the end of the company’s time in the 8(a) program.

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