SBA’s socio-economic set-aside programs mandate compliance with multiple control requirements. An important one stipulates that a woman owner of a WOSB (or a veteran for a SDVOSB or a disadvantaged owner for an 8(a) business) must have the “managerial experience of the extent and complexity to run the concern.”
But what, exactly, does this requirement entail? A recent OHA case provides some important guidance.
In C & E Industrial Service, Inc., SBA No. WOSB-112 (Apr. 8, 2019), a WOSB was awarded a contract for rebuilding four parking lots at the White Sands Missile Range in New Mexico. An unsuccessful offeror filed a protest alleging that the women owners did not, in fact, own C&E. It also alleged that the women owners were not qualified to lead a construction firm. (Although the protest and subsequent proceedings at SBA and OHA discussed ownership and control issues, here we’ll focus solely on the control issues.)
In response, the women owners (one of whom was the president) noted that they had significant managerial responsibilities at the firm, including appointing department heads, assigning/delegating responsibilities, analyzing operations, finding ways to reduce costs, overseeing administrative and field operations, and completing monthly and quarterly reporting. The resumes of these women also indicated that they possessed some business administration experience and that they had spent many years as school bus drivers.
On the other hand, the women owners’ husbands had significant experience in the construction field. One husband had 28 years of experience in welding, commercial fabrication, construction, plumbing, heating and cooling and over 17 years in business ownership, management, and supervision. The other husband had 25 years of industrial construction experience as a supervisor at a machinery and fabricating firm and at a construction company.
SBA, in its initial determination assessing WOSB eligibility, found that the women owners did not have the managerial experience to the extent and complexity needed to run the concern. Although some evidence purported to show that the women owners controlled the firm, this evidence was far outshadowed by 1) their lack of management capability and technical expertise to manage the firm and 2) the fact the neither woman was managing the firm’s day-to-day operations. It also stressed that the women’s husbands had decades of experience in the construction field–experience that the women owners did not have.
On appeal at OHA, whether the women owners had the managerial experience and technical expertise necessary to run the concern took center stage. To analyze this question, OHA used a four-factor test (which is also used to analyze the same requirement for other SBA programs):
The four factors for determining whether a disadvantaged individual for an SBA program possesses “managerial or technical experience and competency” to control the applicant concern are “(1) the characteristics of the applicant concern; (2) the disadvantaged individual’s education and employment history, including supervisory experience, as opposed to that of the non-disadvantaged individuals involved in the firm’s management; (3) the disadvantaged individual’s role at the applicant concern; and (4) the extent of non-disadvantaged individuals’ involvement in the operations of the applicant concern.
Using this test, OHA focused closely on the contrasting experience between the women owners and their husbands. On the one hand, the women owners had experience in the transportation field and performed administrative/financial duties for C & E. On the other hand, their husbands had extensive experience in the construction field–far more than the women owners. On this basis, OHA concluded that SBA “was correct in concluding the women owners lacked the adequate managerial experience to run the concern.”
As OHA’s analysis indicates, this requirement (“managerial experience of the extent and complexity needed to run the concern”) isn’t necessarily focused so much on substantive qualifications. Rather, it seeks to ensure that a woman’s managerial experience is sufficiently extensive, vis-à-vis other highly qualified individuals in the organization, to wield control. If this experience isn’t sufficiently extensive, then other technically qualified employees/officers might be able to effectively usurp control from the woman owner’s hands.
Remember, for most SBA programs, control must be largely consolidated in the individual whose status confers the relevant socio-economic designation. And managerial experience is a key part of an individual’s ability to control a concern–especially if some of his/her employees have significant experience and expertise in the concern’s industry. So, to preserve a concern’s status, be sure that you properly balance the owner’s managerial experience with that of his/her subordinates.
Questions about this post? Or need help with a government contracting legal issue? Email us or give us a call at 785-200-8919.