What happens when an SBA area office finds a joint venture compliant with SBA rules in a size protest, but SBA’s Office of Hearings and Appeals says the same agreement fails to meet requirements in a status protest? Let’s find out.
KTS Sols., Inc., SBA No. SIZ-6049 (Feb. 28, 2020), involved a United States Department of Veterans Affairs’ solicitation for non-emergency special mode transportation services to be issued as an indefinite delivery/indefinite quantity contract. It was 100% set aside for Service-Disabled Veteran-Owned Small Businesses (SDVOSBs) under North American Industry Classification System code 485991, with a corresponding size standard of $16.5 million.
28 Trans, LLC, a mentor-protégé joint venture, and one other offeror were named the awardees under the contract. Subsequently, the SBA area office received a size protest alleging that 28 Trans was not a small business because the protégé member of the venture could not demonstrate that it could perform 40% of the joint venture’s work in accordance with the performance requirements of 13 C.F.R. § 125.18(b)(3). And if the small business did not perform 40% of the work, the venturers would be deemed affiliates with their sizes aggregated.
The mentor-protégé agreement said that the protégé would specialize in “providing [special mode transportation services] for special needs passengers, including stretcher, wheelchair, and other ambulatory beneficiaries of the Veterans Administration” under the NAICS code 488999. And it said that the mentor would assist the protégé in Management and Technical Assistance, Financial Assistance, Contracting, Business Development Assistance, and General and/or Administrative Assistance.
The joint venture agreement named the protégé as 51% owner and the mentor as 49% owner. It also named the protégé as the managing member, with final decision-making authority on all operational issues, which would employ the project manager.
As relevant here, it said the joint venture “would purchase the major equipment necessary to perform the contract,” including vehicles modified to accommodate wheelchairs and stretchers, and “other major equipment necessary for the joint venture to perform under the contracts it obtains when such contracts are obtained.” It also said that the joint venture would “provide a detailed schedule of the vehicles or the cost or value thereof when it obtains specific contracts.”
In listing the venturers’ responsibilities, the joint venture agreement said, “the manner in which the joint venture will perform under contracts it obtains will be determined by the requirements of the contracts the joint venture obtains.” And it said, “at all times, employees of the Managing Member will be responsible for performing no less than 40% of the non-administrative services to be performed on each contract obtained by the joint venture and no less than 40% of the total work performed by the joint venture.”
In response to the size protest, SBA’s area office determined that 28 Trans was a small business under the $16.5 million size standard. It found that 28 Trans’ joint venture agreement complied with SBA’s regulations for SDVOSB joint ventures and its approved mentor-protégé agreement (which met SBA’s requirements for approval) shielded the venturers from affiliation.
The protester appealed the area office’s decision, alleging that it failed to analyze how the small business venturer would perform 40% of the work and only relied on a conclusory statement that the joint venture would meet this requirement.
Concurrent with the size protest, there was also an SDVOSB status protest at OHA. The protest alleged that 28 Trans’ joint venture agreement failed to meet SBA’s requirements at 13 C.F.R. § 125.18(b)(2)(vi) and (vii).
OHA issued its decision in the SDVOSB status protest, KTS Solutions, Inc., SBA No. CVE-146-P (2020), after the area office’s size determination. Unlike the area office, OHA found that 28 Trans’ joint venture agreement failed to meet the SBA’s requirements for SDVOSB joint ventures. Specifically, OHA found that the agreement failed to:
(1) itemize the equipment to be used in the performance of the contract; (2) specify the responsibilities of the parties with respect to negotiation of the contract, source of labor, and contract performance; and (3) indicate the tasks that each member of the joint venture would perform on the contract, or which employees of each member would perform the functions.
In issuing its decision for the size appeal, OHA explained:
Appellant has the burden of proving, by a preponderance of the evidence, all elements of the appeal. Specifically, Appellant must prove the size determination is based upon a clear error of fact or law. 13 C.F.R. § 134.314. OHA will disturb an area office’s size determination only if, after reviewing the record, the administrative judge has a definite and firm conviction that the area office erred in making its key findings of fact or law.
OHA then applied its decision from the SDVOSB status protest to the size appeal, stating:
In order to be found an eligible SDVOSB, a joint venture, between an SDVOSB protégé and its SBA-approved mentor, must meet the requirements of 13 C.F.R. § 125.18(b)(2). These are the same requirements a joint venture between an SDVOSB protégé and its mentor must meet to earn the exclusion from a finding of affiliation under 13 C.F.R. § 121.103(h)(3)(ii).
As such, OHA found that 28 Trans’ joint venture agreement had also failed to meet the requirements of the regulation which would exclude it from a finding of affiliation under 13 C.F.R. § 121.103(h)(3)(ii).
OHA concluded that the area office clearly erred in its analysis of the joint venture agreement. As such, OHA granted the appeal and remanded the area office’s “decision for a new size determination consistent with the previously adjudicated decision regarding the compliance of 28 Trans’ JVA with the regulations.”
It is common for protesters to protest a company’s size and status at SBA. But there are not a lot of decisions that provide guidance as to how SBA will deal with conflicting decisions in such instances. This decision shines some light on the process for future protesters.
Questions about this post? Email us or give us a call at 785-200-8919.
Looking for the latest government contracting legal news? Sign up here for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook.