Ostensible Subcontractor Rule: A Look At A Compliant Team

The ostensible subcontractor rule can be challenging, because there is no magic formula for compliance.  When a protester raises an ostensible subcontractor rule allegation, the SBA evaluates all aspects of the prime/subcontractor relationship to see whether the ostensible subcontractor rule was violated.  If the SBA concludes that the small prime contractor is unduly reliant on it subcontractor, and/or the subcontractor will perform the primary and vital portions of the contract, it will find the prime affiliated with its subcontractor.

Although there is no single recipe for ostensible subcontractor rule success, it can be useful to examine SBA Office of Hearings and Appeals cases to see exactly what sort of prime/sub relationships SBA OHA deems problematic–and which pass muster.  Today’s post is in the latter category: a recent SBA OHA decision finding that the ostensible subcontractor rule had not been violated.

What did the prime and subcontractor in that case do right?

SBA OHA’s decision in Size Appeal of Alutiiq Education & Training, LLC, SBA No. SIZ-5371 (2012) involved a Department of Labor small business set-aside solicitation for a contractor to run the Job Corps center in Cleveland.  After evaluating proposals, the DOL announced that Serrato Corporation was the apparent successful offeror.
Alutiiq Education & Training, LLC, an unsuccessful competitor, filed a SBA size protest.  Alutiiq contended that Serrato was ineligible because it was affiliated with Horizon Youth Services, or HYS.  Alutiiq’s primary allegation was that HYS was Serrato’s ostensible subcontractor.
The SBA Area Office held that Serrato and HYS had not violated the ostensible subcontractor rule, and SBA OHA agreed.  SBA OHA noted the following in favor of the teammates:
  • HYS was not the incumbent for the Job Corps contract work.
  • Serrato would provide the overall project manager and most of the other managerial personnel.  HYS would provide the deputy project manager and a few other managerial personnel.
  • Serrato would provide most of the key personnel.
  • Serrato would provide 90 employees total, whereas HYS would provide 68.
  • Serrato had relevant experience in the line of work.
  • The parties’ proposal only listed Serrato’s past projects in the past performance section, and none of HYS’s.
  • Serrato would manage and perform the key portions of the contract.

SBA summed up: “it is clear that Serrato will be performing the majority of the work under the contract, is not reliant upon any other concern for its past performance rating, will manage the contract and will provide most of the key employees . . . [a]ccordingly, I conclude that Serrato is not unusually reliant upon HYS, nor is HYS performing the primary and vital functions of this contract, and Serrato is not in violation of the ostensible subcontractor rule.”

SBA OHA’s decision in Alutiiq Education & Training is not a perfect road map to ostensible subcontractor rule success, because the SBA evaluates ostensible subcontractor issues on a case-by-case basis.  Nevertheless, the case demonstrates that when the small prime contractor provides the top manager, most of the key employees, the majority of the overall employees, and does not rely upon the subcontractor for past performance, the relationship has a good chance of being deemed compliant–particularly when the subcontractor is not the incumbent.

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