Ostensible Subcontractor Rule: Size Determined as of the Date of Final Proposal

For the purposes of the ostensible subcontractor rule, a firm’s small business size is determined as of the date of final proposal revisions.

As demonstrated in a recent SBA Office of Hearings and Appeals decision, any changes to the relationship between the prime contractor and subcontractor made after the date of final proposal have little to no bearing in determining compliance with the ostensible subcontractor rule.

SBA OHA’s decision in Size Appeal of WG Pitts Company, SBA No. SIZ-5575 (2014) involved the Defense Commissary Agency’s request for linen/mat rental and cleaning services at 22 commissaries located across seven states and the District of Columbia. The solicitation was set-aside for small businesses under a $35.5 million size standard.

WG Pitts submitted a proposal. In its initial proposal, WG Pitts stated that it is “proud to team with Cintas Corporation to facilitate this procurement”; no other planned subcontractors were identified. In response to questions from the contracting officer, WG Pitts confirmed that it would be performing at least 50% of the cost of contract performance and asserted that “Cintas agrees to conform to all sub-contractor requirements.”

Following the announcement that WG Pitts was the awardee for seven commissaries, the contracting officer filed a size protest. The SBA Area Office determined that the primary and vital contract requirements would be performed by Cintas in violation of the ostensible subcontractor rule. Because Cintas was not a small business under the $35.5 million size standard, the ostensible subcontractor affiliation caused WG Pitts to exceed the size standard.

WG Pitts filed a size appeal with SBA OHA. WG Pitts argued that the Area Office improperly concluded that WG Pitts was affiliated with Cintas. WG Pitts contended that at the time of the proposal submission it could not predict which commissaries it might ultimately be awarded and it did not want to pin down subcontractors until actual locations were known. WG Pitts further argued that the reference to Cintas in the discussion questions was to show the agency that it could handle whatever business might be awarded and that it did not intend to use Cintas at all locations. Ultimately, Cintas was only used as a subcontractor at one of the seven commissaries.

SBA OHA rejected WG Pitts’ arguments. SBA OHA wrote that “for purposes of the ostensible subcontractor rule, size is determined as of the date of final proposal revisions.” Further, “OHA has repeatedly held that changes of approach occurring after the date of final proposals have little, if any, bearing in determining compliance with the ostensible subcontractor rule.”

In this case, SBA OHA noted that the time of final proposal revisions, WG Pitts proposal only identified Cintas as a subcontractor, and WG Pitts’ responses to discussion questions indicated that Cintas would perform the pick-up delivery, and cleaning functions which were the primary and vital contract requirements. Although the relationship between WG Pitts and Cintas changed after the final proposal was submitted, and Cintas ultimately would work at only one of seven sites, that change came too late to affect the ostensible subcontractor analysis.

The WG Pitts case demonstrates that, after the final proposal is submitted, it is likely too late to “fix” an ostensible subcontractor problem.  Small contractors should take note.

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