SBA Confirms that Size Status Relates Back to Time of Offer, Even After Sale of Small Business

Over the years, SBA size regulations have included the general rule that the size status of a business generally relates back the time of initial offer on a contract. Therefore, a small business generally stays small for the duration of a federal contract, with some exceptions. However, there was also language in the rule that required small businesses to recertify their size status after being acquired or going through similar transactions. The effect of this recertification requirement was always a little unclear. If you recertify as large, does that have any effect on your small business status for orders under contracts awarded when the business was small? Now, OHA has answered that concern.

In Odyssey Sys. Consulting Grp., Ltd., SBA No. SIZ-6135, 2021 (Dec. 23, 2021), OHA considered an appeal of size protest by Odyssey for two GSA OASIS contract task order awards to Millennium Engineering and Integration LLC (MEI) for technical and engineering support services under the small business pool. The task order solicitation “did not include any express language requesting or requiring that an OASIS prime contractor must certify or recertify its size for this task order.”

The OASIS contract included requirements for a contractor to notify GSA if certain events occurred related to the ownership or identity of the contractor, including mergers, acquisitions, ovations, and name changes. In that case, the contractor had to notify the contracting officer. The contract also included FAR 52.219-28, Post-Award Small Business Program Re-Representation, which required the contractor to notify the CO within 30 days if there was a novation, merger, or acquisition.

The contract also provided for offramping if the contractor became a large business after the novation, merger, or acquisition:

After the execution of a novation agreement or, after a merger or acquisition that does not require a novation, if the Contractor’s size standard changes from a small business concern to other than a small business concern and the Contractor has active task orders, including the exercise of options and modifications at the task order level, the Contractor shall be placed in Dormant Status immediately in accordance with Section H.16. After all the active task orders are closed out, the Contractor shall be Off-Ramped in accordance with Section H.17. 

The protester argued that the recertification requirements at 13 C.F.R. § 121.404(g)(2) (requiring recertification after a merger, sale, or acquisition) meant that the agency was requesting size recertification in connection with the task order awards.

The provision at 13 C.F.R. § 121.404(g)(2) states:

(g) Effect of size certification and recertification. A concern that represents itself as a small business and qualifies as small at the time it submits its initial offer (or other formal response to a solicitation) which includes price is generally considered to be a small business throughout the life of that contract. Similarly, a concern that represents itself as a small business and qualifies as small after a required recertification under paragraph (g)(1), (2), or (3) of this section is generally considered to be a small business[] throughout the life of that contract. Where a concern grows to be other than small, the procuring agency may exercise options and still count the award as an award to a small business, except that a required recertification as other than small under paragraph (g)(1), (2), or (3) of this section changes the firm’s status for future options and orders. The following exceptions apply to this paragraph (g): … 

(2)(i) In the case of a merger, sale, or acquisition, where contract novation is not required, the contractor must, within 30 days of the transaction becoming final, recertify its small business size status to the procuring agency, or inform the procuring agency that it is other than small. If the contractor is other than small, the agency can no longer count the options or orders issued pursuant to the contract, from that point forward, towards its small business goals. The agency and the contractor must immediately revise all applicable Federal contract databases to reflect the new size status. … 

(iii) If the merger, sale or acquisition occurs after offer but prior to award, the offeror must recertify its size to the contracting officer prior to award. If the merger, sale or acquisition (including agreements in principal) occurs within 180 days of the date of an offer and the offeror is unable to recertify as small, it will not be eligible as a small business to receive the award of the contract. If the merger, sale or acquisition (including agreements in principal) occurs more than 180 days after the date of an offer, award can be made, but it will not count as an award to small business.

The protester argued that this SBA rule requires recertification at the time of the the acquisition of the small business. The Area Office determined that the SBA’s rules at 13 C.F.R. § 121.404(g)(2) do not change timeliness rules for size protests, so the protester’s size protest was untimely.

Odyssey then appealed to SBA Office of Hearings and Appeals, arguing in part that the SBA rule at 13 C.F.R. § 121.404(g)(2)(iii) mean that a “request for recertification must occur by operation of law in every solicitation.” The SBA provided commentary on the appeal, arguing that the “regulatory requirement to recertify size following a merger, sale, or acquisition is not a CO request for size certification in connection with an individual order.”

OHA denied the appeal, holding that the size protest was not timely. OHA wrote:

I agree with SBA and MEI that the most reasonable interpretation of § 121.404(g)(4) is that, when, as here, the underlying MAC itself was set aside for small businesses, the consequence of a merger or acquisition involving a prime contractor is not that the prime contractor becomes ineligible for award of pending or future task orders, but rather that the procuring agency cannot claim goaling credit for those orders.

OHA has clarified any ambiguity with respect to the requirement for recertification after a merger or acquisition. The sole effect is that the agency can no longer count the award as a small business award for goaling purposes. But it has no effect on the small business status for a contractor for future task orders. This is an important clarification of the language in the size regulations. It’s likely the same interpretation would apply to similar recertification requirements under other socioeconomic set-asides, for instance the SDVOSB rules in 13 CFR § 125.18(e)(1)(ii).

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