Sorry, Subcontractor: No SBA Size Appeal For You

When the SBA found a subcontractor to be affiliated with its prime contractor under the ostensible subcontractor rule, the subcontractor could not appeal the SBA’s finding to the SBA Office of Hearings and Appeals.

In a recent size appeal decision, OHA held that a subcontractor lacks the ability to file a size appeal because the subcontractor is not directly affected by the size determination.

OHA’s decision in Size Appeal of Doss Aviation, Inc., SBA No. SIZ-5648 (2015) involved a Department of Defense set-aside solicitation.  After award was made to Hughes Group LLC, the SBA Area Office conducted a size determination.  The SBA Area Office determined that Hughes Group was not an eligible small business due to affiliation with a large subcontractor, Doss Aviation, Inc., under the ostensible subcontractor affiliation rule.

Doss Aviation filed a size appeal.  OHA responded by asking Doss to explain why, as a subcontractor, it had standing to file a size appeal.  OHA directed Doss to previous OHA size decisions, in which OHA held that an alleged affiliate, whose own size was not at issue in the size determination, has no “direct stake” in the outcome of a size appeal, and thus lacks standing to initiate a size appeal.

Doss wrote that the SBA’s prior decisions did not adopt a “per se” rule against subcontractors filing size appeals.  Doss explained that the SBA’s size determination impaired its ability to continue performing its subcontract with Hughes Group, and thus harmed Doss financially.  Because the size determination had caused it economic harm, Doss argued that it should be allowed to appeal the size determination.

OHA noted that, under the SBA’s regulations, a size appeal may only be filed by an entity that is “adversely affected by a size determination.”  Additionally, OHA has held that it will only accept a size appeal by an entity with a “direct stake in the outcome of the case.”

OHA wrote that “the economic injury of losing a subcontract does not meet the regulatory definition of being adversely affected” by a size determination.  Additionally, “contrary to [Doss’s] contention, OHA has in fact established . . . a per se rule that an alleged affiliate whose own size is not at issue lacks standing to appeal a size determination.” OHA dismissed Doss’s size appeal.

It seems a little odd to say that a company is not “adversely affected” by losing a subcontract.  Nevertheless, I think good policy reasons exist for limiting size appeals to those “directly” affected by the decisions; that is, the prime contractors themselves.  A prime contractor is responsible for its proposal and its team, and if it does not wish to appeal an adverse size determination, then its wishes should govern.

Of course, a subcontractor’s size appeal might not result from disagreement between the prime contractor and subcontractor.  Even when both the small prime contractor and subcontractor wish to appeal, it might be tempting for the subcontractor to take the lead.  After all, in many cases, a large subcontractor is better-positioned to absorb the costs of an appeal.  There is no rule against the companies working out an agreement under which the subcontractor pays for the size appeal.  But, as Doss Aviation demonstrates, when the size appeal is filed, it must be under the prime contractor’s name, or it will be dismissed.

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