Too Late for Take-Backs: Ostensible Subcontractor Analysis Won’t Consider Post-Proposal Changes

In Warrior Service Company, LLC, SBA No. SIZ-6046 (Jan. 24, 2020), the SBA reminded small business contractors that it determines whether a contractor has violated the ostensible subcontractor rule as of the date of bid submission; SBA won’t consider any changes that come later.

In July 2018, the VA issued Request for Proposals No. 36C24618R0507 for home oxygen delivery services in Virginia and North Carolina. In particular, the contractor was required to provide “all supplies, materials, equipment, transportation of equipment, equipment services, labor, supervision, patient education, safety management, and infection control, as necessary, for patients on home respiratory care therapy.” This included delivering, setting up, maintaining, and instructing patients about how to use home oxygen systems. While the work was not entirely set aside for Service-Disabled Veteran-Owned Small Businesses, it was subject to a tiered evaluation scheme where SDVOSBs were considered first. Proposals were due by August 3, 2018.

Warrior Service Company, LLC was deemed the apparent awardee in July 2019, almost a year after it had submitted its proposal. Warrior’s proposal had identified Warrior as the prime contractor, and stated that it would be working alongside a single subcontractor. The proposal also indicated that, while Warrior would manage the contract and “self-perform various administrative functions,” the subcontractor would lend its Technical Capabilities, staff, and equipment to Warrior as needed. Importantly, the proposal also listed the subcontractor’s past performance experience—but not its own—to demonstrate familiarity with the required home oxygen services.

After it was deemed the apparent awardee, the Contracting Officer determined that Warrior was nonresponsible because it hadn’t provided any relevant experience of its own, nor demonstrated that it had the financial resources needed to perform the work. Instead, the Contracting Officer concluded that Warrior’s subcontractor would actually be performing most of the work and providing the necessary equipment and experience. Accordingly, the Contracting Officer referred the matter to the SBA for a Certificate of Competency (COC).

We have talked about COCs before but, in short, where a contracting officer determines that a small business offeror is not qualified to perform under a solicitation, the offeror is typically referred to the SBA for a Certificate of Competency. In response to the COC referral here, Warrior attempted to revise statements made in its initial proposal to indicate that it would self-perform more of the work (and the subcontractor less) than initially indicated .

Despite Warrior’s claims following its COC referral, both the SBA Area Office and OHA agreed: Warrior had not demonstrated that it would play a “meaningful role in performing the contract’s primary and vital requirements.” Instead, the Area Office and OHA concurred that Warrior had violated the ostensible subcontractor rule.

While we have discussed the ostensible subcontractor rule before on the blog (here, here, here, and here, for example), the most important takeaway point from this case is when the rule is triggered. Under 13 C.F.R. § 121.404(d), OHA will determine whether a subcontractor whether a contractor violated the ostensible subcontractor rule “as of the date of [the offeror’s] proposal for the subject procurement.” Even though Warrior attempted to amend what it included in its proposal during the SBA’s COC review, by then it was too late to backtrack.

If you have concerns about the ostensible subcontractor rule and hope to avoid violating it, give Koprince Law a call—before it’s too late to update your proposal!