Ostensible subcontractor affiliation was not created when the small prime contractor proposed to hire its subcontractor’s current employee to serve as the prime contractor’s project manager.
In a recent size appeal decision, the SBA Office of Hearings and Appeals held that, where the prime contractor would retain supervision and control of contract performance, the prime contractor was not dependent on its subcontractor for contract management.
To determine whether ostensible subcontractor affiliation exists between a prime contractor and its subcontractor, the SBA must use the prime contractor’s final proposal revision.
In a recent size appeal decision, the SBA Office of Hearings and Appeals overturned an SBA Area Office affiliation determination that did not contemplate an offeror’s final proposal.
An 8(a) small business was found to be affiliated with its large subcontractor under the ostensible subcontractor rule based in part on the fact that the large subcontractor was providing mentoring services to the small business–even though the SBA had rejected a proposed mentor-protege agreement between the companies.
The recent decision of the SBA Office of Hearings and Appeals in Size Appeal of Brown & Pipkins LLC, SBA No. SIZ-5621 (2014) is a warning to 8(a) firms about the potential dangers of accepting mentoring services outside the confines of a SBA-approved mentor-protege agreement.
The SBA was not required to conduct an “adverse impact” analysis before placing a procurement under the 8(a) program because the company requesting the adverse impact analysis was not a small business under the incumbent contract.
In a recent bid protest decision, the GAO held that the incumbent contractor–which, according to the SBA, had violated the ostensible subcontractor affiliation rule–was not entitled to insist on an adverse impact analysis.
The ostensible subcontractor affiliation rule would be modified to include an exception for “similarly situated” entities serving as subcontractors, if a recent rule change proposed by the SBA goes into effect.
Under the SBA’s proposal, a small business would be exempt from ostensible subcontractor affiliation with another small business for a small business set-aside contract, an 8(a) participant with another 8(a) participant for an 8(a) set-aside contract, and so on.
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.
When it comes to the SBA’s ostensible subcontractor rule, managing a contract, by itself, is not enough to avoid affiliation.
As demonstrated in a recent decision of the SBA Office of Hearings and Appeals, a small business and its subcontractor violate the ostensible subcontractor rule whenever the subcontractor will perform the primary and vital work required under the prime contract–even if the small business will perform the management function.