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.
The Federal Aviation Administration is exempt from the Small Business Act and the SBA’s size regulations, but this does not mean that the SBA’s ostensible subcontractor affiliation rule does not apply in FAA procurements.
In a recent decision, the FAA’s Office of Dispute Resolution for Acquisition applied the ostensible subcontractor rule–and SBA Office of Hearings and Appeals decisions interpreting that rule–in arriving at the conclusion that a contract awardee was an eligible small business.
Avoiding affiliation under the SBA’s ostensible subcontractor rule can be difficult, especially since the ostensible subcontractor rule itself, 13 C.F.R. § 121.103(h)(4), does not provide many examples of the factors that may cause ostensible subcontractor affiliation.
A recent decision of the SBA Office of Hearings and Appeals, Size Appeal of InGenesis, Inc., SBA No. SIZ-5436 (2013), demonstrates that even when a proposed subcontractor will play a major role in the procurement, ostensible subcontractor affiliation may be avoided if the parties carefully structure their relationship.
The SBA 8(a) mentor-protege affiliation “shield” does not prevent a mentor and protege from being affiliated under the so-called ostensible subcontractor rule, according to a recent decision of the SBA Office of Hearings and Appeals.
In Size Appeal of InGenesis, Inc., SBA No. SIZ-5436 (2013), SBA OHA held that the broad exception from affiliation for 8(a) proteges and their mentors does not prevent the SBA from deeming the companies affiliated under the ostensible subcontractor rule.
When deciding whether to set aside a solicitation for small businesses, procuring agencies need not consider whether prospective small business offerors can perform the contract without violating the SBA’s ostensible subcontractor rule.
This was the ruling of the GAO in a recent bid protest decision, in which the GAO held that a procuring agency had properly set aside a contract for small businesses without prior consideration of the ostensible subcontractor rule. The GAO’s decision aligns with the one discussed in yesterday’s post, in which the GAO held that an a procuring agency need not consider the individual capabilities of potential small business offerors to meet all solicitation requirements before setting aside a solicitation.
You would think a company as large as Northrop Grumman would know how to avoid ostensible subcontractor affiliation with a small prime, wouldn’t you?
You’d be wrong. In a recent SBA Office of Hearings and Appeals decision, a Northrop Grumman entity entered into a teaming arrangement with a small prime, in which all three key employees identified in the proposal were employed by the large subcontractor. The result: ostensible subcontractor affiliation.
Dividing key contract work among several subcontractors will not necessarily allow a small business to avoid affiliation under the SBA’s ostensible subcontractor rule, according to a recent decision issued by the SBA Office of Hearings and Appeals. In that case, the prime contractor divided the primary and vital contract work among four subcontractors–and according to SBA OHA, was affiliated under the ostensible subcontractor rule with all four subs.