No Ostensible Subcontractor Rule for Manufactured Product Procurements, SBA OHA Confirms

The SBA’s ostensible subcontractor rule can be a minefield for small prime contractors, who must be careful to avoid risk factors for affiliation with their large subcontractors.

But not every small prime need worry about ostensible subcontractor affiliation. As a recent SBA Office of Hearings and Appeals decision confirms, the ostensible subcontractor rule does not apply to procurements for manufactured products.

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OHA and the Ostensible Subcontractor Rule: A Two-Prong Test You Can’t Fix After the Fact

In a recent decision, OHA ruled that the ostensible subcontractor rule requires a two-prong evaluation before SBA can find affiliation. The SBA Area Office took a look at only one prong, which resulted in a remand from OHA. Ultimately, OHA found affiliation, reversed the SBA Area Office and found the concern ineligible. As OHA made clear, entities can’t fix deficiencies after the fact.

Think of the ostensible subcontractor rule like the preferred go-to move (other than line dancing) at a Country/Western Dance Hall, it is the ostensible subcontractor two-step. Follow along as I lead you through the dance you need to get right to avoid stepping on the toes of your proposal.

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Back to Basics: SBA’s OHA Reminds SBA Area Offices How to Apply the Ostensible Subcontractor Rule

We’ve discussed the “ostensible subcontractor rule” quite a few times on the blog (including most recently here and here) because it is one of the most frequent grounds for size protests. It’s also frequently misunderstood. A recent SBA Office of Hearings and Appeals decision, Contego Environmental, LLC, SBA No. SIZ-6054 (May 19, 2020), demonstrates how even SBA Area Offices can misapply the rule and provides useful reminders to contractor looking to avoid violating it.

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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.

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“Similarly Situated Entities” Exempt From Ostensible Subcontractor Affiliation, SBA OHA Confirms

A “similarly situated entity” cannot be an ostensible subcontractor under the SBA’s affiliation rules.

In a recent size appeal decision, the SBA Office of Hearings and Appeals confirmed that changes made to the SBA’s size regulations in 2016 exempt similarly situated entities from ostensible subcontractor affiliation.

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Ostensible Subcontractor Affiliation: Who Manages The Work Matters

So you’ve teamed with an ineligible incumbent contractor to bid on some government work and, to try and maintain continuity, the incumbent would like to retain project management functions. “No big deal,” you think, “I’ll just create a management position to oversee the project manager.”

Actually, it could be a big deal if you’re trying to avoid ostensible subcontractor affiliation. Among the four key factors for determining ostensible subcontractor affiliation is whether the management previously served with the subcontractor under the incumbent contract. And according to a recent SBA Office of Hearings and Appeals decision, creating a figurehead management position to oversee the project manager won’t negate this indicia of ostensible subcontractor affiliation.

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Reminder: No Ostensible Subcontractor Protests At GAO

The GAO lacks jurisdiction to consider a challenge to a contract awardee’s size status, including questions of whether the awardee is affiliated with its subcontractor under the ostensible subcontractor rule.

In a recent bid protest decision, the GAO confirmed that it will not adjudicate an allegation of ostensible subcontractor affiliation.

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