Tag Archives: primary and vital

OHA: Contractor Learns from Earlier OHA Decision to Show Me the Money on Ostensible Subcontracting Issue

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Compliance with the ostensible subcontractor rule is essential for companies seeking small business and socioeconomic set-asides. Yet many contractors learn the hard way that there is a difference between simply claiming compliance and proving it.

Earlier this year, we blogged on an SBA Office of Hearings and Appeals (OHA) decision (here) that examined whether a subcontractor was an ostensible subcontractor or not. Ultimately, the awardee failed to sufficiently demonstrate that its subcontractor was not performing the primary and vital parts of the contract.  

In a recent OHA decision, the same parties went head-to-head again for round two, on a different procurement with a different proposal. But this time, one party brought the receipts. In reviewing the proposal, SBA found that the prime contractor had properly outlined its tasks and work in alignment with the solicitation and showed its compliance with the limitations on subcontracting. These two cases work in tandem to help show federal contractors how to demonstrate compliance with the ostensible subcontractor rule.

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Ostensible Subcontractor Affiliation Can’t Be “Fixed” After Final Proposals

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Affiliation under the ostensible subcontractor rule is determined at the time of proposal submission–and can’t be “fixed” by later changes.

In a recent size appeal decision, the SBA Office of Hearing and Appeals confirmed that a contractor’s affiliation with its proposed subcontractor could not be mitigated by changes in subcontracting relationships after final proposals were submitted.

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Ostensible Subcontractor Rule: Management Alone Wasn’t Enough

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The prime contractor’s management of a contract wasn’t enough to avoid ostensible subcontractor affiliation where the subcontractor would provide the labor, equipment, and facilities for performing the work.

In a recent size appeal decision, the SBA Office of Hearings and Appeals confirmed that, where the subcontractor will provide the goods or services that the agency “actually seeks to acquire,” the subcontractor may be deemed an ostensible subcontractor under the SBA’s affiliation rules.

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Ostensible Subcontractor Rule: Management Ain’t Enough to Comply

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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.

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