Tag Archives: SBA size appeals

SBA Size Protests and the Brooks Act

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The so-called “Exception Paradox” is one of those un-winnable logic games.  It goes something like this, “if every rule has an exception, then doesn’t the rule that every rule has an exception have an exception, too?”

These are the sorts of brain teasers that sometimes kept me busy in grade school (what can I say, I wasn’t a very cool fourth grader).  Fortunately, when it comes to SBA size protests, the SBA Office of Hearings and Appeals has made it easy to understand an exception to one common rule.  In a recent decision, SBA OHA held that the ordinary rule governing when an offeror is deemed “small” for a particular federal procurement does not apply to a SBA size protest filed in connection with an architect-engineer competition conducted under the federal Brooks Act and FAR 36.6.

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SBA OHA: Subcontractor Costs Cannot Be Excluded From Receipts

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I’m a government contracts lawyer these days, but when I was much younger, I was a would-be prime contractor.  During my senior year of high school, I took a part-time job at the Grand Forks Herald, my hometown newspaper in North Dakota.  Flush with cash (at least compared to where I’d been before), I then attempted to subcontract my household chores—things like taking out the trash and feeding the dog—to my younger brother.

My parents put the kibosh on that one, explaining that as a member of the family, I needed to personally contribute some labor to it (as a dad now, I can see where they were coming from).  But imagine I had been successful, paying Pete, say, $20 weekly to toil on my behalf for the Koprince household.  Could I have told the IRS, come tax season, that the money I paid Pete didn’t count toward my income, because I passed it through to him?

“Of course not,” you’re probably saying, and you are right.  And, on a much larger scale, the same is true when it comes to a small government contractor’s subcontract costs.  As the SBA Office of Hearings and Appeals has held, all of a company’s receipts—with very limited exclusions—count toward its size under a revenue-based SBA size standard.  Just because you subcontract a portion of a government contract to another company does not mean that the money you pay your subcontractor doesn’t count toward your own receipts.

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Ostensible Subcontractor Rule: Hiring Incumbent Employees “En Masse” Causes Affiliation

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In the syndicated television show Crossing Over, psychic John Edward (not to be confused with former presidential candidate and tabloid mainstay John Edwards), claimed to carry on conversations with deceased relatives of audience members.  Perhaps not surprisingly, some critics have been skeptical of Mr. Edward’s supposed paranormal abilities, accusing him, according to Wikipedia, of using “prior knowledge or a wide array of quick and sometimes general guesses to create the impression of psychic ability.”  In other words, according to the critics, Crossing Over was one big sham.

Crossing Over–and the significant questions surrounding its legitimacy–is an apt metaphor for a question I commonly get from small companies planning a subcontracting relationship with an ineligible incumbent.  “Can we just hire all the prime’s employees?” they ask.  While this type of “crossing over” of employees, from ineligible incumbent subcontractor to eligible small business prime contractor, is not always impermissible, hiring too many of an ineligible incumbent’s employees–particularly managerial employees–can be seen as a sham of sorts by the SBA, as seen in one recent decision of the SBA Office of Hearings and Appeals.

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Teaming Agreements and the Ostensible Subcontractor Rule: SBA OHA Decision Provides Some Guidance

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Teaming agreements for small business set-aside contracts can be tricky.  On the one hand, unlike 8(a) and SDVOSB joint venture agreements, there are no mandatory provisions.  On the other, if a competitor files an SBA size protest challenging the award, the teaming agreement may be “Exhibit A” in the SBA’s evaluation of whether the team violated the ostensible subcontractor rule.  In other words, mess up the teaming agreement, and you could have a big problem on your hands.

The SBA has never published a road map to a perfect teaming agreement, but a recent SBA OHA decision–which found no ostensible subcontractor rule violation–highlights a few provisions that prime contractors and their subcontractors would be wise to consider including.

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SBA OHA: VA Mentor-Protege Program Does Not Protect Participants From Affiliation

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My parents taught me that it’s not polite to say, “I told you so.”  Mom and Dad are big proponents of being polite, and their lessons (by and large) stuck.  For instance, even in this day and age of abbreviated text messages and quick emails written on handheld devices, I always begin and end every business email with a salutation, and end with “regards,” or something along those lines.  Unnecessary?  Perhaps.  But I like to think I am going the extra mile toward being polite.

Today, however, politeness is going to have to take a little hiatus, because I can’t resist saying, “I told you so.”  For more than a year, I have been warning small government contractors that assistance received from a mentor firm under any federal mentor-protege program other than the SBA 8(a) mentor-protege program or DoD mentor-protege program is probably not shielded from the SBA’s affiliation analysis.

Now, the SBA Office of Hearings and Appeals has confirmed that participating in the VA’s mentor-protege program does not offer any protection from affiliation.

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SBA OHA: Inactive Employees Count for SBA Size Purposes

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Back in my undergraduate days at Duke, I attended almost all of the home basketball games.  Occasionally, sometime in the second half, with the Blue Devils up 20 points or more, an opposing player would execute an impressive dunk, and proceed to do a little celebration.  I, along with my fellow Cameron Crazies, would immediately begin chanting, “scoreboard, scoreboard,” while pointing at the device in question.  Our message was, “that’s nice, but it just doesn’t matter.”  (Actually, we Crazies sometimes chanted “just doesn’t matter,” too).

“That’s nice, but it just doesn’t matter” is what the SBA’s Office of Hearings and Appeals had to say in a recent size appeal decision involving the question of whether employees who are sick, on vacation, or even comatose count toward a company’s employee-based SBA size standard.  SBA OHA’s answer: if they’re on the payroll, they count.  Period.

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SBA Size Appeals and Confidential Information

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Clients thinking about filing a SBA size appeal with the SBA Office of Hearings and Appeals are sometimes nervous when they find out that SBA size appeal decisions are publicly published.  “What if the judge publishes our confidential information?” they ask.

As a small business in a competitive market, it is always wise to think about protecting your proprietary and confidential business information, including by having employees and teaming partners sign non-disclosure agreements.  But what do you do when the person with your confidential information is an administrative judge, like the ones at SBA OHA?
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