Tag Archives: SBA size appeals

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

Posted on by

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.

Continue reading →

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

Posted on by

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.

Continue reading →

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

Posted on by

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.

Continue reading →

SBA OHA: Inactive Employees Count for SBA Size Purposes

Posted on by

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.

Continue reading →

SBA Size Appeals and Confidential Information

Posted on by

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?
Continue reading →

SBA Affiliation Rules and Control: The Minority Owner Trap

Posted on by

Does a person who owns a minority share of a company “control” the company under the SBA affiliation rules?  Yes, if the company has no majority owner and the minority share owned by the individual in question is the largest, or is similar in size to, the largest other minority shares.

Get all that?  An example may help.  The decision of the SBA Office of Hearings and Appeals in Size Appeal of Advent Environmental, Inc., SBA No. SIZ-5325 (2012), demonstrates how this rule can be a trap for the unwary.

Continue reading →

SBA Affiliation Rules and the Present Effect Rule: When Does an Agreement Arise?

Posted on by

Under the SBA affiliation rules, the SBA will apply the so-called “present effect rule” when it examines an agreement for a merger or acquisition, including an agreement in principle.  Under the present effect rule, such an agreement is presently effective with respect to the question of control–which can present a big problem under the SBA affiliation rules.

For example, if Company A has agreed to purchase Company B, the SBA deems Company A to control Company B from the moment the agreement is reached, even if the deal does not close until months later.  This makes Companies A and B affiliates from the date their agreement is reached for purposes of the SBA affiliation rules.

The present effect rule makes sense, but when does an “agreement” arise for purposes of the  rule?  The SBA Office of Hearings and Appeals examined this issue in Size Appeal of Nuclear Fuel Services, Inc., SBA No. SIZ-5324 (2012).   If you are in discussions or negotiations for a merger or acquisition, and are worried about potential affiliation, SBA OHA’s decision will leave you breathing a sigh of relief.

Continue reading →