The SBA’s non-manufacturer rule allows a drop shipper to qualify as a small business, so long as the drop shipper takes legal ownership of the items in question, according to the SBA Office of Hearings and Appeals. In an important decision interpreting recent amendments to the non-manufacturer rule, SBA OHA rejected the argument that a company must take physical possession of the items in question in order to qualify as a non-manufacturer–which would have essentially prohibited drop shipments.
Tag Archives: SBA size standards
Joint Venture Between Small Business, Large Company Not “Small”
Go on, go on. Call me Captain Obvious for writing this post if you must, but the question actually comes up quite often: can a small business joint venture with a large business and qualify as “small” for purposes of a federal small business set-aside contract?
The answer, as confirmed in a recent SBA Office of Hearings and Appeals SBA size appeal decision, is “no,” unless the joint venturers are participants in the SBA’s 8(a) mentor-protege program. Unfortunately for the joint venturers in Size Appeal of BY&R Contractors, LLC & West Coast Contractors of Nevada, Inc. JV, SBA No. SIZ-5349 (2012) not only were they not an 8(a) mentor and protege, but neither company was even an 8(a) participant.
Agency Gets SBA Size Standard Wrong; SBA OHA Dismisses Late NAICS Code Appeal
Know your SBA size standards. That’s the lesson to be drawn from the decision of the SBA Office of Hearings and Appeals in NAICS Appeal of Ash Stevens, Inc., SBA No. NAICS-5368 (July 12, 2012).
In the Ash Stevens NAICS code appeal, the solicitation erroneously stated that the SBA size standard associated with a particular NAICS code was much larger than is actually the case. By the time the agency corrected its mistake, SBA OHA held that it was too late for a contractor to challenge the NAICS code.
SBA Proposes Eliminating Megawatt Hours Size Standard
Most government contractors determine their small business size based on average annual receipts or employee counts. But for companies working in six NAICS codes in NAICS Sector 22, the firm is considered small if: (1) the firm, including its affiliates, is primarily engaged in the generation, transmission, and/or distribution of electric energy for sale; and (2) its total electric output for the preceding fiscal year did not exceed 4 million megawatt hours. Today, the SBA proposed eliminating this megawatt hours size standard and replacing it with a 500 employee size standard.
In a proposed rule, the SBA stated that significant industry changes have occurred since the megawatt hour standard was adopted in 1974, that the “primarily engaged” requirement could result in some businesses being unfairly deemed large, and that an employee-based size standard is more in keeping with overall SBA size standard policy. Accordingly, the SBA proposed changing the size standards for all six affected NAICS codes–221111, 221112, 221113, 221199, 221121, and 221122–from 4 million megawatt hours to 500 employees.
In today’s proposed rule, the SBA also proposed three significant size standard increases. Under the SBA’s proposal, NAICS code 221310 (Water Supply and Irrigation Systems) would jump from $7 million to $25.5 million, NAICS code 221320 (Sewage Treatment Facilities) would increase from $7 million to $19 million and NAICS code 221330 (Steam and Air-Conditioning Supply) would increase from $12.5 million to $14 million.
Today’s proposed changes are part of the SBA’s ongoing review and overhaul of its size standards. The SBA is accepting comments on today’s rule by September 17.
SBA: Most Construction Size Standards Should Remain As-Is
The SBA has released its proposed size standard changes under NAICS Sector 23, which covers the construction industry. The bottom line: if you were hoping for a SBA size standard increase, chances are, you’ll have to hope that the SBA changes its mind between now and the issuance of the final rule.
The SBA proposed only two increases in Sector 23: NAICS code 237210 (Land Subdivision) would jump from a $7 million size standard to a $25.5 million size standard, and NAICS code 237990 (Dredging and Surface Cleanup Activities) would increase from $20 million to $30 million. The remaining NAICS codes under Sector 23 would retain their current size standards.
The SBA is accepting comments on the proposed Sector 23 size standard rule through September 17.
SBA OHA: Subcontractor Costs Cannot Be Excluded From Receipts
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.
SBA OHA: Inactive Employees Count for SBA Size Purposes
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.