SBA Size Protest Affiliation

Ostensible Subcontractor Rule &  Size Standard Affiliation 

Avoid Common Pitfalls That Can Cost You Your Contract

By: Theodore Watson, Esq

Government contractors are allowed to join forces whether by teaming agreements, traditional prime-sub relationships. FAR 9.6 provides for this type of relationship. However, under the Ostensible Subcontractor Rule, the pitfalls of affiliation lie in wait for contractors that are not familiar with the law. Simply having a well-crafted teaming agreement is not the end of the analysis. Companies can work together to complete a specific contract. However, even an improperly drafted teaming agreement can cause the partners to be deemed affiliated. Thus, forfeiting the contract to a successful size protest.

As a side issue, and contrary to even some lawyers’ belief, you can submit the past performance of you subcontractor in your proposal. Only if the government will not consider such past performance, will the solicitation so state. However, as a prime contractor you must be careful and the items passed on to your subcontractor/ teaming partner.

Under the Ostensible subcontractor Rule, complete control must and daily management must be vested in the prime contractor (oftentimes a small business). This is just the first inquiry into affiliation.  As a matter of process, the Small Business Administration (SBA) is the final authority for affiliation and Ostensible Subcontractor Rule determinations.  In sum,  the government may find parties of a teaming arrangement to be “affiliated” for purposes of size standards, where the proposed prime contractor  is overly reliant on its teaming partners or the tasks and areas of responsibility of the parties are not clearly delineated.

What is an ostensible subcontractor? A subcontractor that performs primary and vital requirements of the contract or A sub that the prime is unusually reliant upon.

How do it is determined that such an arrangement exists? The SBA uses a “Seven Factor” test to determine the size status of the prime/sub relationship. However, these seven factors are not conclusive. In a Size standard protest or affiliation analysis, the totality of the circumstances is the catch-all test.

What happens if affiliation exists? If an ostensible subcontractor arrangement exists, the SBA will consider the revenue of both firms in determining if they meet the size standard for specific NAICS code assigned to the project. If the combined revenue of the two companies exceed the size standard, then the company (prime) would be considered a large business for the purpose of the current procurement. Hence. Forfeiting the contract.

The “ Seven Factor” test for Ostensible Subcontractor Rule Analysis

• Which party will be managing the contract?
• Which party possesses the requisite background and expertise to carry out the contract?
• What party pursued the contract award?
• What degree of collaboration was there on the proposal effort?
• Were the tasks allocated to be performed by each party or is there commingling of personnel and material?
• What is the amount of work to be performed by each party?
• Which party will perform the more complex and costly contract functions?

The key to avoiding the pitfalls of affiliation is to have an experienced government contracts lawyer to provide you with concrete advice in your specific situation.

Key Points

Teaming agreements should specifically identify the roles of the prime contractor and subcontractor. Having an attorney provide advice about the pitffalls in the Ostensible Subcontractor Rule analysis.

Small businesses in particular should be careful when entering into a teaming agreement or Joint Venture agreement with large businesses. This is the typical the typical arrangement that falls prey to violation of affilication rules.

How does SBA determine affiliation?

Concerns and entities are affiliates of each other when one controls or has the power to control the other, or a third party or parties controls or has the power to control both. SBA considers factors such as ownership, management, previous relationships with or ties to another concern, and contractual relationships, in determining whether affiliation exists. In determining the concern’s size, SBA counts the receipts, employees, or other measure of size of the concern whose size is at issue and that of all of its domestic and foreign affiliates, regardless of whether the affiliates are organized for profit. For more information on how SBA determines affiliation, see 13 CFR 121.103.

I am convinced a firm which bid in competition with me on a Federal set-­aside procurement is not a small business. How can I prevent it from receiving the award?  If you are a small business bidder, you are an interested party in this procurement. Once the apparently successful offeror has been identified on a Request for Proposals or at a bid opening, you may challenge your competitor’s small business self-certification. Notify the contracting officer of the matter according to the procedures set forth in 13 CFR §§ 121.1001-1010. Your challenge must be timely and set forth specific alleged grounds. The contracting officer is required to forward the challenge to SBA for a size determination. To seek the help of a size protest attorney, click here or call toll free 1-866-601-5518..

I would like to protest the award based on the fact that the firm was not an eligible small business. What should I do? To file a size protest, you must: 1) be an eligible unsuccessful bidder for the procurement awarded to the small business; 2) file your protest within 5 days after notice of award with the Federal agency and contracting officer; 3) state specific grounds upon which the firm awarded the contract was not eligible; and 4) offer information in support of your protest. For more information, see 13 CFR §§ 121.1001-1010.

In sum, always be aware that a well-drafted teaming agreement does not in itself save you from forfeitng your contract under the SBA affiliaiton law or the Ostensible Subcontractor Rule. Call 1866-601-5518.for help.

This entry was posted on Tuesday, November 18th, 2008 at 6:16 pm and is filed under Blog. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.