There are unprecedented opportunities for small businesses in today’s federal marketplace. But what can you do if your business is losing contracts to another business that you do not believe is really “small”?
In a recent decision, the SBA’s Office of Hearings and Appeals affirmed the SBA’s disqualification a small business contractor from the 8(a) Business Development Program based on an anonymous “tip” concerning the business’s size.
The decision was based on the SBA’s conclusion that the small business – DESA Group – was too closely tied to another business to qualify for the Program. Specifically, the SBA learned that DESA Group’s owner, Dionne Fleshman, worked for a DESA Inc., which in turn was owned by Fleshman’s mother. DESA Inc. is itself a former 8(a) participant, having graduated from the program in 1997.
The “interconnectedness” between the businesses found by the SBA included evidence of:
· A history of subcontracting between the companies;
· Shared office space between DESA Group and DESA Inc.; and
· Evidence that DESA Group was overly reliant on DESA Inc. for its revenue.
For small businesses, the SBA’s decision should serve as a reminder about the powerful nature of SBA Size Protests. A Size Protest can be filed with respect to small business set-aside contracts based only on the fact that the protesting business was also an offeror on the contract.
In other words, if your small business just lost set-aside work to a company that you think is actually large – the award decision can be challenged through a Size Protest filed directly with the SBA.
The most common basis for filing Size Protests mirrors the tip received by the SBA in the DESA case – that the “small” business in question is too closely tied to (or “affiliated” with) other businesses. The SBA counts all of a business’s affiliates when determining whether the business is actually small.
Affiliation can arise in a number of ways. As seen in the DESA case, common ownership and economic over-dependence can lead to a finding of affiliation. Likewise, affiliation can occur during the performance of a contract under what is known as the “ostensible subcontractor rule” – that is, when a small business’s subcontractor on a particular project is actually performing the “primary and vital” requirements of the contract.
And these are just a few of the roads that can lead to affiliation.
If your small business is unfairly losing out on set-aside work, an SBA Size Protest might be the appropriate tool to overturn an improper award decision. Be mindful that the SBA’s clock runs very quickly – Size Protests must be filed within five business days of the date you receive notice of the contract awardee’s identity.