Primary and Vital Contract Requirements Under The Ostensible Subcontractor Rule

Under SBA small business regulations, the ostensible subcontractor rule requires that when a subcontractor is actually performing the primary and vital contract requirements of the contract, or when the prime contractor is unusually reliant upon the subcontractor, the two firms are affiliated for purposes of the procurement at issue. The rule’s purpose is to “prevent other than small firms from forming relationships with small firms to evade SBA’s size requirements.”

Legal Analysis for Primary and Vital Contract Requirements

In any ostensible subcontractor rule analysis, SBA OHA will examine whether your teaming partner or named subcontractor is actually performing the primary and vital contract requirements, and which of the two business is responsible for contract management.

The SBA, in ascertaining whether the relationship between a prime contractor and a subcontractor violates the ostensible subcontractor rule, must examine all aspects of the relationship, including the terms of the proposal and any agreements between the two companies.

• When deciding the primary and vital contract requirements of a government contract, courts look to see what is the principal purpose of the acquisition.
• The requirements must be determined from the text of the solicitation itself.
• The SBA will give some weight to the contracting officer’s identification of the primary and vital requirements.

In the past, SBA OHA has held that a violation of the ostensible subcontractor rule occurs when a prime contractor will have no meaningful role in performing the contract’s primary and vital contract requirements.

Approaches

The issues usually surface when an unsuccessful bidder challenges the award in an SBA size protest. The successful awardee then has to defend itself by responding to inquiries from the SBA. There is a short deadline to respond. Therefore putting the small business is a tough position. Meanwhile, the protestor has its own challenges.

To survive the possibility of a motion to dismiss the case, the protestor must articulate a legal and factual basis in the protest letter. In there are allegations that the subcontractor is performing the primary and vital contract requirements of the contract, then it must make specific factual allegations.

Tips for Contractors

When submitting your technical proposal, you want to make sure that you articulate what work you will be doing. You can do this by tracking each aspect of your efforts to the specific statement of work sections.  You should also do this for teaming partners and named subcontractors. This way a small business size protest against you will be difficult to overcome.

Avoid Costly Mistakes in SBA Program Litigation. See What We Do to Help

For help with analyzing the primary and vital contract requirements under the Ostensible Subcontractor Rule, call our small business size protest lawyers at 1-866-601-5518. FREE CONSULTATION.