SBA Size Determination & SBA NAICS Size Standards Appeals

SBA Size Determination & NAICS Code Size Standards 13 CFR 121Although it is relatively easy to qualify, small businesses often find themselves in adverse situations when a competitor challenges their  SBA NAICS size standards under 13 CFR Part 121 for certain industries. When an SBA bid protest is filed, the SBA then conducts an investigation and then makes a formal SBA size determination

If it issues an adverse decision, you have a short deadline to appeal to the SBA Office of Hearings and Appeals (SBA OHA).SBA 

What is a Formal SBA Size Determination?

When the contracting officer of a competitor files an SBA size protest challenging your small business size, the SBA will review the facts and details provided. Then it will make a formal ruling on whether your business is considered small or other than small. This formal determination is called size determination.

SBA NAICS standards define what is a small business

When you bid on federal contracts that are set aside for small businesses, you have to certify that you are small at the time of bid submission. SBA NAICS size standards set forth the parameters for which you must meet to be legally considered a small business.  The various industry groups have different standards. Some industries count the amount of revenues whereas others count the number of employees.

  • There is not a statutory amount of NAICS codes that a company can have.
  • Your company can be small under one size standard NAICS code but large under a different code.

You can find small business size regulations in Title 13 Part 121 of the Electronic Code of Federal Regulations(eCFR).

Other SBA Size Standards for NAICS Codes Requirements 

In addition to meeting the above requirements to meet the NAICS SBA size standards, your business also must:

  • Be a for-profit business of any legal structure
  • Be independently owned and operated
  • Not be nationally dominant in its field
  • Be physically located and operate in the U.S. or its territories

Businesses outside the U.S. may still be counted as small if they have an operation in the U.S. that makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials, or labor.

The following cases also show that the contracting agency sometimes makes huge mistakes when selecting the appropriate NAICS Code for procurement under small business size regulations.

Are There Criminal Penalties for Misrepresenting Your Small Business NAICS Size Standards to the SBA? 

You cannot knowingly make false statements or misrepresentations to the government about complying with SBA NAICS size standards when you submit your bid. Unfortunately, it does happen. As a result, small businesses find themselves defending against criminal charges for false claims and other criminal charges. The SBA OIG or DOJ often investigates small firms for allegations of defrauding the government and misrepresenting their small business size status. When this happens, companies face serious charges and immediately find legal counsel to defend against civil and criminal charges.

Criminal penalties and fines are severe for misrepresenting your business size under severe criminal penalties for both knowingly misrepresenting the size under 15 U.S.C. 645 (d)), and for knowingly making false statements or misrepresentations to SBA to influence in any way, the actions of Small Business Administration (SBA) (15 U.S.C.  645.)

When Does the SBA Issue a Size Determination?

There are several scenarios where the SBA will issue a size determination. The most popular situation is when the agency awards a contract and the unsuccessful offeror files a size protest that challenges the awardee’s NAICS size standard. The SBA will also issue a size determination when a proper and timely bid protest is filed.

How Long Does the SBA Have to Issue a Size Determination?

Generally, the SBA has 10 working days to investigate and issue a small business size determination. However, the SBA can request a time extension from the contracting officer under FAR 19.302(g) and (h)).  If the SBA does not respond within the ten-day requirement, the contracting officer may issue the award without penalty. When there is an investigation of an SBA size protest or some other adverse action occurs, the SBA is required to perform a size determination.  Companies must be prepared to provide financials, business documents, and other information to the SBA as requested.

  • If there is an adverse SBA size determination under 13 CFR Part 121, your business may be precluded from bidding on future contracts for that specific SBA’s size standards code.

What are the Consequences of an Adverse Size Determination from the SBA

If the SBA finds your company to be other than small, the consequences are pretty harsh. The bottom line is that your company cannot represent itself as small or even bid for small business contracts or awards.  The only exception to this rule is if you are successful in appealing the size determination to OHA or you submit your company for another size determination and received a favorable one.

Note: when the SBA gives you a deadline to respond with specific documents for the investigation, you must comply. Some companies find themselves unable to receive documents from the alleged affiliate. What happens? The SBA can impose the adverse inference rule against you. This means that if you do not comply, then the SBA may presume that the response would have been unfavorable to your company. See 13 CFR 121.1008(d). See 13 CFR 125.6 Understanding Rules of Prime Contractor’s Limitations on Subcontracting FAR 52.219 14.

Can the SBA Correct an Administrative or Factual Error in a Small Business Size Determination?

If the SBA, even after issuing a size determination finds that there is an error, it may reopen the size determination to correct the error or mistake. The initial size determination must be retracted, however. If the decision has already been appealed to OHA, the SBA will notify the court and all parties.

Appealing SBA Size Determinations to SBA OHA

Within 15 days after receiving the SBA’s small business size determination, you can appeal the decision to OHA (do not appeal to GAO or Court of Federal Claims.)  You or your appellate lawyer has the burden of proof (preponderance of the evidence), all elements of the appeal.

  • Chances are that the SBA has found affiliation between your company and another company
  • In other circumstances, you must now overcome the SBA’s determination that your company violated the ostensible subcontractor rule.

You must clearly articulate in the appeal how the size determination is based upon a clear error of fact or law. See 13 CFR 134.314. Note that the appeals court will only change the area office’s size determination if, after reviewing the record, it finds that there is a definite and firm conviction that the area office erred in making its key findings of fact and law. See Size Appeal of Taylor Consultants, Inc., SBA No. SIZ-4775, at 11 (2006).

The point is that your appeal must meet strict procedural rules and guidelines. For example, small businesses may attempt to appeal the SBA’s dismissal of the initial size protest.

SBA size standards bid protests must include specific facts. It cannot be speculative. Instead, your protest must be sufficiently specific to provide reasonable notice as to the grounds upon which the protested business’ size is questioned. Some basis for the belief or allegation stated in the protest must be given. If you have materials to support the protest, then you should submit it with your protest. 13 CFR 121.1007(b).

Avoid Getting Your OHA Size Appeal Dismissed

When you receive a small business size determination from the SBA, you must file an OHA size appeal within 15 calendar days after receipt of the size determination. 13 CFR  134.304(a). OHA must receive the filing on the fifteenth day. OHA will dismiss the appeal if it is late.

  • OHA has no jurisdiction to hear HUBZOne appeal cases

What are Remedies Can OHA Give in a Size Appeal?

If OHA does not dismiss the size appeal, it can grant the appeal in part; remand the appeal back to the area office for resolution, or it can completely reverse the SBA’s decision in the size determination. See Filing Small Business SBA NAICS Code Protests – Dos and Don’ts.

For help with an adverse SBA size determination or help with SBA NAICS Size Standards compliance with 13 CFR 121, call our experienced SBA Size Standard protest lawyers and government contract attorneys at 1-866-601-5518.

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