As a small federal contractor, you have the benefit of competing for small business set asides where large businesses cannot. However, in order to be eligible to bid on small government projects, you have to comply with small business size standards regulations. When you bid on small federal contracts, you are responsible for certifying that you are a small business and that you meet Small Business Administration – SBA size standards at the time you submit your bid. Some contracts require you to re-certify at specific times during the contract.
If, by chance, you are the successful bidder and your North American Industry Classification NAICS code size standard is challenged by your competitor, you will have to defend a lawsuit (called an SBA size protest).
The Small Business Administration considers the specific economic characteristics comprising the structure of an industry, including the degree of competition, average firm size, start-up costs and entry barriers, and distribution of firms by size.
Meeting the SBA Small Business Definition is Not as Simple As You May Think
As a company doing business with the federal government, you should always develop internal policies and controls to make sure that the rules for SBA size standards do not impact your ability to bid. You must always meet the federal small business size requirements when submitting bids.
Most recent small business size standards regulations were changed in 2016. The SBA made some important changes that can impact whether or not you meet the SBA small business definition. If you are not certain, then you should consult a government contract small business attorney.
What is the Small Business Size Standards Table?
The SBA maintains the Small Business Size Standards Table. The table is made available to the public and helps you to analyze whether your company meets the SBA size standards that correspond to the specific NAICS code of procurement. You don’t want to wait until your opponent files a small business size protest to find out whether your company meets the requirements in the size table. It could be too late. Use the SBA tool to find out whether you are within range.
Tip: Your business can be small for one NAICS code while being large for another
What is the Bid Deal About SBA Size Standards and Small Business Size Regulations?
Having the SBA’s small business size regulations handy is advised because it gives you an idea of the complexity of how the SBA can quickly take your awarded contract away. As you may have guessed, you have to maintain your small business status to be eligible for government programs and small business set aside contracts.
When you submit a bid to the federal government, you also have to officially certify and attest to your compliance with SBA size standards requirements and size regulations. If you get the contract, failure to meet the requirements can cause you to lose the contract. This usually happens when your competition files an SBA size protest to the contracting officer of SBA.
- If you don’t comply with SBA size standards and regulations you can lose the contract
- If a size protest is filed against you, you can end up spending tens of thousands of dollars in litigation and attorney fees.
Tip: Depending on your industry (NAICS), your small business size standard is either regulated by average revenues or the number of employees.
What is Affiliation and How Does it Impact Your Small Business Status?
13 CFR Part 121 is the primary source of small business size regulations. This rule is very important because it provides the SBA with a rigid set of guidelines to show whether your day-to-day operations keep you within the purview of being a small business that is eligible to receive government contracts.
Affiliation is a term used to disqualify small businesses (if they violate the regulations) and to guide the SBA through a series of evaluations. SBA affiliation rules can be very complex. At the end of the day, when you submit named subcontractors as part of your bid for a federal government project, you must be aware of how affiliation can impact your business.
- Affiliation starts with the ability of a person or third party to control the qualifying awardee (prime contractor).
- Control does not have to be to be actual control but it can also be based on the ability to control.
13 CFR 121.103 the Bible for How the SBA Determines Affiliation?
(a) General Principles of 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. It does not matter whether control is exercised, so long as the power to control exists.
SBA considers factors such as ownership, management, previous relationships with or ties to another concern, and contractual relationships, in determining whether affiliation exists.
Control may be affirmative or negative. Negative control includes but is not limited to, instances where a minority shareholder has the ability, under the concern’s charter, by-laws, or shareholder’s agreement, to prevent a quorum or otherwise block action by the board of directors or shareholders.
- Affiliation may be found where an individual, concern, or entity exercises control indirectly through a third party.
In determining whether affiliation exists, SBA will consider the totality of the circumstances, and may find affiliation even though no single factor is sufficient to constitute affiliation.
- For SBA’s Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, the bases for affiliation are set forth in 13 CFR §121.702.
- For applicants in SBA’s Business Loan, Disaster Loan, and Surety Bond Guarantee Programs, the size standards and bases for affiliation are set forth in 13 CFR §121.301.
How to Prepare for a Small Business SBA Size Protest?
At the end of the day, your small business size standards is your ticket for eligibility for bidding on federal contracts. Knowing how to prepare for a small business size protest means taking charge of your subcontracting relationships while carefully assessing whether there is actual or ability to control your company.
Filing an SBA Size Standard Bid Protest?
Litigation of SBA size standard bid protests can have complications. You have to be very careful of how you describe your company on your websites and in advertisements and promotions. In addition, failure to properly structure the SBA size protest letter puts you in a position where the other side can file a motion to dismiss for not meeting the procedural and statutory requirements.
- Per 13 CFR 121.1007(b), your small business size standard protest must be sufficiently specific to provide reasonable notice as to the grounds upon which the protested concern’s size is questioned.
- You cannot make general allegations when filing SBA size protests. The basis for the belief or allegation stated in the protest must be given.
A protest merely alleging that the protested concern is not small or is affiliated with unnamed other concerns does not specify adequate grounds for the protest.
- Where materials supporting the protest are available, they should be submitted with the protest.
- SBA will dismiss a protest that is not sufficiently specific
How to Defend or Intervene in SBA Small Business Standards Protests?
Defending or intervening in SBA size protest litigation? If you are a successful awardee, then you have a very short time to respond to the allegations in the protest. Generally, the SBA will contact you and provide the basis of the protest. Sometimes, depending on your specific situation, you can request and extension from the SBA. However, until the SBA grants the request, you are bound by the original response
How you respond to SBA size protest allegations is very important. You should respond to each and every allegation made by the protestor. Failure to respond to each allegation in the protest can cause the SBA to rule against you. When responding to an SBA size protest, keep in mind that the SBA is not just limited to what the protestor alleges. It can find a violation of the small business size standards rules based on facts and evidence in the record.
What Happens if the SBA Gives an Adverse Size Determination?
This is what many small businesses fear. If the SBA issues an adverse small business size determination, then you are forbidden from representing your company to the government as a small business under the specific NAICS code size standard in question. The most logical option is to appeal the size determination decision to the SBA Office of Hearings and Appeals ( SBA OHA). You can certainly ask the SBA for a reconsideration. However, unless overturned in a size appeal to the SBA Office of Hearings and Appeals (SBA OHA) your small business status for that NAICS code essentially disappears. You can always request a reevaluation from the SBA after the problem has been corrected.
How to Appeal SBA Size Determinations to SBA OHA?
When the SBA issues an adverse size determination, small businesses can file a size appeal to the SBA Office of Hearings and Appeals. Your OHA Size appeal should include the solicitation number, agency contracting officer’s name and contact information; your name and contact information; and, most importantly, the factual and legal basis for appealing your case. Your size appeal should contain a legal argument as to why the SBA Area Office’s size determination is in error. After making the legal argument, your OHA appeal should also contain and requested relief. This means telling OHA what result you are looking for and how to decide the case. See 13 C.F.R. 134.203 and 305(a).
For immediate help with a pending SBA small business size standards determination dispute, call our government contract SBA size protest lawyers at 1-866-601-5518 for a Free Initial Consultation.