What are Small Business Size Standards?
A small business size standard in government contracting is stated by either the number of employees or average annual receipts. Under the proposed rules (now current law) the limitations and legal standards articulate the largest size that your small business (including subsidiaries and affiliates) can legally remain as a legal small business that bids on federal contracts.
How to calculate your small business size standard requirement
Small Business Administration SBA size standards, depending on the industry are based on the average your company’s annual receipts or the average number of company employees.
When your company is involved in North American Industry Classification System NAICS size standard dispute, you should be mindful of the various legal nuances that can cause you to lose the contract. Terms such as affiliation and Ostensible Subcontractor Rule should come to mind. The SBA determines affiliation in accordance with 13 CFR 121.103.
What Hurdles are Contractors Facing When Not Meeting Small Business Size Standards?
As a small business competing for federal government contracts, you will at some point experience the dilemma of having to defend or respond to an SBA size protest. This occurs after you are awarded a federal small business contract and a competitor challenges your small business size standard compliance by filing a small business size protest with the SBA.
The hurdles that contractors face when not meeting the SBA small business size standard to the NAICS code assigned to the contract is that if you do not prevail after the SBA’s investigation then your company will lose the contract. Companies like yours also face the following hurdles.
- Making sure that the prime and subcontracting relationships comply with SBA affiliation regulations.
- Not knowing how to respond to the SBA’s inquiries during a size protest investigation
- Responding to the SBA’s questions and answers, without understanding the legal nuances that can make the company fall prey to an adverse size determination.
- The biggest hurdle of all is implementing a plan of action to make your business become compliant with the NAICS size standard after the protest decision is made. (Most small businesses do nothing to get back in compliance in order to generate more revenues.)
- The common issue left is that when the SBA makes an adverse small business size standard decision (commonly called a size determination), government contractors fall short of the legal standard required for a successful appeal of the SBA’s NAICs Size standard determination.
What Happens When You Don’t Meet SBA NAICS Size Standard Requirements?
The business and legal consequences of not meeting the SBA size standards can impact the company in one form or another. The most common include:
- You may be barred from representing your company as a small business under the NAICS size standard assigned to the specific small business size standard. (You can still apply for unrestricted government contracts).
- Depending on the severity of the facts involved, your company might be subject to a criminal investigation or IG investigation for violation of SBA small business regulations.
What Can You Do If You Are Challenged in an SBA Size Protest?
The best defense when someone challenges you for non-compliance with the SBA’s small business size standard regulations, is to make sure you meet the legal requirements when first submit your bid.
- Immediately start gathering tax documents for the past three years. The SBA will ask for them.
- Immediately look at the protestor’s allegations and be prepared to tell an SBA size protest lawyers why the allegations are false
- Understand the SBA size protests are tricky and once the protestor launches the bid protest, the SBA has wide latitude and discretion to make its decision.
- Understand that when there is a small business size standard protest, timelines are very short. Therefore, you must be prepared to act quickly whether you are the protestor or intervenor (the party that won the contract).
There are quite a few nuances that if you follow the underlying SBA regulations, you could avoid some of the brutal decisions that the SBA sometimes make.
Another approach to the challenge is to avoid making the crucial mistake of simply responding to the SBA questions during the NAICS size standard investigation.
- You must respond truthfully to all of the SBA’s questions. However, you also have to legally attack the protestors allegations.
- Focusing on the procurement at hand is critical. You stand a better chance if there is an alleged subcontractor that is not part of the specific contract challenged.
Avoid Landmines When You are Responding to SBA Small Business Size Standards Protests
Many government contractors respond to a small business size standard bid protest without making supporting legal arguments that guide the SBA to a decision which is in their favor.
Although you may very well be an innocent contractor just has good intentions, the reality is that the SBA’s size determination decision, if adverse, can cripple your company by impacting and reducing the amount of income you can receive from federal government contracts.
The following are but a few landmines that you must avoid.
- Always provide legal arguments via a separate memorandum in response to the SBA’s inquiry. Many companies or corporate lawyers fall prey to this mistake. When responding to an SBA size protest, you are building a record. Therefore, you or your attorney should preserve the record for any potential appeal by making the arguments at the SBA level,
- Responding only to the allegations raised by the protestor. This can be the kiss of death. The SBA can also find violations over and beyond that the protestor alleges. For example, the SBA can find affiliation under the “newly formed organization rule” despite the protestor’ single allegation of “common management.”
Be Aware and Avoid Dangerous Mistakes When Appealing SBA Size Standard Determinations to SBA OHA
If the SBA makes size determination decision that is and for your company, you can always appeal the decision to SBA OHA. However, many size appeals are lost simply because the appellant did not show how the SBA committed a legal or factual error. Avoid some of the following mistakes when deciding to appeal the SBA’s small business size standard determination.
- Failure to address every issue that the SBA addressed in its written decision. Failure to follow these requirements means that you have conceded to what the SBA says if you choose to file an appeal.
- Failure to show that the SBA addressed all of you responses to the Side protest. This could impact the appeal decision if in fact your argument at the SBA level had merit.
- Do not raise new arguments on appeal. This is a common legal mistake that the impact your appeal to SBA OHA. Bringing in new evidence on appeal without writing the proper motion to request such can create an adverse impact.
Improper use of joint ventures and teaming agreements can make you non compliant with SBA size standards.
Although the rules are changing and favoring the use of joint ventures and teaming agreements, small businesses can still find themselves in hot water. There are still an increase in cases where the competition are winning size protest cases for failure to implement legally compliant joint ventures and teaming agreement. There is no such thing as substantially compliant under the rules. If you do not fully comply with the regulations then you can risk losing the contract.
At the end of the day, when you are faced with responding to an SBA small business size determination bid protest, how you respond is critical to the bottom line for your business. If you become subject to an adverse SBA decision, your company can be barred from bidding on small business set-aside contracts under that NAICS size standard. Be mindful of the numerous government contractor perils for not meeting SBA small business size standards regulations.
For immediate help with SBA Size protest cases, call our small business attorneys at 1-866-601-5518 for a free initial consultation. Timelines are short. You must act quickly.