sba affiliation appeal lawyers

Under the ostensible subcontractor rule, if your subcontractor is actually performing the primary and vital requirements of the contract, or you as the prime contractor is unusually reliant upon your subcontractor, then the two firms are affiliated for purposes of the procurement at issue. See 13 CFR121.103(h)(4).

To determine whether the relationship between a prime contractor and a subcontractor violates the ostensible subcontractor rule, the SBA Area Office must examine all aspects of the relationship, including the terms of the proposal and any agreements between the companies.

In addition, and a costly mistake by government contractors when filing an appeal, Ostensible subcontractor rule analysis and inquiries are “intensely fact-specific given that they are based upon the specific solicitation and specific proposal at issue.

What are Primary and Vital Requirements of the Contract?

OHA has explained that the “primary and vital contract requirementswhen analyzing decisions are those associated with the principal purpose of the acquisition. See Size Appeal of Santa Fe Protective Services, Inc., SBA No. SIZ-5312, at 10 (2012); Size Appeal of Onopa Management Corp., SBANo. SIZ-5302, at 17 (2011).

Not all the requirements identified in a solicitation can be primary and vital, and the mere fact that a requirement is a substantial part of the solicitation does not make it primary and vital. Id. In evaluating claims of an ostensible subcontractor rule violation OHA will base its analysis on the solicitation and proposal before it. Size Appeal of Four Winds Services, Inc., SBA No. SIZ-5260, at 6 (2011).

Prime Indicators For Violation of the Rule

Violation of affiliation rules can be cloaked in various ways. Here are some common ones.

  • Proposed subcontractor was the incumbent contractor;
  • Incumbent subcontractor was not itself eligible to compete for the procurement.
  • Prime contractor planned to hire the large majority of its workforce from the subcontractor;
  • Prime contractor’s proposed program manager previously served as program manager for the subcontractor on the incumbent contract;
  • The prime contractor was a relatively new firm with modest revenues and very little experience.

If these are your facts, then beware. OHA has concluded that “when a prime contractor proposes the incumbent contractor as its subcontractor, relies heavily upon its subcontractor for both managerial and non-managerial personnel, and has little or no corporate experience, the prime contractor is at risk of violating the ostensible subcontractor rule.” See Wichita Tribal Enterprises, SBA No. SIZ-5390, at 11, (citing DoverStaffing and Size Appeal of SM Resources Corp., Inc., SBA No. SIZ-5338 (2012)). See information about hiring incumbent employees under Executive Order 13495.

Be Cautious When Submitting Your Proposal

When you decide to send a proposal for a government contract, and you are proposing a teaming partner or you are entering into a prime and subcontractor relationship, you should consider the Ostensible Subcontractor rule that can potentially get the award taken away.

Not all the requirements identified in a solicitation can be primary and vital, and the mere fact that a requirement is a substantial part of the solicitation does not make it primary and vital.

Cases are Very Fact Specific

The ostensible subcontractor rule inquiries are “intensely fact-specific given that they are based upon the specific solicitation and specific proposal at issue.” A contract’s primary and vital requirements are ascertained from the solicitation itself, and not from comments by the procuring agency.

A prime contractor does not do the primary and vital requirements merely by supervising subcontractors in their performance of work. Under your subcontractor agreement, and the Ostensible Subcontractor Rule, if a subcontractor is actually performing the primary and vital requirements of the contract, or the prime contractor is unusually reliant upon the subcontractor, then the two firms are affiliated for purposes of the procurement at issue. 13 CFR 121.103(h) (4).

What Must the SBA Do to Make Its Determination for Ostensible Subcontractors?

To decide whether the relationship between a prime contractor and a subcontractor violates the ostensible subcontractor rule, the Area Office must check all aspects of the relationship, including the terms of the proposal and any subcontractor agreements between the firms. The purpose of this government SBA rule is to prevent large businesses from forming relationships with small firms to evade SBA’s size requirements.

Contact Watson & Associates’ Ostensible Subcontractor Rule Lawyers Today for Immediate Help. Call Toll-Free 1-866-601-5518.

Contact a government contracts attorney.

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