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  size standards under 13 CFR Part 121 for certain industries. When an SBA bid protest is filed, the SBA then conducts and investigation and then makes a formal SBA size determination.

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

 

Size 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 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 where others count the amount of employes.

  • There is not a statutory amount of NAICS codes that a company can have.
  • Your company can be small under one 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 Size Standard Requirements

In addition to meeting the above requirements to meet the small business 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 make huge mistakes when selecting appropriate NAICS Code for a procurement under small business size regulations.

Are There Criminal Penalties for Misrepresenting Your Small Business Size? 

You cannot  knowingly make false statements or misrepresentations to the government when you submit your bid. Unfortunately, it does happen. As result, small businesses find themselves defending against criminal charges for false claims and other 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 for 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 tend 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 NAICS size standards code.

What is 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 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 Determination 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 my attempt to appeal the SBA’s dismissal of the initial size protest.

SBA size 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 Size Appeal to OHA 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?

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.

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

For help with an adverse SBA size determination or help with SBA 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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