Avoid costly mistakes that can cost you tens of thousands in litigation.
Theodore P. Watson, Esq – Government Contracts and SBA Size Standard Protest Lawyer
According to the small business size protest requirements, filing an SBA Size Protest challenge against your competitor must be approached with caution. On the other hand, you are awarded the contract and need to protect your rights to increased revenues, you may want to seriously consider intervening into the size protest case.
Many small businesses lose out on the potential to recapture substantial amounts of government contract revenues due to lack of understanding of the small business size protest rules. A basic understanding can help you decide whether to take the next steps. Keep in mind that the deadlines for acting are extremely short.
When Should You File an SBA Size Protest?
The logical answer is when you lose out on the contract award and you have a valid reason to dispute the awardee’s small business size status. Every small business must meet the North American Industry Classification System NAICS Code requirement.
To file a size protest, you must have specific facts or meritorious legal grounds to file. You can only file a protest when the included details are sufficiently specific to provide reasonable notice as to the grounds upon which the awardee is disputed. For example, you cannot merely allege that your competitor is not a small business or is affiliated with another company. Under 13 CFR 121.1007(b). Likewise, if the SBA finds that your bid protest is legally deficient, it must dismiss the protest. See 13 CFR 121.1007(b).
What Must You Watch Out For When Deciding to File a Small Business Size Protest?
There are many things that you should be mindful of when deciding to file a small business size protest. The first consideration is to understand the newly-issued SBA regulations that address when your competition is exempt from affiliation. You do not want to waste thousands in attorney fees to simply get your bid protest dismissed.
You want to make sure that you have hard facts and evidence to support your allegations. Whether you evidence includes the competitor’s website or some other fact that creates a reason to question its small business status. The next logical concern that many companies should consider is short deadlines to file. Neither the SBA nor the contracting officer has to authority to change or waive the statutory filing deadlines.
Tip: If your company has been eliminated from consideration for reasons other than size, you may run the risk of getting your size protest dismissed.
Tip: Stating that your competition “may be in violation of the ostensible subcontractor rule” is not good enough. See Size Appeal of Alutiiq International Solutions, LLC, SBA No. SIZ-5069, at 4 (2009).
Can Your Intervene and Defend a Size Protest?
If you are fortunate enough to be awarded the contract, then your decision to intervene and defend against the protest is ripe for consideration. You always must be an interested party to become an intervenor in an SBA size protest case. There is no legal requirement to intervene. However, many companies sit on the sidelines and wait to see what happens. Government procurement regulations allow to join the lawsuit and protect your interests and even file briefs or motions against the protestor.
Time Limits and Deadlines
This is a topic that there is no getting around when it comes to challenging your competitor’s small business status. Time limits for filing an SBA size protest for negotiated procurements (including small business program representations in partial set-asides and reserves of Multiple Award Contracts and set-asides of orders against Multiple Award Contracts), you must file a protest that is received by the contracting officer prior to the close of business on the 5th day, exclusive of Saturdays, Sundays, and legal holidays.
- It is important that you keep your documentation that shows when you were notified.
Tip: If the agency published the award decision and you somehow didn’t know, then this could be a problem. However, see Size Appeal of Penn Enterprises, Inc., SBA No. SIZ-5940 (2018) (Area Office erred in dismissing size protest as untimely because agency caused delay by refusing to identify an apparently successful offeror until three weeks after 11 p.m. bid opening despite repeated requests from protester)
A small business size bid protest must be sufficiently specific to provide reasonable notice as to the grounds upon which the protested concern’s small business size standard questioned.
You must show adequate grounds for a size protest: You, or your lawyer, must provide some basis for the belief or allegation stated in the protest. If your protest merely alleges that the protested concern is not small or is affiliated with unnamed other concerns, it will not pass the size protest requirements test because it does not specify adequate grounds for the protest. See 13 CFR 121.1007(b).
If a protest is found to be non-specific, the SBA must dismiss it for lack of compliance with small business bid protest requirements. In the past, SBA Office of Hearing and Appeals (SBAOHA) has stated that, in reviewing non-specific small business size protests, it will consider:
- Whether the protest was sufficiently specific to provide notice of the grounds upon which the protestor was contesting the challenged firm’s size; and
- Whether the bid protest included factual allegations as a basis for these grounds.
Specificity Required in SBA Small Business Size Protest Filings
When you appeal the SBA’s small business size standard protest dismissal decision, you simply cannot use terms such as “possible affiliation” or that another company may be a “possible affiliate.”
Instead, small business size protest requirements mandate that you must present a factual basis for the allegation such as postings on the company’s website, knowledge of a prime hiring incumbent employees where the incumbent could not have bid on the project.
SBA bid protest requirements require more than mere allegations. You have to specifically identify how your competition violates SBA’s affiliation rules.
This level of government contract law is very brutal. The importance of filing a sound SBA small business size protest cannot be overemphasized because you have to preserve your rights to appeal if necessary.
- Avoid filing limitation on subcontracting arguments in your size protest.
When the SBA makes an adverse size determination decision, you cannot introduce new evidence on appeal to SBA OHA to cure the mistake. See, for example, Appeal of EnviroServices & Training Center, LLC, SBA No. SIZ-5517 (2013) (finding a protest nonspecific when its statements regarding affiliation lacked explicitness.)
SBA Formal Size Determinations
After the SBA receives the size protest, it will conduct an investigation to see whether the alleged small business concern has complied with the relevant small business regulations. The main issue that comes up is whether the concern violates the Ostensible Subcontractor Rule or whether the awardee somehow is affiliated with another company. The SBA will issue a size determination and provide a copy to the parties or their attorneys.
Can the SBA find a violation or reasons not stated by the protestor? Yes, it can. This why awardees must be extremely careful when responding to an SBA small business size protest. You just have to cover all grounds.
If the SBA issues a negative size determination, this can seriously impact your business’ future because the decision means that you cannot apply for federal contracts as small business under the particular NAICS code in question.
How Does SBA Establish Small Business Size Standard Requirements?
When evaluating small business size standards, the SBA considers economic characteristics comprising the structure of an industry, including the degree of competition, average firm size, startup costs and entry barriers, and distribution of firms by size.
- The SBA also considers technological changes, competition from other industries, growth trends, historical activity within an industry, unique factors occurring in the industry which may distinguish small firms from other firms, and the objectives of its programs and the impact on those programs of different SBA size standard levels.
- As part of its review, the SBA will investigate if any concern at or below a particular standard would be dominant in the industry. The SBA will also take into consideration market share of a concern and other appropriate factors which may allow a concern to exercise a major controlling influence on a national basis in which a number of business concerns are engaged.
- Regulations seek to ensure that a concern that meets a specific size standard is not dominant in its field of operation.
- As part of its review of each small business size standard, the SBA’s Office of Size Standards will examine the impact of inflation on monetary-based size standards (e.g., receipts, net income, assets) at least once every five years and submit a report to the Administrator or designee.
If SBA finds that inflation has significantly eroded the value of the monetary-based size standards, it will issue a proposed rule to increase small business size standards.
Affiliation and Size Information
The SBA has helpful information on its Website to further explain important small business size protest requirements and considerations.
What is an “affiliate”? The SBA determines whether an entity qualifies as a small business concern by counting its receipts, employees, or other measures including those of all its domestic and foreign affiliates, regardless of whether the affiliates are organized for profit. 13 CFR 121.103(a)(6).
- SBA has a specific set of rules that explain when another person, business or entity is considered an affiliate for small business size purposes.
What are the general principles of affiliation for purposes of a small business size protest? Generally, affiliation exists when one business controls or has the power to control another or when a third party (or parties) controls or has the power to control both businesses.
Control may arise through ownership, management, or other relationships or interactions between the parties. See also information about SBA size protest timeliness requirements. See information about standing to file a size protest.
Types of Business Control Reviewed
According to the SBA, business control may be affirmative or negative. Negative control for purposes of small business size protest requirements includes 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.
Developing and filing an SBA size appeal can be complicated because requires factual allegations that apply a unique set of rules.
One set of facts alone may not win your small business size protest or appeal. The SBA makes will consider the totality of the circumstances when determining whether affiliation exists and may find affiliation based on the totality of the circumstances even though no single factor alone may be sufficient to constitute affiliation. Read about SBA Negative Control Definition 13 CFR 121.103
If SBA affiliation rules conclude that affiliation exists, and small business size protest requirements are met, then SBA will count the receipts, employees, or other measure of size for the concern whose size is at issue combined with the receipts, employees, or other measure of size for all of its domestic and foreign affiliates, regardless of whether the affiliates are organized for profit. See additional information about SBA Size Appeal and Determinations of Common Management and Control.
SBA OHA Size Appeals & Litigation Decisions
After the SBA issues its small business size determination, you have a choice to make. Either accept the decision or file a size appeal to the SBA Office of Hearing and Appeals (SBA OHA. However, just like the initial size protest, there are very strict procedural rules and requirements that you or your attorney must meet. Litigation at SBA OHA can be somewhat costly. Therefore, making sure that you have the requisite requirements in place is mandatory in addition to having the merits of your case assessed.
Size appeal filing deadline. In order to file a case at SBA OHA, you must file a size appeal within 15 calendar days after receipt of the size determination. 13 CFR 134.304(a). The court must receive the appeal by that time. See 13 CFR 134.204(b). There are no exceptions.
Legal requirements. If you choose to file a small business size appeal without an attorney, then you must be mindful of the legal requirements. You must show that the SBA’s size determination is based upon a clear error of fact or law. See 13 C.F.R. § 134.314. The appeal must contain a clear and concise statement of the factual basis of the case and any applicable legal arguments as directed by SBA regulations. 13 CFR 134.203(a)(3).
What are the Legal Remedies?
After OHA rules on the case, it will generally do one of the following:
- Remand (send back) the case to the SBA with instructions to do something else;
- Decide in favor of the appellant (sustain the appeal). This would allow the alleged small business concern to continue to represent itself as having small business status.
- Deny the protest. This means that it will agree with the SBA’s decision.
What is New With Small Business Size Protest Regulations
SBA increases monetary size standards to account for inflation since 2008
The U.S. Small Business Administration (SBA or Agency) has issued new size protest rules that do the following:
- Adjusts monetary-based industry small business size standards (i.e., receipts, assets, net worth, and net income) for inflation that has occurred since the last adjustment in 2008. These adjustments are in addition to the recent revisions that were part of the comprehensive review, as mandated by the Small Business Jobs Act of 2010 (Jobs Act).
- Adjusts program based SBA size standards, with the exception of the new alternative size standard for SBA’s 7(a) and 504 loan programs that were established under the Jobs Act. The new alternative size standard will remain in effect until SBA establishes a permanent alternative size standard for the 7(a) and 504 loan programs.
- Deletes references to Surety Bond Guarantee small business size standards for contracts awarded in the presidentially declared disaster areas following Hurricanes Katrina, Rita, and Wilma in 2005.
- Deletes the determination date for eligibility under the Agency’s Economic Injury Disaster Loan (EIDL) Program in connection with Hurricanes Katrina, Rita, and Wilma.
Call our SBA Protest Lawyers for Immediate Help.
For additional information about SBA small business size standard protest requirements if you are awarded the contract, or to get help either defending or filing an SBA size protest or appeal, call our SBA small business size standard protest lawyers at 1-866-601-5518.