The SBA Ostensible Subcontractor Rule is a potent sword used to extinguish contract awards to government contractors. Small businesses must be extremely careful when submitting proposals Size Appeals and The SBA Ostensible Subcontractor Rulethat intend to use incumbent employees. This can be fertile ground for an SBA size appeal under the Ostensible Subcontractor Rule.

The SBA Ostensible Contractor Rule

Under SBA’s ostensible subcontractor rule, 13 CFR 121.103(h)(4), a prime contractor and its subcontractor may be treated as affiliates if the subcontractor either performs the primary and vital requirements of the contract, or if the prime contractor is unusually reliant upon the subcontractor.

Purpose of the Rule

The purpose of the Ostensible Subcontractor Rule is to “prevent other than small firms from forming relationships with small firms to evade SBA’s size requirements.” See Size Appeal of Fischer Business Solutions, LLC, SBA No. SIZ-5075, at 4 (2009).

An ostensible subcontractor lawyer will be analyzing your case on the basis of the Government’s RFP and your specific proposal contents.

While it is not a per se rule that a concern which proposes the incumbent as its subcontractor has violated the SBA ostensible subcontractor rule, the fact that the regulation explicitly identifies this as a factor to consider requires that such a prime/subcontractor relationship receive heightened scrutiny when performing an ostensible subcontractor analysis. 

Legal Considerations Under the SBA Ostensible Subcontractor Rule

To apply the ostensible subcontractor rule in size appeal bid protests, the Area Office must consider all aspects of the relationship between the prime and subcontractor, including the terms of your Proposal, agreements between the firms (such as teaming agreements, bonding or financial assistance), and whether the subcontractor is the incumbent on the predecessor contract.

Commitment Letters Do Not Avoid Losing a Size Protest

The fact that you obtain commitment letters from the incumbent employees does not change the fact that you are proposing to adopt the personnel of the incumbent ostensible subcontractor. The SBA can  consider your proposal to hire the incumbent’s employees as an indicia of unusual reliance. Thus, violating the SBA Ostensible Subcontractor Rule.

  • You cannot simply hire your subcontractor’s employees if they are going to performing key roles such as project management and quality assurance.  These are considered the primary and vital requirements of the contract when litigating size appeals.
  • The SBA can find that your proposed management team is evidence of reliance upon the incumbent subcontractor for contract performance.

Past Performance Considerations in Size Appeals

When assessing size appeals, the SBA can also consider your Past Performance submission in your proposal. It can conclude  that while both companies have experience in government contracting, your business has more experience in another primary effort and that you are relying upon the past performance of the incumbent contractor.

Seriously Consider the Implications of Size Appeals in Your Next Proposal

When you engage in your next proposal writing effort, you want to carefully analyze the legal and financial implications when you hire an incumbent’s personnel. Size appeals are very often ignored as a possibility when writing proposals. Remember, the SBA Ostensible Subcontractor Rule is  alive and well.

Get the help of a small business size appeal lawyer that understands the process and can guide you through the hurdles faced with the ostensible subcontractor rule.

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