SBA Size Regulations U S Small Business Administration

SBA Size Regulations U. S. Small Business Administration Office of Government Contracting Area III Douglas W. Gerard, CFCM Procurement Center Representative 1

What is a small business? • Must be organized “for profit. ” Not-for-profit concerns are ineligible to be considered a small business. • Place of business located in the United States and • Operates primarily within the U. S. • OR make a “significant contribution” to the US economy by paying US taxes or using American products, materials or labor. 13 CFR § 121. 105 2

Non-Manufacturer Rule • Companies who receive a Small Business Set Aside must provide the products of a small business if they are not themselves the manufacturer or processor of the item. 13 CFR § 121. 406 --the rule also requires that the concern not exceed 500 employees and that it be primarily engaged in wholesale or retail trade and normally sells the kind of item being supplied and takes ownership or possession of the item with its personnel, equipment or facilities in a manner consistent with industry standard. • SBA can waive this requirement if the Contracting Officer determines that there are no small business manufacturers or processors who “reasonably can be expected” to supply the product to the government or if SBA determines that no small business manufacturer or processor of the product is available to participate. • Procedures for requesting waivers are set out in 13 CFR § 121. 1204. 3

SIZE PROTESTS: who can protest? • The general rule governing who can file a size protest is contained in 13 CFR § 121. 1001(a). Eligible parties vary, but for SB set asides they are: – offerors who have not been eliminated for reasons unrelated to size; – the contracting officer; – SBA (local Area Director or AA/GC in HQ); – other “interested parties” 4

What information will SBA need? • A copy of the protest and all attachments; • Size Checklist with Contracting Officer’s contact information, the date that the protest was received, date that: -- unsuccessful offerors were notified (RFPs), or -- bids were opened (IFBs) 5

Size Protest Checklist When processing a size protest, the following information is required: Copy of the Protest and all attachments. Date Contracting Officer received the protest. For IFB’s, the date bids were opened or for RFP’s, the date unsuccessful offerors were notified of apparent successful offeror and how. The protest must be timely, specific, and not premature. The protested company must be in line for award, or the successful offeror. Otherwise, the protest is premature under 13 C. F. R. Part 121. 1004 (e). Is the Protestor an interested party per our regulations at 13 C. F. R. 121. 1001(a)(1)? Please refer to 13 C. F. R. 121. 404(a), SBA determines the size status of a concern, including its affiliates, as of the date the concern submits a written self-certification that it is small to the procuring activity as part of its initial offer (or other formal response to a solicitation) which includes price. SBA needs the date successful offeror’s proposal was submitted including price. Contracting Officer’s name, address, phone number, FAX number, and E-Mail address and Contracting Office ID number. (If the protest is untimely, is the contracting officer protesting)? 6

Excerpts from the offer and/or solicitation. (If protest is not dismissed SBA needs the solicitation and complete proposal submitted by protested concern. ) Protested offeror’s small business certification and date. Date contract awarded. Solicitation number; Contract number Estimated Base Value of Procurement NAICS code Size standard Contracting Office ID DUNS and Cage Code Number for Protested Concern Small business set-aside statement (SDVOSB, HUBZone, 8(a), SB etc. ) Brief description of product or service. Provide the primary and vital requirements of the procurement. 7

Telephone, FAX numbers, E-Mail addresses for all parties including mailing address and zip code for Contracting Officer, Protestor, and Protested Company (include point of contact and title). Please provide any information that occurred prior to you forwarding the size protest to SBA i. e. GAO or court determination, incumbent, protestor not in competitive range etc. If SBA proceeds and a size determination is conducted and we do not dismiss the size protest due to premature, untimely, not specific or lack of standing the contracting officer must send immediately to SBA in overnight mail the protested concern completed proposal and solicitation. 13 CFR 121. 1001; 13 CFR 121. 1004; 13 CFR 121. 1007 ************************************************** We are not able to download voluminous information over the Internet. You should forward the size protest package by overnight mail to the Area Director in the SBA Area Office of Government Contracting covering the state in which the protested company’s headquarters is located. The Atlanta office covers the eight Southeastern states (AL, FL, GA, KY, MS, NC, SC, TN). Our address is: Carol L. Thompson, Area Director SBA Area III Office of Government Contracting 233 Peachtree St. N. E. Suite 1900 Atlanta, Ga. 30303 8

FAR versus SBA regulations: which governs? Procuring activities and contracting officers are governed by Federal Acquisition Regulations. SBA is governed by SBA regulations. There is extensive commonality but there a few major differences. SBA is not governed by FAR. 9

Status of procurement during protest • There should be a five-day “waiting period” after identifying apparent successful offeror but before award to allow time for protests to be filed. • Both FAR and SBA regulations provide that once a protest is sent to SBA, no award can be made. FAR (§ 19. 302(h)(1)) says “ 10 business days” but SBA regulations (§ 121. 1009) states “within fifteen working days, if possible. ” 10

PROTESTS: what NAICS code applies? • The contracting officer designates the proper NAICS code (and, thus, the size standard) in every solicitation, selecting the NAICS code which best describes the principal purpose of the product or service being acquired. (SBA: § 121. 402(b); FAR: § 19. 303(a)) • If a designation is “unclear, incomplete or missing” SBA can assign a code. 13 CFR § 121. 402(d) 11

NAICS codes can be protested • The NAICS code assigned by the contracting officer can be appealed by “any person adversely affected”, by SBA, and by the contracting officer using the procedures in 13 CFR §§ 134. 301 -317. See (§ 121. 402(c) and FAR § 19. 303(c)) • A judge at the SBA Office of Hearings and Appeals will decide if the NAICS Code assigned to the procurement is proper. 12

SIZE PROTESTS: what protests must go to SBA? • Contracting officers are required to forward all protests, regardless of when received and regardless of their opinions as to validity. Any contracting officer who receives a protest must forward the protest to the SBA Government Contracting Area Office serving the area of the protested concern headquarters. 13 CFR§ 121. 1003 13

SIZE PROTESTS: specificity and timeliness • To be timely, a protest must be received by the contracting officer prior to the close of business on the fifth business day after the contracting officer has notified the protestor of the identity of the prospective awardee (RFQs) or the fifth business day after bid opening (IFBs). • Although SBA regulations are detailed on what level of specificity a protest must have in order to be a valid protest, that determination belongs to SBA, not the Contracting Officer. Regardless of the contracting officer’s opinion, even size protests that are vague or clearly late must be forwarded to SBA. • SBA regulations on timeliness are at § 121. 1004 and rules on specificity are at § 121. 1007. 14

SIZE PROTESTS: advisory, premature • SBA does not render advisory determinations. SBA cannot help narrow down the field of potential awardees by making preliminary size determinations. • Protests filed by anyone—including the contracting officer—will be dismissed if premature (before bid opening or notification to offerors) • Protests are made in connection with a particular (or pending) procurement. 15

SIZE PROTESTS: what’s happens after receipt? • After receiving a timely and specific protest, SBA will notify the protested concern and allow them three business days to complete the forms and respond. • Requests for extensions are common. • Copies of the final determination are always emailed/shipped to the protestor, the protested concern, and the contracting officer. 16

As of what date is size determined? Size will be determined “as of the date the concern submits a written self-certification that it is small to the procuring activity as part of its initial offer (or other formal response to a solicitation) which includes price. ” Size status for compliance with the nonmanufacturer rule and ostensible subcontractor rule is determined as of the “final proposal revision for negotiated acquisitions and final bid for sealed bidding. ” 13 CFR § § 121. 404(a); . 404(d) 17

Counting employees • Average number of employees based on number of employees for each pay period for the preceding twelve calendar months. • Everyone counts as one: full-time, parttime; temporary. Every employee counts. • When affiliates exist, regardless of location, their employees are added to the total count. 13 CFR § 121. 106 18

Measuring average annual receipts • Receipts means “total income” plus “cost of goods sold” as reported to IRS. • Receipts are averaged over company’s three most recently completed fiscal years. • Any affiliated concerns total income will be added to the company being analyzed total. 13 CFR § 121. 104(a) 19

What if the company’s size changes during the contract? Small businesses performing long-term contracts must recertify themselves as small before the sixth year of performance opens. The rule applies to “long-term contracts” (meaning those over five years) and to novations and even mergers and acquisitions without novations. That means Multiple Award Schedule (MAS) contracts, Government-Wide Acquisition (GWACS) contracts, and Multiple Agency (MAC) contracts. 20

What if the company’s size changes during the contract? • For every contract that lasts more than five years, contracting officers are required to request that businesses recertify their small business status (1) no more than 120 days before to the end of the fifth year of the contract and (2) every time that an option is exercised after that. If you’re dealing with a novation, contractors must recertify their small business status to the procuring activity within 30 days of an approved contract novation. 13 CFR § 121. 404(g)(1) 21

What if the size changes during a GSA contract? For GSA MAS long term contracts, protest are only allowed 5 days of notification of prospective awardee of contact. Then within 5 days of notification of the exercise of an option. Or 5 days of notification of prospective awardee of an individual order where contracting officer has requested size certification. A blanket purchase agreement (BPA) is not a contract nor an order. Size cannot be determined in response to solicitation for a BPA only when order is issued. 13 CFR § 121. 1004(a)(3) 22

Size includes affiliates • The size of a business is determined by counting its employees (or average annual receipts) plus those of all of its affiliates. • Size is not separately determined for separate divisions, subsidiaries, locations, CAGE codes, or product lines. • Separate incorporation, payment of taxes, or “existence” is irrelevant. • The key to determining the size of a business is who has the power to control. 23

Affiliation is a matter of control • Concerns are affiliated with each other if: – one concern controls or has the power to control the other, or – if a third party has the power to control both. • Determinations will consider factors such as: – stock ownership – stock options, convertible securities, agreements to merge – common management – substantially identical business/economic interests – previous relationships or ties (e. g. , spin-offs) – economic dependency through contractual or other relations 13 CFR § 121. 103 24

For instance. . . • If I own 100% of each of the following: – – an ice cream parlor in Miami and a furniture manufacturing plant in China and a machine shop in Ohio and a construction company in Montreal. . . • because I own and control all of them they are all affiliated and all of them must be added together to determine the size of any one of them. • location and line of business are irrelevant. 25

. . . or the power to control A company or individual does not need to actually exercise their control. Potential control is enough. If a person has the power to control other companies—even though it has never exercised it and has no intention of ever exercising it—that’s enough. Because it could legally exercise the power if it wanted to. 26

Joint Ventures • General rule: All JV partners must be combined in order to determine if the joint venture meets the size standard. • Companies that bid as members of the same joint venture automatically affiliates of each other for the purposes of that specific contract and the partners to the JV must be added to determine size for that procurement unless the exemption applies. 13 CFR 121. 103(h) 27

What is the Exemption • The exemption states that so long as each JV partner individually qualifies as a small business, then the JV counts as small. • The exemption is applicable to: – Procurements that are bundled contracts or; – Dollar value of the contract including options exceeds half the size standard for receiptsbased size standard; – contracts valued at $10 million or more if employee-based size standard. 13 CFR § 121. 103(h)(3) 28

13 CFR § 121. 103(h)(3)(i): • “A joint venture of two or more business concerns may submit an offer as a small business for a Federal procurement without regard to affiliation under paragraph (h) of this section so long as each concern is small under the size standard corresponding to the NAICS code assigned to the contract…. ” 29

Ostensible Subcontractor Rule • A contractor and subcontractor will be treated as if they were joint venturers if the subcontractor will be performing the primary and vital requirements of the contract or if the prime contractor is unusually reliant upon the subcontractor. • In making that determination, SBA will consider a wide variety of factors including such things as contract management, technical responsibilities, and percentage of work subcontracted. 30

What is “Ostensible Subcontracting”? “An ostensible subcontractor is a subcontractor that performs primary and vital requirements of a contract, or of an order under a multiple award schedule contract, or a sub-contractor upon which the prime contractor is unusually reliant. All aspects of the relationship between the prime and the subcontractor are considered, including, but not limited to, the terms of the proposal (such as contract management, technical responsibilities, and the percentage of subcontracted work), agreements between the prime and the subcontractor (such as bonding assistance or the teaming agreement), and whether the subcontractor is the incumbent contractor and is ineligible to submit a proposal because it exceeds the applicable size standard for that solicitation. ” 13 CFR § 121. 103(h)(4) 31

Factors to consider • Who (which party) sought the contract? • Did the prime contractor and subcontractor collaborate on the proposal? how much? • Which party has the requisite background and expertise to carry out the contract? • Who will manage the contract? • Are there discrete tasks to be performed by each party, or is there commingling of personnel and materials? • How much work will each party perform? • Which party performs the more complex and costly contract functions? 32

Totality of the Circumstances The factors we’ve just looked at are only some of the many tools used by SBA to evaluate whether the relationship is a true prime/ subcontractor relationship or a joint venture under the ostensible subcontractor regulation. There is no single infallible test or guide to demonstrate the presence of “unusual reliance. ” Ultimately, a finding of “unusual reliance” which rises to the level of a joint venture affiliation must be a reasonable conclusion based on the totality of the circumstances. 13 CFR § 121. 103(a)(5) 33

Mentor/Protégé safe harbor • 13 CFR § 121. 103(h)(3)(iii) says: “Two firms approved by SBA to be a mentor and protégé under 13 CFR § 124. 520 may joint venture as a small business for any Federal Government procurement, provided the protégé qualifies as small for the size standard corresponding to the NAICS code assigned to the procurement and, for purposes of 8(a) sole source requirements, has not reached the dollar limit set forth in 13 CFR § 124. 519. ” 34

This means… • An 8(a) firm that meets a procurement’s size standard could enter into an SBA-approved mentor/protégé agreement with a large business mentor. The mentor and protégé can then form a JV if approved by SBA and then be eligible for award of a small business set-aside procurement or an 8(a) procurement. • Technically, the JV is not an 8(a) participant and it doesn’t apply for 8(a) certification, but the 8(a)JV is eligible to receive award of 8(a) procurements. • This applies to SB set asides procurements as well as 8(a) procurements. 35

JV involving an 8(a) • If it’s for an 8(a) procurement, SBA must approve the agreement. • If it’s for a non-8(a) procurement, SBA must be notified, but SBA does not approve the agreement. – 8(a) JV agreement are handled through the 8(a) firm’s BOS at the District Office level. 36

SBA must approve Mentor Protégé • The mentor/protégé relationship has to get SBA approval before proposal submission. • The JV agreement has to meet the requirements at 13 CFR 124. 513(c). – Can request both at same time – Request goes through the 8(a) firm’s BOS in the District Office. 37

Hypothetical JV arrangement among Companies A, B, C, and D 1500 employees size standard A. Company A and its three affiliates average 1325 employees, therefore it’s small; B. Company B and its one affiliate average 1400 employees, therefore it’s small; C. Company C has no affiliates and averages 852 employees, therefore it’s small; D. Company D and its two affiliates average 1600 employees, therefore it’s NOT small. Since all 4 parties to the JV do not individually qualify as small, the JV Offeror does NOT meet the exemption and is not eligible for SB set aside award. This JV does NOT qualify as small because Company D is too large. 38

Size determination is binding • “Formal size determinations and NAICS code designations made by authorized SBA officials are binding upon the parties. ” (§ 121. 403) • Contracting officers shall not award a contract that SBA has determined is not an eligible small business (§ 121. 1009(g)). • Companies found to be other than small are required to amend their SAM/ORCA profiles. 39

Size determination is binding • 121. 1009(g)(1): determination is binding unless and until reversed by OHA • 121. 1009(g)(2)(ii): if determination is appealed to OHA, its decision will apply to pending procurement. If contracting officer has awarded contract must consider suspending performance. • 121. 1009(g)(4): once found large, a company cannot become eligible by reducing its size; must recertify. • 121. 1009(g)(5): once found large, a company cannot self-certify as small until recertified as small by SBA. • 121. 1009(h): cases will not be reopened except in the case of clear administrative error or clear mistake of fact. 40

What is recertification? • A concern may request SBA to recertify it as small at any time. • Recertification will not be required nor will the prohibition against future self-certification apply if the adverse SBA size determination is limited to a particular Government procurement. • A denial of an application for recertification is a formal size determination and may be reviewed by OHA at its discretion. • The granting of an application for recertification has future effect only. While it is a formal size determination, notice of recertification is required to be given only to the applicant. 13 CFR § 121. 1010 41

AREA OFFICE JURISDICTION If headquarters of protested concern are located in: • CT, ME, MA, NH, NJ, NY, RI, VT, Puerto Rico & the Virgin Islands • DE, DC, MD, PA, VA, WV • AL, FL, GA, KY, MS, NC, SC, TN • IN, IA, IL, KS, MI, MN, MO, ND, NE, OH, SD, WI • AK, CO, LA, NM, OK, TX • AK, AZ, CA, HI, ID, MT, NV, OR, UT, WA, WY & Guam Forward the protest to the SBA Office of Government Contracting in • Boston 10 Causeway Street, Room 265 Boston, MA 02222 -1093 Janette Fasano (617) 565 -5622 • Philadelphia 1150 First Avenue, Suite 1001 King of Prussia, PA 19406 Vincent Mazzotta (610) 382 -3190 • Atlanta 233 Peachtree Street NE, Suite 1900 Atlanta, GA 30303 Ivette Bascumbe Mesa (305) 536 -5521 Ext 182 • Chicago 500 W. Madison Street, Suite 1150 Chicago, IL 60661 David Gordon (312) 353 -7674 • Texas 4300 Amon Carter Boulevard, Suite 116 Fort Worth, TX 76155 Stephanie Lewis (817) 684 -5303 • San Francisco 455 Market Street, Suite 600 San Francisco, CA 94105 Esmeralda Sanchez (415) 744 -4242 42