Size Protests
Attorneys - Federal Government Contracts - Size Protests
A company must be small under the applicable size standard to compete on a small business set-aside. If you believe a contractor is not small, you may file a size protest within five (5) days after bid opening or within 5 days after receipt of notification of the proposed awardee in negotiated procurements. (FAR 19.302)
Upon receipt of a size protest, the Contracting Officer must forward the protest to the SBA Regional Office with jurisdiction over the awardee for an initial written decision. 13 C.F.R. §121.1006 (2008). At that point, the contractor in line for award must defend itself before the designated SBA Regional Area Office.
Often, a size protest alleges that a small business is “affiliated” with a large business and therefore not really small. If affiliation is found, the receipts of the large business are counted towards the size determination. This would disqualify the small business from competing on set-aside procurements. A small business therefore cannot be affiliated with the large business.
Business concerns are affiliates of each other if one has the potential to control the other. Potential control does not mean actual control. (13 C.F.R. §121.103(a)) The SBA has the discretion to look at “the totality of the circumstances” when determining if affiliation exists. (13 C.F.R. 121.103(a)(5)) Specific factors considered are:
- Stock Ownership. A person that owns 50% or more of a concern’s voting stock controls that concern. Affiliation can also be found if less that 50% of voting stock is owned, but when compared to other blocks of ownership, it has power to control that concern.
- Common Management. Affiliation exists if an officer, director, managing member, or partner who controls the management of the small business also controls the other business concern.
- Identity of Interests. Firms that have identical economic and business interests are affiliated with each other. This includes firms that are economically dependent on each other through contractual or other relationships. This creates a presumption of affiliation that can be rebutted only by a showing that the interests are in fact separate.
- Newly Organized Concern Rule. Affiliation may arise if (a) former officers, directors, principal stockholders, managing members, or key employees hold positions in the a new small business operating in the same industry and (b) the business concern will be providing technical or financial support to the new small business. This presumption can be rebutted by showing that a clear fracture exists between the small business and the other business concern.
- Family Relationships. Two companies are deemed affiliated with each other if they are owned or controlled by family members unless a clear line of fracture is shown. The SBA relaxed this rule in the Size Appeal of GPA Technologies, Inc., SIZ-5307 (December 7, 2011), OHA held that a clear line of fracture can exist even if there is some economic activity between family members’ respective businesses. In this regard, OHA held that “a minimal amount of economic or business activity between two concerns does not prevent a finding of clear fracture.” OHA noted that this view is consistent with the principle that “the presumption of affiliation may be rebutted with factors which would render the application of the regulation unjust or inequitable under the circumstances." Id. citing Size Appeal of Golden Bear Arborists, Inc., SBA No. SIZ-1899, at 7 (1984)
- Business Relationships. Whether business dealings between two companies are minimal when deciding if a clear line of fracture exists, should be dependent on whether this business activity allows one company to control the other. This is the essence of affiliation. In the GPA Technologies case, the SBA Area Office argued that affiliation existed between two companies owned by family members given their continuous subcontracting history and use of common employees.
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