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GAO Won’t Evaluate Subcontractor’s Small Business Status

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Koprince Law LLC

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GAO ordinarily will not hear any argument that is based on a company’s small business status, even if the alleged large company is only a proposed subcontractor.

In a recent decision, GAO declined to hear a protester’s argument that the awardee’s supposedly-small subcontractors were affiliated with other entities, holding that such a determination is reserved solely for the SBA.

The case, URS Federal Services, Inc., B-412580 et al. (Mar. 31, 2016), involved an Army task order request seeking proposals to perform maintenance, repair, overhaul, modification and upgrade of various military vehicles and equipment. The solicitation was issued on an unrestricted basis, but contained a requirement that 25 percent of the labor value for each performance period be proposed for performance by small businesses.

After evaluating competitive proposals, the Army awarded the task order to VSE Corporation. URS Federal Services, Inc., the incumbent, then filed a GAO bid protest challenging various aspects of the award decision. Among its challenges, URS contended that the agency should have excluded VSE’s proposal for failing to meet the 25% small business requirement. URS contended that two of VSE’s proposed small business subcontractors were affiliated with each other, causing both to exceed the relevant size standard.

The GAO wrote that the Small Business Act “gives the Small Business Administration (SBA) not our office, conclusive authority to determine matters of small business size for federal procurements.” Accordingly, GAO’s bid protest regulations provide that challenges to an entity’s size status “may be reviewed solely by the Small Business Administration.” GAO dismissed this aspect of URS’s protest, writing “[w]e will not consider any allegation that is based on URS’s assertions regarding the size status of particular firms, since such matters are solely for the SBA’s consideration.”

What’s interesting to consider, however, is what if URS was right? For argument’s sake, let’s say that the awardee’s subcontractors were affiliated and therefore too large to satisfy the small business participation requirements. What should URS have done?

The SBA’s size protest regulations allow “interested parties” to file protests with respect to “SBA’s Subcontracting Program.” (See 13 C.F.R. 121.1001(a)(3)).  In a 2013 case, IAP World Services, Inc., SBA No. SIZ-5480 (June 24, 2013), the SBA Office of Hearings and Appeals held that an unsuccessful offeror could file a size protest based on whether the successful offeror–itself a large business–would improperly count work performed by a certain entity toward its subcontracting goals. In reaching this conclusion, OHA wrote that 13 C.F.R. 121.1001 “contemplates that there will be protests of the small business size status of subcontractors under [SBA’s] Subcontracting Program and that these may be filed by ‘other interested parties,'” including “an unsuccessful offeror for the prime contract.”

Thus, it seems that URS should have taken the matter to the SBA. As the GAO made clear in URS Federal Services, it will not decide such challenges as part of the bid protest process.


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