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Award to Small Business that uses overseas facilities


diverdave

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We issued a sources sought notice and received adequate responses and have determined to conduct a procurement as a total SB set-aside. The procurement involves a signifcant amount of highly technical laboratory work. I received a question from a contractor asking if it is permissible for them to submit a proposal out of their USA office, with the majority of the lab work being performed out of their Hamburg, Germany lab facility. The USA company is a wholly owned subsidiary of the European company, and combined, the two companies do not exceed the NAICS code size standard for SB.

I see nothing in Part 19 or 25 addressing this situation. Anyone know whether this sort of arrangement is permissible or not, or where I might look to find futher information?

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How does SBA determine affiliation?

Concerns and entities are affiliates of each other when one controls or has the power to control the other, or a third party or parties controls or has the power to control both. SBA considers factors such as ownership, management, previous relationships with or ties to another concern, and contractual relationships, in determining whether affiliation exists. In determining the concern's size, SBA counts the receipts, employees, or other measure of size of the concern whose size is at issue and that of all of its domestic and foreign affiliates, regardless of whether the affiliates are organized for profit. For more information on how SBA determines affiliation, see 13 CFR 121.103 "Guide to Size Standards" on SBA's size standards Website at http://www.sba.gov/size provides typical examples of affiliation.

http://web.sba.gov/faqs/faqindex.cfm?areaID=15

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As I understand, it is permissible for a business concern operating in the United States which is wholly-owned or otherwise affiliated with a foreign firm to still qualify as a small business for purposes of small business set-asides -- but the contracting officer can let the SBA make that decision by following the process at FAR 19.302 ( c ) ( 1 ) (contracting officer protest of small business representation).

Even if the concern qualifies as a small business, it must comply with the contract clause at FAR 52.219-14, Limitations on Subcontracting. For services, the concern awarded the contract (the business concern operating in the United States) must perform 50% of the cost of contract performance for personnel with its own employees (not its foreign parent company's or other affiliate's employees). Again, the contracting officer can let the SBA make that decision by following the process at FAR 19.602-1 (referral for a certificate of competency from the SBA) (note that para. (a) specifically mentions limitation on subcontracting as one of the reasons for a referral).

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diverdave, I recommend some degree of care in answering the question from your prospective offeror. If I were you, I would limit my response to paraphrasing FAR 19.301-1(a), such as, "To be eligible for award as a small business, an offeror must represent in good faith that it is a small business at the time of its written representation. An offeror may represent that it is a small business concern in connection with this solicitation if it meets the definition of a small business concern applicable to the solicitation and has not been determined by the SBA to be other than a small business." Then, I might add a statement such as, "The contract will include the clause at FAR 52.219-14, Limitation on Subcontracting, and the successful offeror will have to comply with that clause during the life of the contract." I would close with something such as, "Contracting officers do not pre-certify prospective offerors as eligible or not eligible. You must make that decision and certification for yourself as part of your proposal preparation effort." In simple terms, you don't want to give legal advice to the offeror, and you don't want to give an answer that you cannot support later.

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Guest Vern Edwards

I'm not sure that the question has been addressed. The original poster asked: "[W]hether this sort of arrangement is permissible or not?" The "arrangement" that he described is for a contractor located in the U.S. to have the work done in a foreign country. I'm not sure whether the issue is (a) size status, (B) compliance with the limitation on subcontracting clause, ( c) the permissibility of performance in a foreign country, or (d) some combination of these.

diverdave should clarify his question.

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My question is whether the sort of arrangement I described in my original post is permissible or not. I thought the issue with this sort of arrangement would hinge on small business eligibility and/or subcontracting limitations or possibly something in part 25, however I have not been able to find preclusions in those sections. I wondered if there were any other FAR parts I hadn't considered or any case law that may be relevant.

One clarification is that the US subsidiary would not perform 50% of the cost of contract performance for personnel, the bulk of the work would be done in Germany. Since the US company is a wholly owned subsidiary of the European company is the 50% requirement still applicable?

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One clarification is that the US subsidiary would not perform 50% of the cost of contract performance for personnel, the bulk of the work would be done in Germany. Since the US company is a wholly owned subsidiary of the European company is the 50% requirement still applicable?

So, you are setting aside an acquisition for sole participation by US Small Business prime contractors and at least 50% of the labor effort is intended for employees of that company; one prospective firm is a wholly owned subsidiary of a foreign company which isn't a US small business. And the foreign company will perform the bulk of the work in Germany, isn't that correct? You are asking if this is legit for a small business set-aside...

Why don't you just ask the Small Business administration if this is a legitimate arrangement?

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So, you are setting aside an acquisition for sole participation by US Small Business prime contractors and at least 50% of the labor effort is intended for employees of that company; one prospective firm is a wholly owned subsidiary of a foreign company which isn't a US small business. And the foreign company will perform the bulk of the work in Germany, isn't that correct? You are asking if this is legit for a small business set-aside...

Why don't you just ask the Small Business administration if this is a legitimate arrangement?

The company in Germany is a small business. Even if you count all of the employees in both companies, they still are a small business under the NAICS (500 employee size standard). I'm obviously not asking for a formal ruling out of this forum, I'm trying to tap into knowledge and experience, if/when the appropriate time comes I will contact SBA.

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Here's how SBA defines a "concern":

Except for small agricultural cooperatives, a business concern eligible for assistance from SBA as a small business is a business entity organized for profit, with a place of business located in the United States, and which operates primarily within the United States or which makes a significant contribution to the U.S. economy through payment of taxes or use of American products, materials or labor. 13 C.F.R. 121.105(a)(1).

Although there's nothing wrong with foreign ownership, the company must have a significant US presence. If the US entity just feeds work to the German entity, I'd question whether it qualifies as a "concern" under this rule. I also don't see how they would comply with the limitation on subcontracting clause.

Going to SBA is the best bet.

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I may be missing something --- I often do ---

but this appears to be pretty simple to answer.

The US-located daughter concern obviously makes a substantial contribution to the US economy if it employs anyone in the US who pays US federal and state taxes, American or legally admitted to work here. It is OBVIOUSLY a qualified small business.

But here's the bigger point:

The Mother corporation back in Germany ALSO QUALIFIES as a legit small business.

The German Corp ought to do the bidding, register in CCR, etc.

Why wouldn't a German company, or a Canadian company, or an Australian company, or a Pakistani company, be allowed to bid on and win US Government contracts ?

Joel, the Corps awards contracts to foreign firms ALL THE TIME. Much of that is for work in their own country, of course.

But US businesses DOMINATE defense procurement for most of our allies. Turn about, fair play, and all that ?

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I may be missing something --- I often do ---

Why wouldn't a German company, or a Canadian company, or an Australian company, or a Pakistani company, be allowed to bid on and win US Government contracts ?

Joel, the Corps awards contracts to foreign firms ALL THE TIME. Much of that is for work in their own country, of course.

Brian, I was merely restating the question, not offering a comment. Then I asked the questioner why they didn't just ask the agency that is responsible for implementing these programs .

However, since you brought it up, I will submit a personal opinion. The subject solicitation is a small-business set-aside, which means that only a class of small businesses are privileged to propose on and be awarded the contract. Why should a foreign firm with foreign labor be privileged to perform the work - especially during a recession with such high US unemployment? If this is possible, then something is wrong with the program and it should be fixed. We should be fostering US business, US employment and manufacturing with these exclusive set-asides.

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