This case concerns the size appeal of Olgoonik Diversified Services, LLC SBA No. SIZ-5825 (2017) and the Small Business Act of 1958. Recognizing the importance of free enterprise and competition, the Small Business Act requires the U.S. Government to assign a fair portion of contracts and purchases to small businesses. The Small Business Administration (SBA) and its Office of Hearings and Appeals (OHA) oversee the administration of the Small Business Act. The SBA uses size standards and the North American Industry Classification System (NAICS) to define what qualifies as a small business.
Background on De Facto Joint Ventures
On June 5, 2016, the Department of State, Bureau of Overseas Buildings (DoS) submitted a two-phase Request for Proposal (RFP) for a “contractor to provide Design-Build Construction Services” for the Baghdad Embassy Compound. The Contracting Officer (CO) reserved this request for small businesses and classified as NAICS code 236220, under the category of “Commercial and Institutional Building Construction” and carrying a size standard of $36.5 million.
Olgoonik Diversified Services, LLC (Olgoonik) submitted a bid for this request. In their bid, Olgoonik stated that they are “not a Joint Venture.” At the same time, Olgoonik disclosed a “de facto joint venture” relationship with O.E.S., Inc. (OES) and Olgoonik Specialty Contractors, LLC (OSC). In October 2016, Olgoonik won the award for the DoS request.
But on October 11, 2016, the CO received a challenge from CCE Specialties, LLC (CCE) concerning the size of Olgoonik. The CO forwarded CCE’s size protest to the SBA Office of Government Contracting for Area VI (Area VI Office) for review.
On February 24, 2017, the Area VI Office delivered a formal size standard decision concerning Olgoonik. Due to the relationship with OES and OSC, the Area VI Office determined that under SBA regulations Olgoonik was a joint venture exceeding the $36.5 million size standard limit.
On March 10, 2017, Olgoonik appealed the Area VI Office’s decision and requested review from the OHA. Olgoonik argues that the Area VI Office committed an error, as Olgoonik is not actually a joint venture. OES and OSC are merely guaranteeing Olgoonik’s performance, which constitutes a de facto joint venture.
Analysis of De Facto Joint Ventures and Bid Protests
The OHA first considered the different definitions of joint venture under SBA regulations and the Diplomatic Security Act (DSA). Under the DSA, de facto joint ventures “are not entities where both firms share in the performance of work, but merely an arrangement where one firm guarantees the performance of another.” Stated otherwise, de facto joint ventures involve one side vouching for the other side, without actually performing duties.
The OHA contrasted de facto joint ventures under the DSA with the SBA definition of joint ventures. Under the SBA, “the parties to a joint venture are affiliated for the performance of the contract for which they have submitted an offer.” In other words, the SBA requires all parties in a joint venture to share in the performance of a contract.
In the end, the OHA concluded that the Area VI Office made an error in considering Olgoonik a joint venture with OES and OSC. As OES and OSC are merely guaranteeing Olgoonik’s performance, it is a de facto joint venture under the DSA.
As a result, the OHA granted Olgoonik’s appeal and reversed the Area VI Office’s size standard determination.
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