Size Matters: Ostensible Subcontractor Rule

The Air Force issued an Request For Proposals (RFP) for Linguist and Support Services (LASS) on November 30, 2016, in support of intel operations.  The procurement was earmarked as an 8(a) set-aside.  The size standard for the NAICS in question was 7.5 million.  The contract required the awardee to perform all phases of collecting, interpreting, translating, and performing analysis of mission data: "The contractor shall provide support as language mentors and trainers. The contractor shall furnish the required management, technology and personnel required to provide the requested linguist support as specified in this PWS.”  The protested awardee, Kapsuun Group (KG), and the contract predecessor, Premier Management Group (PMG), teamed up with Booz Allen Hamilton as team members to submit a proposal for and eventually perform this contract.  KG is also one of 3e subsidiaries of Chenega, an Alaskan Native Corporation and, pursuant to 13 CFR 121.103(b), is exempt from affiliation with Chenega.

Size Standard Protest

The CO announced on July 27, 2017 that KG was the presumptive awardee and Emergent, Inc. filed a timely size standard protest.  Initially, the SBA Area Office (AO) issued a negative size determination against KG finding that KG was overly reliant on its sister company PMC.  It made this determination, because it found that that original proposal did not mention KG in several sections of the proposal and because the proffered project manager was not a KG employee.  However, after KG appealed the AO’s decision, the AO voluntarily requested a remand stating that it had made the decision without the benefit of a complete proposal package.  After taking another look at the proposal package, the AO reversed itself and found that KG was, in fact, small for the purpose of the solicitation.  Emergent appealed.

Office of Hearings and Appeals

In its appeal to the OHA, Emergent alleged

• KG lacked the requisite experience to perform under the contract

• The PM AG listed for the project was actually an executive for PMC, a large contractor. It made this assertion in part, because the PM’s LinkedIn profile showed that he was a PMC employee

• KG was unusually reliant on PMC, because PMC was the incumbent contractor, KG’s only past performance experience was subcontracting to PMC, and because KG planned to hire all of PMC’s current employees.

KG responded to Emergent’s appeal by stating that it gained past experience  erving as a subcontractor to PMC on the incumbent contract, that the PM had left PMC’s employ a year before PG competed for this contract, and that it was hiring all of PMC’s employees en masse with the help of its parent company, the ANC to which it could not be deemed affiliated.  As to its past performance perceived deficiencies, KG pointed to the fact that the solicitation listed past performance as a pass/fail and that a lack of past performance would found acceptable.

OHA Decision

In sustaining the AO’s size determination, the OHA cited to the four factors sited in Size Appeal of DoverStaffing, Inc., SBA No. SIZ-5300 (2011) for determining whether the ostensible subcontractor rule had been violated:

1) the proposed subcontractor is the incumbent contractor and is ineligible to compete for the procurement;

(2) the prime contractor plans to hire the large majority of its workforce from the subcontractor;

(3) the prime contractor's proposed management previously served with the subcontractor on the incumbent contract; and

(4) the prime contractor lacks relevant experience and must rely upon its more experienced subcontractor to win the contract.

The OHA Administrative Law Judge (ALJ) determined that, because PMC was the incumbent contractor and was ineligible to its size to compete for the new contract, factor one was satisfied.  As to factor two, the OHA found that factor two was not satisfied because KG was hiring all of PMC’s employees and doing do with money made available by its parent company. For factor three, the OHA looked to an email from KG that stated that the PM’s LinkedIn profile reflected outdated information, which had subsequently been updated.  For factor four, the OHA cited to precedent stating KG “has obviously demonstrated experience with the contract requirements.” Spiral, SBA No. SIZ-5279, at 28

Because not one factor of the four listed above was dispositive, the OHA sustained the AO’s decision and found KG small for the purpose of the LASS procurement.

If your company is being challenged for its size, legal assistance may be warranted.  Please call the attorneys at Whitcomb, Selinsky Law PC to discuss your case. Our number is (303) 534-1958 or you may complete an online contact form.