Avoiding Adverse SBA Size and Standard Decisions

As the value of government contracts increases, so does the likelihood your company, as the winning bidder, will face a size and standard protest from a disappointed bidder. Defending a size and standard protest is at best annoying and, at worst, truly concerning. The process can feel a little (or a lot) like finding yourself a target of a police state investigation: a full-scale review of your business documents, initiated by vague allegations from someone with an ax to grind. You have the burden to prove your innocence, but may not even know the basis of the charges. In many ways, the process is, well… un-American. However, there are several things that can be done to protect your business well before a protest is filed, and few more in the unfortunate event you face a size and standard protest.

Don’t be Guilty

The rules for eligibility as a small business for government contracting purposes is properly the subject of its own article, as is eligibility for SDVO SBC status. The focus of this article is a consideration of some of the more nuanced ways in which contractors may violate the standards by attempting to be creative or failing to document compliance.

When contractors run afoul of the size standard, it is often because they’ve created affiliates that, collectively, exceed the standard. Regardless of what entity bids on the contract, all affiliates will be included for purposes of determining size. There may be other useful reasons to create additional entities for bidding on government contracts, but evading the size standard isn’t one of them.

A contractor may also run afoul of the standard if they are a non-conforming joint venture. Entities forming a joint venture must both independently meet the size standard; the joint venture cannot be used to bring in a large business and evade the size standard.

There is an exception to the size standard, however, for mentor-protégé joint ventures. Those arrangements can create separate challenges for meeting SDVO SBC standards, or similar 8(a) standards. It is necessary that the contractor eligible for the set-aside be able to document its obligation to manage the joint venture, perform a majority of the work, and earn a majority of the profits under the contract. Inconsistencies in the joint venture agreement and operating agreement can create ambiguity, and ultimately lead to disqualification.

Don’t Look Guilty

Easily as important as compliance is the appearance of compliance. This is because the standard for a disappointed bidder to initiate a size and standard protest is nebulous. While completely unsupported allegations are not enough, the protestor is not required to produce definitive evidence either. The types of information protestors may rely upon:

  • Historical contract awards that are publicly available on usaspending.gov
  • Public records associating company officers, managers and key employees with other entities (suggesting affiliation)
  • Company website information
  • Insider knowledge gathered from former employees or business partners

It is worth taking some common-sense steps to avoid grounds for suspicion. Whenever possible, prohibit officers, directors, and other key personnel from assuming roles in other businesses in the government contracting space. Make sure the data on usaspending.gov for your company is accurate, and advocate for the removal of incorrect information that overstates your company’s government contracts. Avoid the temptation to exaggerate the size and capabilities of your company in publicly available forums, especially your company’s website.

Carefully Draft your Operating Agreement and any Joint Venture Agreement

SBA examinations of operating agreements and joint venture agreements typically focus on a disabled veteran’s control of the entity and their entitlement to a majority of the profits. For instance, provisions that create any ambiguity as to who will perform a majority of the work under a joint venture agreement, and therefore be entitled to a majority of the profits, will create problems. Even agreements that have been reviewed and approved by the SBA or CVE are not necessarily safe.
Fight to Dismiss Meritless Protests

The SBA typically decides protests quickly; their regulations call for a determination within fifteen (15) business days if possible. A fast, definitive request for dismissal is a worthwhile defense against a process that will demand a variety of documents very quickly, and places the burden on the protested to prove their eligibility, rather than the protester to prove guilt. In fact, the SBA can determine ineligibility on the grounds raised by the protestor, or entirely separate grounds they identify after digging through your documents. It is worth the effort to fight for dismissal of a protest to avoid a process in which you must prove the absence of guilt, often without knowing what specific aspects of your business the SBA may be scrutinizing.

A Legal Professional Can Help

It is certainly possible to survive a size and standard protest, despite the deck being stacked against you as the targeted contractor. Make sure your operating agreement and any joint venture agreements comply with all SBA regulations, especially as they relate to ownership and control. More importantly, however, are the common-sense steps you can take to avoid colorable accusations in the first place. Avoid the exotic, ambitious and creative when it comes to your company’s organization and management. Blend in. Conform.

If you are faced with such protests, a legal professional can help you. As always, our first consultation is free. Do not hesitate to contact me at 303-534-1958 or email me at [email protected].

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