SBA SIZE PROTEST LAW: SBA Size Determination Protests & Appeals - Attorneys

Contractor Losses SDVOSB Status Due to Lack of Unconditional Ownership

Posted on October 8th, 2017 by
On August 31, 2017, the Office of Hearings and Appeals (“OHA”) ruled that Veterans Contracting Group, Inc. does not meet the SBA SDVOSB regulations’ unconditional ownership requirement. Veterans Contracting Group, SBA No. Vet 265 The contractor’s shareholder agreement included a provision, which provides that in event of a shareholder’s death or incapacity, he must sell their shares to the corporation at certain price. We represented the protestor in this case and argued that this provision does not meet the unconditional ownership requirement under the Wexford standard, which provides:

In the context of 13 C.F.R. § 125.9 [now moved to § 125.12], unconditional necessarily means there are no conditions or limitations upon an individual’s present or immediate right to exercise full control and ownership of the concern.  Nor can there be any impediment to the exercise of the full range of ownership rights. Thus, a service-disabled veteran: (1) Must immediately and fully own the company (or stock) without having to wait for future events; (2) Must be able to convey or transfer interest in his ownership interest or stock whenever and to whomever they choose; and (3) Upon departure, resignation, retirement, or death, still own their stock and do with it as they choose. In summary, service-disabled veterans must immediately have an absolute right to do anything they want with their ownership interest or stock, whenever they want. Wexford Group International, SBA No. SDV-105 (2006)

The contractor argued that the Wexford standard is dead, citing the Miles and AmBuild cases where the Court of Federal Claims held that the VA SDVOSB regulations permit a right of first refusal since it follows “normal commercial practices.”  OHA disagreed, stating that the SBA’s and VA’s definitions on unconditional ownership are different:

The DVA regulation contains a specific exception for ownership restrictions which are found to be included in “normal commercial practices”. The SBA regulation contains no such provision, and the Wexford standard does not allow for it. Appellant would have OHA write a “normal commercial practices” exception into SBA’s regulation, but OHA does not have the authority to rewrite regulations. The Wexford standard has been in place and consistently followed for eleven years, and SBA has taken no step to disturb it or to revise the regulation to allow for “normal commercial practices” of the type permitted by the DVA regulation. SBA has determined that it will instead keep the stringent definition of unconditional ownership in the regulation, in order to ensure that the benefits of ownership accrue to the SDV. The D/GC did not err in applying the established Wexford standard for determining whether Mr. Montano’s ownership of Appellant is unconditional.

This dispute is not over. This case is now before the Court of Federal Claims who will decide whether OHA is right.  A hearing is scheduled for November 21, 2017.  We will keep you posted. Meanwhile, if you are competing for non-VA SDVOSB set aside contracts, it would be best to review your corporate docs to ensure compliance with the Wexford standard.


Affiliation Found Between Family Members

Posted on December 15th, 2016 by

Quigg Bros Inc. (“Contractor”) argued that it is a small business and challenged the Government Contracting, Area VI (“Area Office”) decision holding otherwise.  The Contractor appealed this decision to the SBA Office of Hearing and Appeals (“OHA”).

On appeal, OHA found that Quiqq Bros Inc. is associated with six members of the Quigg family; Patrick Quigg and John D. Quigg holding the largest interests.  As such, there is a presumption of affiliation between family member businesses unless there is a clear line of fracture between them.  This could not be proven, however, because there were various business dealings between the brothers and their respective companies.  For example, the family collaborated on loans and joint investments. OHA held that these “business dealings” prove there was no clear line of fracture present.” The SBA Office of Hearings and Appeals therefore found affiliation between the family member businesses.

Affiliation between family members often arises in size protests.  To prevent affiliation, you must keep business relationships between family businesses to a minimum, or none at all.  Our webpage talks more about this.  Check it out.

Size Appeal of: Quigg Bros Inc. SBA No. SIZ-5786 (October 25, 2016)

SBA Office of Hearing and Appeals Finds G&C Fab Con is Not Small

Posted on April 3rd, 2015 by

We recently prevailed in defending an SBA Size Determination that was appealed to the U.S. SBA Office of Hearing and Appeals. The VA awarded three contracts to G&C for construction projects at national cemeteries.  Our client, Freedom Contracting, submitted a size protest.

We argued that G&C was affiliated with several other companies based on family relationships and common management.  The Office of Hearings and Appeals agreed and counted the revenue of several other affiliated companies when determining whether G&C exceeded the $33.5M small business size standard.

The second issue was an accounting one.  G&C argued that revenue exchanged between affiliates should not be counted towards revenue.  G&C cited an exclusion under SBA size standard regulation 13 C.F.R. § 121.104(a), which excludes revenue between “transactions between a concern and its domestic or foreign affiliates.”  The Office of Hearing and Appeals held that this provision only applied to revenue “between a parent company and its subsidiary, irrespective of whether a consolidated tax return was filed.”  This prevents companies affiliated by other means, such as by common management or ownership, from unfairly excluding revenue between themselves when determining size.

SIZE APPEAL OF: G&C Fab-Con, LLC, APPELLANT, SBA No. SIZ-5649 (March 23, 2015)

OHA Finds Prime Contractor Unduly Reliant on Subcontractor

Posted on May 31st, 2014 by

The Centers for Disease Control and Prevention (CDC) issued a solicitation for security guard services at CDC facilities in and around Atlanta, Georgia. The SBA Area Office issued a determination, concluding that the prime contractor Professional Security Corporation is affiliated with its subcontractor Metropolitan Security Service. OHA agreed on appeal.

Although the prime contractor was to perform 53% of the work, OHA still found that the prime contractor was unduly reliant on the subcontractor in violation of the ostensible subcontractor rule. OHA identified the following four factors in support of this finding:

  • The proposed subcontractor was the incumbent contractor and was not eligible to compete for the procurement itself.
  • The prime contractor planned to hire the large majority of its workforce from the subcontractor.
  • The prime contractor’s proposed program manager previously served as program manager for the subcontractor on the incumbent contract.
  • The prime contractor was a relatively new firm with modest revenues and scant experience.

While OHA indicated it is not always improper to hire incumbent personnel, this does not permit the prime contractor to rely on the subcontractor “for virtually all staffing, including both managerial and non-managerial employees, and without contributing Appellant’s own employees or other value to the project beyond Appellant’s small business status.”   SIZE APPEAL OF PROFESSIONAL SECURITY CORPORATION, SBA No. SIZ-5548 (April 14, 2014)


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