SBA Doubles Down with Size Appeal
On December 23, 2021, the Office of Hearings and Appeals (OHA) of the federal government’s Small Business Administration (SBA) issued a decision in the size appeal of Odyssey Sys. Consulting Grp., SBA No. SIZ-6135 (Dec. 23, 2021), that contains a helpful discussion of the principle that an entity’s status as a small business at the time of “offer plus price” remains through the life of the contract, even if that entity subsequently becomes other than small.
In December 2020, Odyssey Systems Consulting Group, Ltd. and Millennium Engineering and Integration LLC (MEI) competed for two task order requests-for-proposal issued by the U.S. General Services Administration (GSA). The task awards were One Acquisition Solution for Integrated Services (OASIS) Indefinite Delivery, Indefinite Quantity (IDIQ), Pool 5B contracts, which GSA had set aside for small businesses. The task awards did not include any express language requesting or requiring the prime contractor to recertify its size for the individual task order.
MEI was required to certify in its proposals, submitted to SBA on January 19, 2021, that it was a small business. On February 10, 2021, MEI merged with a private equity firm, which raised its total employment level above the 1,250-employee size standard applicable to the North American Industry Classification System code assigned to the two task order proposal requests, making MEI “other than small” as of February 10, 2021. On April 1, 2021, Odyssey Systems learned that MEI was the apparent awardee of both task orders. On April 8, 2021, Odyssey Systems filed two separate protests challenging MEI’s size. Odyssey Systems’ appeal raised two main claims.
First, Odyssey Systems argued that its size protest was timely because the protest regulations applicable to Multiple Award Contracts (MACs) permit a size protest within five business days after a task order award that requires recertification, even if the contracting officer (CO) did not request recertification.
Second, Odyssey Systems argued that MEI should be considered “other than small” due to MEI’s merger in February and, therefore, ineligible for the task awards. Code of Federal Regulations § 121.103(d)(1) acknowledges that for the purpose of a size determination, OHA should include an agreement in principle to merge, where entities intend to merge but have not procedurally done so. In arguing that MEI should be considered “other than small,” Odyssey Systems argued that MEI should be deemed affiliated as of January 19 (the date it submitted its proposals) and would, therefore, not be “small” as of the time it made an “offer plus price,” as the merger would have been agreed to in principle months prior to the merger announcement in February.
OHA first found that Odyssey Systems’ size protest was untimely. OHA noted:
SBA regulations governing size protests permit that a protestor may bring a size protest relating to such a contract only in three situations (footnote omitted). First, an interested party may protest a size certification within five business days after the long-term contract is initially awarded. 13 C.F.R. § 121.1004(a)(3)(i). Second, an interested party may protest a size certification within five business days after an option is exercised. Id. § 121.1004(a)(3)(ii). Third, an interested party may protest a size certification made “in response to a contracting officer’s request for size certifications in connection with an individual order.” Id. § 121.1004(a)(3)(iii).
OHA also emphasized “SBA’s long-standing approach to assessing size for task and delivery order contracts has been that a concern which represents itself as small at the time of contract award will remain small throughout the life of the contract, including for any order issued under the contract” and further noted “[t]he determination of whether an individual order required recertification is made primarily on the basis of the task order solicitation and relevant provisions in the underlying contracts” and “OHA also will attach weight to the CO's opinion of whether recertification was requested, although the CO’s views are not dispositive.” However, “‘merely setting [a] task order aside for small businesses’ does not constitute a request for recertification” and “‘recertification does not occur simply because mandatory FAR clauses were incorporated.’”
OHA then rejected Odyssey Systems’ argument that “recertification was constructively ‘requested’ for the instant task orders through operation of law.” OHA concluded that Odyssey Systems’ argument that the protest regulations permit a bidder to file a size protest within five business days after award of a task order that requires recertification, even if the CO did not request recertification,
[L]acks foundation in the regulatory text. There is no indication in § 121.404(g)(2) that a requirement to recertify as a result of a merger, sale, or acquisition is, without specific language in the task order solicitation, equivalent to a CO’s request for size recertification in connection with a particular task order (emphasis added). Indeed, such an approach would be contrary to SBA’s long-standing regulatory scheme, discussed above, whereby a prime contractor that is small at the time of contract award remains small for all orders issued under the contract, unless the CO, in his or her sole discretion, chooses to request recertification on an individual order-by-order basis.
Accordingly, as there was no regulatory authority suggesting that task order solicitations are essentially equivalent to a recertification request absent specific provisions requiring recertification, OHA held that Odyssey Systems’ size protest was untimely.
In regards to Odyssey Systems’ second argument, that MEI was “other than small” due to its merger, OHA also noted that, even if Odyssey Systems’ size protest was timely, MEI was still eligible to receive the task order award. OHA noted that where a prime contractor has received a long-term contract, the individual task orders do not trigger “automatic” recertification requests that would then open up the contractor to protests by third parties. Instead, third party size protests are limited to scenarios where the CO, in its full discretion, chooses to request recertification, and the size protest occurs within five days of that the CO’s request.
Accordingly, as the CO had not requested that MEI recertify its size, MEI’s merger, even if an agreement in principle had been reached at the time of MEI’s offer plus price, did not preclude them from receiving a task order under a MAC that had been awarded at a time when MEI did qualify as a small business.
This decision is a helpful summary of the timing rules that apply to size protests in the IDIQ/MAC context. A small business’s risk of a size protest in connection with an IDIQ/MAC context occurs at only three stages:
(1) At the time the long-term contract is initially awarded (at the time MEI was awarded the underlying OASIS contract);
(2) At the time an option is exercised (if MEI had an option for additional years on the underlying OASIS contract, Odyssey Systems could protest at that point); or
(3) If the task order proposal specifically requires recertification of the offeror’s small business status, at the time an offer is submitted in response to the task order proposal (at the CO’s discretion).
These timing rules are an important consideration for (1) federal contractors who are evaluating their eligibility to submit proposals for task orders under small business IDIQ/MAC contracts, (2) federal contractors who are considering protesting awards to other contractors who might be “other than small,” and (3) potential merger or acquisition parties who are evaluating the impact that a merger or acquisition will have on an entity’s continued eligibility to receive task order awards under a small business IDIQ/MAC.
This article summarizes aspects of the law and does not constitute legal advice. For legal advice on your situation, you should contact an attorney.