Any acquisition involving a small business government contractor comes with a host of questions concerning what effect, if any, the transaction may have on the small business’s size and status post-closing. Will a firm that certifies as small or for a particular small business socioeconomic status (Woman Owned Small Business, Service Disabled Veteran Owned Small Business (SDVOSB), etc.) pre-closing keep its status even after the deal? In many cases, no.
This potential reality leads to more questions. What will become of the target’s existing set-aside contracts? Can the target still propose on tasks under indefinite-delivery, indefinite-quantity (IDIQ) contracts? And what happens to proposals still being evaluated as of the date of closing? These questions are important to valuation, not to mention post-closing growth.
The answers to these questions ultimately lie in the regulations promulgated by the Small Business Administration (SBA), which are byzantine in presentation and oftentimes difficult to comprehend, particularly for business owners who do not possess a J.D., let alone expertise in the complex morass that is government contracts law. This complexity is compounded by myriad judicial opinions from both SBA’s Office of Hearings and Appeals (OHA) and the U.S. Court of Federal Claims, as well as SBA’s frequent updates to the rules implementing policy choices and responding to market trends.
A recent decision of the Government Accountability Office (GAO) illustrates just how complicated these rules can be. The decision – Washington Business Dynamics, LLC, B-421953, B-421953.2 (Dec. 18, 2023) – involved what SBA legal practitioners have come to refer to as the “180-day rule” – that is, if a company undergoes a merger or acquisition (making it large) within 180 days of submitting a proposal for a set-aside contract, it loses eligibility for that contract. If, however, the acquisition occurs more than 180 days after proposal submission, the company remains eligible to be awarded the contract. (See 13 C.F.R. § 121.404(g)(2)(iii) for the rule.)
In Washington Business Dynamics, the protester challenged the award of a Blanket Purchase Agreement (BPA) by the Office of Personnel Management (OPM), which had issued the BPA against the awardee’s General Services Administration (GSA) Schedule. Washington Business Dynamics (WBD) challenged OPM’s evaluation and trade-off decision, and GAO eventually sustained these merits arguments. Importantly, however, GAO first had to address the agency’s and awardee’s argument that WBD lacked standing to challenge the procurement. In particular, the agency and awardee argued that WBD no longer qualified for award of the BPA, which was set-aside for SDVOSBs, because, after offer but prior to award, WBD had been acquired by a non-SDVOSB concern. WBD’s acquisition occurred 147 days after the date for quotations, within the 180-day window.
Applying analysis of the law and applicable precedent, GAO rejected this argument, finding instead that WBD remained eligible for the award, and thus had standing to maintain its protest.
The crux of the ruling is that the 180-day rule did not apply to set-aside orders or agreements placed against Federal Supply Schedule (FSS) contracts, such as GSA Schedules. The rationale for this ruling is worth further consideration, but it should be noted at the outset that, due to subsequent regulatory updates affecting the 180-day rule, it is not clear this case would be decided the same way if GAO considered a quotation submitted today. Nonetheless, what GAO said in the decision is instructive for the SDVOSB community.
GAO first summarized SBA’s recertification rules applicable to task orders and agreements issued against multiple-award vehicles. An October 2020 regulatory change now means that size/status recertification is required for such orders or agreements under unrestricted multiple-award vehicles — but that rulemaking explicitly excepted FSS contracts from this mandate. (See 13 C.F.R. § 121.404(a)(1)(ii)(A).) Therefore, with no regulatory requirement for recertification, and because the contracting officer did not expressly require such recertification in the terms of the BPA RFQ either, BPA eligibility depended entirely on an offeror’s size status on its GSA Schedule.
For the curious, the above rule now reads:
Except for orders and Blanket Purchase Agreements issued under any Federal Supply Schedule contract, if an order or a Blanket Purchase Agreement under an unrestricted Multiple Award Contract is set-aside exclusively for small business…, a concern must recertify its size status and qualify as a small business at the time it submits its initial offer, which includes price, for the particular order or Blanket Purchase Agreement.
13 C.F.R. § 121.404(a)(1)(ii)(A) (Emphasis added).
GAO then moved on to the traditional recertification rule — which applies to existing awards and requires recertification within 30 days of a merger, sale or acquisition becoming final — and noted that this rule did not apply to the pending BPA quotation, either. First, GAO found that a contrary interpretation “would produce an unreasonable result, given the regulation’s unique treatment of BPAs issued under an FSS contract,” discussed above. Second, “and more importantly,” GAO ruled that “it is not apparent that a corporate transaction requiring recertification at the FSS contract level pursuant to 13 C.F.R. § 121.404(g)(2)(i) automatically triggers recertification for any pending quotations for a BPA or order issued under the FSS contract pursuant to [the 180-day rule].”
In this regard, GAO relied upon persuasive authority from SBA OHA, which “similarly found no basis to conclude that there was a mandatory recertification requirement under similar circumstances.” Specifically, in Size Appeal of EBA Ernest Blan Assocs. PC, SBA No. 6139 (Feb. 16, 2022), SBA OHA held that “[a]bsent expressed language…requesting a size recertification for [an] individual task order” in the solicitation itself, the 180-day rule does not mandate recertification as a result of a merger, sale, or acquisition at the FSS task order level. Because, like the solicitation in that case, the RFQ to which WBD responded did not “include an express size recertification,” GAO declined to adopt the agency’s and awardee’s invitation to read one into the regulation for a pending quotation in an FSS BPA competition.
GAO’s decision presents an extraordinary example of how SBA’s regulations can sometimes produce seemingly anomalous results. On the one hand, WBD’s acquisition required it to recertify that it was no longer small (and by extension, no longer an SDVOSB) for purposes of its FSS contract and incumbent BPA. However, this same corporate transaction did not mean WBD was ineligible for the follow-on BPA, because WBD was an SDVOSB at the time it submitted its initial offer. This outcome was reached, again, because WBD was proposing on an FSS BPA and the agency did not require size or status certification at the time of BPA offer. In GAO’s last substantive encounter with the 180-day rule, Odyssey Systems Consulting Group, Ltd., B-419731 (July 15, 2021), GAO reached a similar holding in part because offerors were not required to recertify size or status at the task order level under a non-FSS IDIQ.
But before reading too much into these decisions, businesses should be aware of two important facts noted by GAO in Washington Business Dynamics. First, 13 C.F.R. § 121.404(g)(2)(iii) was amended last April and now states that “[i]f a merger, sale or acquisition (including agreements in principle) occurs within 180 days of the date of an offer relating to the award of a contract, order or agreement and the offeror is unable to recertify as small, it will not be eligible as a small business to receive the award of the contract, order or agreement.” (Emphasis added.) Because the RFQ at issue in Washington Business Dynamics predated that amendment, GAO’s decision does not interpret the effect of that amendment going forward which, from its plain terms, more directly mandates ineligibility at the task order and BPA level as well.
Second, and perhaps in a nod to this regulatory context, GAO noted its decision is “limited to the unique factual circumstances presented in this case,” including the fact that WBD submitted a quotation for a BPA issued against an FSS contract. As a result, companies seeking to extend the rationale in Washington Business Dynamics to quotations submitted after April 2023 for orders and BPAs not issued against an FSS contract are unlikely to succeed in shielding themselves from the 180-day rule like WBD did. And after the regulatory update discussed above, it’s not even clear that this holding applies to FSS BPAs bid on or after April 2023.
However, does this mean that the 180-day rule will certainly apply to all set-aside orders going forward? Not necessarily. The complexity of this regulation, as illustrated in Washington Business Dynamics, all but guarantees a lively debate next time GAO encounters the rule. Washington Business Dynamics, then, is an important reminder for both buyers and sellers to remain informed about the nature of each set-aside opportunity being pursued, and to seek legal advice from counsel familiar with the SBA regulations and their evolving interpretations to understand when recertification will be required post-closing and what the impact of that recertification might be.
Opinions and conclusions in this post are solely those of the author unless otherwise indicated. The information contained in this blog is general in nature and is not offered and cannot be considered as legal advice for any particular situation. The author has provided the links referenced above for information purposes only and by doing so, does not adopt or incorporate the contents. Any federal tax advice provided in this communication is not intended or written by the author to be used, and cannot be used by the recipient, for the purpose of avoiding penalties which may be imposed on the recipient by the IRS. Please contact the author if you would like to receive written advice in a format which complies with IRS rules and may be relied upon to avoid penalties.
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