OHA Decision on Recertification May Impact Eligibility of Small Business Contractors Competing for Set-Aside Contracts

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PilieroMazza PLLCOver the past few years, the Small Business Administration’s (SBA) recertification rules have been the subject of much debate, with some arguing that recertification impacts an offeror’s eligibility for award and for future set-aside orders under multiple-award contracts (MACs). These rules came under further scrutiny in a recent size protest and appeal to the SBA Office of Hearings and Appeals (OHA). OHA’s decision makes a number of important clarifications regarding the impact of recertification on small business contractors’ eligibility to compete for set-aside contracts.

SBA’s recertification rules generally provide that a concern’s size is determined as of the date of its initial offer, including price. They also provide that, so long as the firm is small at that time, it will be considered small throughout the life of the contract, including, with certain exceptions, for orders issued under MACs. However, if a concern goes through a merger, sale, or acquisition, or novates its small business contract to another concern (Triggering Events), SBA regulations require it to recertify its size. If the contractor is no longer small as a result of the Triggering Event, SBA regulations provide that, from that point forward, the procuring agency can no longer count the options or orders issued under the contract toward its small business goals.

In a recent OHA appeal, Size Appeal of Mod. Healthcare Servs., J.V. LLC,[1] Modern Healthcare Services, J.V. LLC (Modern Healthcare) claimed that QuarterLine Consulting Services, LLC (QuarterLine) should not have been deemed eligible for a small business procurement. Modern Healthcare’s argument was based on the fact that QuarterLine was acquired by a large firm after submission of its initial offer, but prior to award, and was therefore required to recertify its size. According to Modern Healthcare, such a recertification should have rendered QuarterLine ineligible for award because the Triggering Events serve as an exception “to the rule that size is determined at the time of initial offer, and that when an exception applies, size must be determined at the time of recertification.” In addition, Modern Healthcare alleged that QuarterLine was ineligible for award because its acquisition occurred within 180 days of its bid. In making this argument, Modern Healthcare relied on an SBA rule enacted in 2020, which states that when a concern is unable to recertify as small prior to award after going through a merger, sale, or acquisition that occurs within 180 days of bid, it is ineligible for award (the 180-day Rule).[2]

Modern Healthcare’s appeal arose out of a size determination where the SBA Area Office determined that QuarterLine was not required to recertify its size after the acquisition because the contract at issue was not a MAC. In reaching this conclusion, the Area Office relied on a case, Size Appeal of AOC Connect, LLC,[3] wherein OHA claimed, in dicta or nonbinding remarks, that SBA’s recertification rules only apply to MACs.

In sustaining the appeal and remanding the case to the Area Office for a new size determination, OHA made three critical determinations.

  • First, OHA confirmed that SBA’s recertification rules apply to single-award contracts and MACs and that “the dicta in AOC Connect, LLC that the recertification requirements applied only to MACs was in error[.]”
  • Second, OHA confirmed that the version of SBA’s regulations applicable in the context of a size protest are those that were in effect when the offeror certified its size with the submission of its initial offer, including price. SBA has made a number of changes to its recertification rules over the last few years, so the version of the rules that apply in a given case could have significant bearing on an offeror’s eligibility to be awarded a small business contract. Indeed, the 180-day Rule, noted above, was not in effect when QuarterLine submitted its initial offer, and therefore, should not have any impact on QuarterLine’s eligibility for award on remand.
  • Third, OHA confirmed that, generally speaking, under SBA’s regulations, recertification as other than small as a result of a Triggering Event only impacts an agency’s ability to take small business credit and is not, as Modern Healthcare argued, an exception the general rule that size is determined as of the date of initial offer, including price.

[1] Size Appeal of Mod. Healthcare Servs., J.V. LLC, SBA No. SIZ-6114 (Nov. 29, 2021)

[2] 13 C.F.R. § 121.404(g)(2)(iii) (2020) revised at 86 Fed. Reg. 66146, 66153, 66182 (Oct. 16, 2020)

[3] See Size Appeal of AOC Connect, LLC, SBA No. SIZ-6025, 2019 (Aug. 29, 2019)

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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