In a recent case with wide-ranging implications, the Small Business Administration’s (“SBA”) Office of Hearings and Appeals (“OHA”) confirmed the broad nature of SBA’s general rule that a contractor maintains its size and socio-economic status for the life of a contract. See Analytic Strategies, Inc., SBA No. VET-268 (Jan. 29, 2018). As a quick primer, SBA regulations provide that, where a concern represented itself and qualified as small and/or for a certain socio-economic status (e.g., SDVOSB, HUBZone, EDWOSB/WOSB) at the time of its initial offer, it maintains that status throughout the life of the contract. See 13 C.F.R. §§ 121.404(g); 125.18(e); 126.601(h); and 127.503(f). This means that if a concern is small and/or of a certain socio-economic status at the time of its initial offer for a Multiple Award Contract (“MAC”), then it will be considered such for each order issued under the contract. The clear exception to this rule occurs where the contracting officer requests a new size and/or status certification in connection with a specific order, in which case status will be determined as of the date of the initial offer for the order. Although this seems simple enough, it has been argued that other forms of recertification (i.e., those not made in connection with a specific order) can disqualify a concern from being eligible to compete for set-aside orders.

More specifically, it has been said that, when a concern informs a procuring agency that it no longer qualifies as small and/or for a certain socio-economic status, it is no longer eligible to compete for any contracts or orders set aside under its former status. This rationale stems from SBA’s recertification rules, which require a concern to recertify its status within 30 days of an approved contract novation, merger, sale, or acquisition and every five years for any long-term contract exceeding five years (e.g., GSA Schedules). Importantly, if the contractor no longer qualifies for the relevant status, the regulations state that the agency can no longer count options or orders issued pursuant to the contract towards its small business and/or socio-economic goals. In addition, the regulations demand that the agency and contractor immediately revise all applicable federal contract databases to reflect the concern’s new status (except where the recertification was made in connection with contract novation). Accordingly, the argument goes like this: if a concern informs a procuring agency that it is no longer small and updates contract databases and if the agency can longer count orders issued to the concern towards it as small business goals, the concern should not be eligible to compete for set-aside orders. Although this result is not explicitly stated in SBA’s regulations, it was expressly endorsed by SBA in its underlying status determination in Analytic.

The facts of the Analytic case are relatively straightforward. In 2014, the General Services Administration (“GSA”) awarded the appellant, Analytic Strategies, Inc. (“Analytic”), a MAC under the One Acquisition Solution for Integrated Services (“OASIS”) Small Business Pool. The appellant qualified for the OASIS contract as an SDVOSB. However, in 2016, the appellant was acquired by a non-veteran owned concern, thereby losing its SDVOSB status. Consequently, in accordance with SBA’s recertification rules (outlined above), the appellant updated its registration in the System for Award Management (a federal contract database) to reflect that it no longer qualified as an SDVOSB and notified GSA of its change in status. Yet, upon notification of this change, GSA informed the appellant that it would still qualify as an SDVOSB for orders issued under the OASIS contract. Thereafter, the appellant bid on and was awarded an OASIS task order set aside for SDVOSBs. Subsequently, SBA initiated a protest regarding appellant's SDVOSB status.

In its status determination, SBA concluded that Analytic did not qualify as an SDVOSB for the order or for the OASIS contract. Adopting the rationale detailed above, SBA stated that “a concern that informs the procuring agency that it is no longer an SDVO SBC is no longer eligible for orders set aside for SDVO SBCs. There is no authority permitting a concern that loses SDVO SBC status after a merger or acquisition to continue to receive SDVO SBC set-aside orders.” This ruling by SBA did not withstand OHA’s scrutiny.

In vacating SBA’s status determination, OHA indicated that there is a distinction in SBA’s recertification rules between an offeror’s eligibility to compete for set-aside orders and an agency’s ability to take small business and/or socio-economic credit for such orders. In particular, OHA explained that SBA’s recertification rules simply state that if, as a result of a merger or acquisition, a contractor no longer qualifies as small and/or of a certain socio-economic status, the agency cannot count any “options or orders pursuant to the contract, from that point forward, toward its procurement goals.” However, OHA held that an agency can still award those options and orders as a “set-aside” because the regulations do not explicitly preclude it from doing so. This ruling is significant for a number of reasons.

For one thing, the Analytic case confirms that, unless recertification is requested by the procuring agency at the task order level, an offeror will maintain its status for the life of a contract. As a limited example, this means that:

  • A small business concern that is acquired by a large business and, as a result, recertifies as “other than small,” can continue to bid on small business orders issued under a pre-existing, long-term contract, provided the concern qualified and certified as small when it submitted its initial offer for the long-term contract; and
  • An SDVOSB that is acquired by a non-veteran owned company and, as a result, recertifies as a non-SDVOSB, can continue to bid on SDVOSB orders issued under a pre-existing, long-term contract, provided the concern qualified and certified as an SDVOSB when it submitted its initial offer for the long-term contract.

Analytic also has significant implications for long-term contracts that exceed five years. For these contracts, SBA regulations require a concern to recertify its status every five years. However, when a contractor certifies that it is other than small, the only explicit regulatory consequence is that the agency can no longer count options or orders issued under the contract towards its small business goals. But, applying Analytic to this scenario, the agency should still be able to issue those options and orders to the company as a “set-aside,” regardless of an offeror’s five year recertification—it just can not take credit for them if the offeror is no longer small. And, since some long-term contracts like GSA Schedules last up to 20 years, this means that a concern may be able to compete for set-aside orders five, ten, and fifteen or more years after losing its small business status.

In addition, while the Analytic ruling should provide some certainty to small businesses that hold long-term contracts (e.g., Alliant, Eagle II, SEWP, CIO SP3, OASIS, VET 2), it may have other unintended consequences. For example, the Analytic ruling could increase the level of small business competition for long-term contracts and set-aside orders issued thereunder. No doubt, small businesses that anticipate losing their status over the next few years may be more inclined to compete for long-term contracts because, barring a certification request at the task order level, they should be able to compete for small business work long after exceeding the applicable size standard. In addition, current, long-term contract holders that have recently lost their small business and/or socio-economic status as a result of a merger or acquisition may feel more inclined to compete for set-aside orders for which they would previously have thought themselves ineligible (due to recertification).

That being said, the Analytic case may cause a significant rise in the number of certification requests made at the task order level. Indeed, since some long-term contracts, like OASIS, are administered by other agencies, like GSA, a contracting officer may not always be able to determine whether small business credit can be claimed, unless it requests certification at the task order level. As such, the number of task order certification requests may increase as contracting officers scramble to ensure that the agency will actually be able to take credit for the “set-aside” it is awarding.

Lastly, it is important to remember that, without thoroughly reviewing a solicitation, a contractor should not assume that it will generally be eligible to compete for set-aside orders after losing its small business status. Notably, some long-term contracts include provisions that off-ramp a contractor or move it to the non-set-aside portion of the contract if the contractor informs the agency that it is no longer small.

In sum, it is hard to predict how or if the Analytic ruling will affect the administration of or competition for long-term contracts, but one thing is clear: SBA will have to rewrite its regulations if it intends for recertification (other than that requested in connection with a task order) to impact an offeror’s eligibility to compete for set-aside orders.