As discussed previously, a size protest is a valuable, low cost, way to challenge the size of an announced winning competitor, and possibly get a second bite at an award if such company is not, in fact, small and is disqualified. SBA’s size protest sufficiency filing threshold is low. Importantly, once crossed, SBA shifts the burden to the protested concern to establish its small business size status, and the protestor does not have to do anything further. However, while the threshold is low, and SBA’s five business day filing timetable is short, it is important, to enhance chances for success and avoid pitfalls, that the protest be sufficiently specific, be factually supported, and raise all applicable protest grounds. This means that a size protestor needs to do its homework up-front by conducting a reasonable factual investigation, and then succinctly identify all applicable protest grounds for the SBA Area Office’s review. Protestors should not simply rely on SBA, and will not get a second chance to present new evidence to SBA’s Office of Hearings and Appeals (OHA) on appeal.
These fundamental principles are reinforced by five recent OHA decisions. First, in Size Appeal of Datasavers of Jacksonville, Inc., OHA sustained an Area Office’s dismissal of a protest for lack of specificity, and rejected the protestor’s belated attempt to present new evidence on appeal. The size protest in that case merely speculated that the challenged concern would not be small if it was using a subcontractor that was not small or whose revenues, when combined with those of the challenged concern, would exceed the size standard. The protest referenced the “Ostensible Subcontractor Rule,” but provided no facts shedding any light on the relationship between the challenged concern and its unnamed subcontractor, essentially leaving it to SBA to investigate and determine. The Area Office dismissed, finding the protest “speculative” and non-specific. OHA affirmed, citing 13 C.F.R. § 121.1007(b), which states, inter alia, that “Some basis for the belief or allegation must be given. A protest merely alleging that the protested concern is not small or is affiliated with unnamed other concerns does not specify adequate grounds for protest.” OHA stated that, in reviewing non-specific protests, it considers (1) whether the protest was sufficiently specific to provide notice of the grounds upon which the protestor was contesting the challenged firm’s size, and (2) whether the protest included factual allegations providing a basis for the asserted grounds. In this case the protest was merely speculative, and included no specific facts. OHA rejected the proffered new evidence, noting that the protestor had failed to file a motion seeking leave to file the new evidence, or present any good cause for not having submitted such information to the Area Office. OHA stated that “an insufficiently specific protest cannot be cured on appeal by the submission of new evidence.”
In Size Appeal of Encore Analytics, LLC, OHA denied an appeal challenging the Area Office’s dismissal of a protest as being non-specific where the protest relied on an inapplicable legal theory. Specifically, the protestor alleged a violation of the non-manufacturer rule (NMR). However, the NMR, applies, by its terms, only to manufacturing and supply requirements, while the instant NAICS Code was for services. OHA agreed that the NMR did not apply in the subject context, and denied Encore’s appeal.
In Size Appeal of Emergency Pest Control, Inc., OHA rejected the argument that the Area Office should have gone beyond the specific affiliation issue raised in the protest to investigate, more broadly, all possible bases for affiliation. Specifically, having cited the ostensible subcontractor rule in its protest, the protestor argued, on appeal, that the Area Office also should have investigated affiliation by economic dependence between the challenged franchisee, and its franchisor. OHA cited 13 C.F.R. § 121.1007(b)’s requirement that a “[a] protest must include specific facts,” and “must be sufficiently specific to provide reasonable notice as to the grounds upon which the protested concern’s size is questioned.” OHA further stated that a protestor “bears the burden of being ‘specific’ and ‘unambiguous’ in its protest allegations.” Here, the protestor had not “clearly raised” affiliation through economic dependence in its underlying protest, but rather alleged affiliation on entirely different grounds, namely the ostensible subcontractor rule. The Area Office fully explored the protest allegations in that regard, and found them meritless. OHA reiterated its prior holding in Size Appeal of Westcott Electric Co., SBA No. SIZ-5691 (2015), that an Area Office is to base its decision primarily on the information supplied by the protestor and the concern whose size is at issue, and “has no obligation to investigate issues beyond those raised in the protest.”
OHA also denied Emergency Pest Control’s attempt to introduce new evidence on appeal. While Emergency Pest Control at least filed a motion, OHA stated that the proffered photographs and internet search results were available at the time of the protest, and appellant offered no rationale why such information could not have been presented to the Area Office.
OHA’s recent decision in Size Appeal of Gregory Landscape Service, Inc., further exemplifies the risks inherent in not raising all possible protest grounds. In that case, the protestor argued that Gregory was affiliated with a company called NaturChem because Gregory’s majority owner’s wife was both an officer and employee of NaturChem. Here, unlike in Emergency Pest Control, the Area Office went beyond the protest allegations and found an “identity of interest” between Gregory’s owner and his parents and siblings, who owned NaturChem and several other companies as well. However, on appeal by Gregory, OHA found that neither the size protest nor the Area Office’s inquiries put Gregory on notice that identity of interests was at issue. Gregory therefore had no proper opportunity to address that issue and show a clear line of fracture that might have rebutted the presumed identity of interests. OHA therefore remanded the case to the Area Office for further review.
Finally, in Size Appeal of MDW Associates, LLC, OHA affirmed an Area Office decision sustaining a size protest, where the Area Office relied primarily on a prior OHA decision determining that the challenged concern was not small as of a date only two months prior to the instant proposal submission. OHA stated that the challenged concern had failed to show any significant change in circumstances during the brief intervening two-month period. This decision shows the importance of a protestor checking to see whether there have been any prior size decisions with respect to the challenged firm. While prior size determinations are not binding in subsequent size protests (see prior blog article here), in this instance OHA found the earlier decision “dispositive.”
In summary, these five recent decisions reiterate the important of a protestor doing its homework up-front, including running internet and corporate document searches and checking for prior decisions involving the challenged concern. The protestor then needs to clearly set forth all applicable protest grounds and bases for affiliation, and factually support the same with any documents or other evidence. This up-front effort makes the Area Office’s job easy. Protestors should consider seeking the assistance of experienced size protest counsel, given the importance of this initial effort and the short five-day filing timetable. Such help need not be expensive, depending upon how much work the protestor is willing to do. The important thing is to make the most of this valuable tool up-front and enhance the chances of winning, while avoiding the greater costs incurred in these cases where the protestor ended up spending more, to little effect, trying to overcome initial errors.
Hopewell Darneille is the attorney responsible for the contents of this Article.
© 2017 Jackson Kelly PLLC