For small businesses, navigating the recertification rules promulgated by the Small Business Administration (SBA) is no easy task. SBA rules generally provide that the size of a concern is determined at the date of its initial offer including price and if the firm is small at that time, it generally will be considered small throughout the life of the contract. However, if a concern undergoes a merger, sale, or acquisition, or novates its small business contract to another concern (each a Triggering Event), SBA regulations require the contractor to recertify its size. The regulations state that recertification in connection with a Triggering Event “changes the firm’s status for future options and orders,” but the meaning of this was not clear until now. Two recent OHA cases confirm that a contractor’s recertification as other than small because of a Triggering Event precludes an agency from taking small business credit from that point forward, but it does not render the contractor ineligible for pending or future task orders set aside under pre-existing, long-term contracts.
In Size Appeal of Odyssey Sys. Consulting Grp., Ltd., SBA No. SIZ-6135 (2021), the appellant argued that the awardee of two task orders issued by the General Services Administration (GSA) under its One Acquisition Solution for Integrated Services (OASIS) Indefinite Delivery, Indefinite Quantity, Pool 5B contract was ineligible for award. The appellant asserted that the awardee was no longer small because it had merged with a private equity firm less than a month after submitting its bid. According to the appellant, this merger triggered the awardee’s obligation to recertify and rendered the awardee ineligible for award. The appellant relied on a provision in SBA’s recertification rules, which provides that if a “merger, sale or acquisition (including agreements in principal [sic]) occurs within 180 days of the date of an offer 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.”
In denying the appeal, OHA cited 13 C.F.R. § 121.404(g)(4), which provides that, while the provisions of SBA’s recertification rules, including the one cited by the appellant, apply to Multiple Award Contracts like OASIS, “if the Multiple Award Contract was set-aside for small businesses, partially set-aside for small businesses, or reserved for small business, then in the case of a contract novation, or merger or acquisition where no novation is required, where the resulting contractor is now other than small, the agency cannot count any new orders issued pursuant to the contract, from that point forward, towards its small business goals. This includes set-asides, partial set-asides, and reserves for 8(a) BD Participants, certified HUBZone small business concerns, SDVO SBCs, and ED/WOSBs.” According to the comments that SBA provided in connection with the appeal, this provision is an “exception [that] makes clear that when the underlying multiple award contract is set-aside for small business, and a firm recertifies as other than small within 180 days of offer, the firm is still eligible for pending and future order awards, but the agency cannot count those awards towards its small business goals.”
OHA agreed with SBA and explained further that “[i]f Appellant’s interpretation were correct, § 121.404(g)(4) would become largely meaningless, as there would be no need to clarify that a procuring agency could not claim goaling credit for new orders issued to a prime contractor following a merger or acquisition, if the prime contractor were not eligible for such orders in the first instance.” OHA doubled down on this holding in the more recent Size Appeal of EBA Ernest Bland Assocs., P.C., SBA No. SIZ-6139 (2022), in which it denied, for the same reasons, the appellant’s argument that “a prime contractor who recertifies as other than small as a result of a merger or acquisition is not eligible to receive a small business set aside award.”
OHA’s holding in these two cases harkens back to a 2018 case we previously discussed, wherein OHA reached the same conclusion regarding the impact of recertification on long-term contracts, albeit under a different version of SBA’s rules. Since then, SBA has revised its recertification rules a number of times, calling into question whether OHA would still interpret the rules the same way. OHA’s recent analyses show that, under the current version of SBA’s recertification rules, the recertification of a firm as other than small in connection with a Triggering Event, will not by itself preclude the contractor from being eligible to bid on set-aside orders issued under pre-existing, long-term contracts.
These cases should provide a breath of fresh air for small business contractors that are contemplating potential mergers and acquisitions but worry that such transactions could affect their eligibility to continue performing under pre-existing set-aside contracts. There are exceptions to the general rule announced by OHA, however, so government contractors should consult an attorney to gain a full understanding of the impact that a potential merger or acquisition will have on their eligibility for future work.
If you would like to know more about these decisions or SBA’s recertification rules and their potential impact on your company, please contact Sam Finnerty, the author of this blog, or another member of PilieroMazza’s Government Contracts Group. Special thanks to law clerk Daniel Figuenick for his assistance with this post.