The Federal Government is committed to developing its relationship with small and disadvantaged businesses through set-aside contracts that incentivize and protect these companies from competing with large, established competitors. But sometimes large companies try to manipulate the system by using these small businesses as puppets to capture set-aside contracts.
If you are a small or disadvantaged bidder, you might hope that contracting officers have some minimal obligation to refer proposals to the Small Business Administration (“SBA”) if they see obvious red flags in a proposal on a set-aside contract. While the Federal Acquisition Regulations (“FAR”) addresses this question, courts have not yet sustained a bid protest on the merits confirming the extent of contracting officer’s responsibility to say something if they see something.
Offerors self-certify that they are eligible to compete for set-aside awards. However, FAR 19.301(f) specifically says that contracting officers “shall” refer suspicious offerors to the SBA for a determination. In other words, contracting officers do not have to question every single proposal, but if they see glaring red flags indicating fraud the FAR says they must ask the SBA to take a closer look. This is hardly a heavy burden since contracting officers don’t have to make a final decision or engage in any significant analysis beyond identifying suspicious bidders on the face of a proposal.
While the FAR clause itself is very clear, it has never been successfully used in any bid protests. In fact, the concept appears only twice in published bid protest decisions. The idea was raised and considered, in theory, in a 2021 Federal Circuit case called Harmonia Holdings Group, LLC v. United States, Alethix, LLC 999 F.3d 1397 (Fed. Cir. 2021). Later my colleague Diana McGraw and I argued for it in Accura Eng’g & Consulting Servs., Inc. v. United States, 167 Fed. Cl. 258 (2023).
In Harmonia, the protester argued that an awardee’s proposal “should have caused the contracting officer to question whether it was unduly reliant on its other-than-small subcontractor.” Undue reliance is the key concept in the ostensible subcontractor rule, which aims to prevent large subcontractors from using the small business status of a prime contractor to secure an award it wouldn’t otherwise qualify for.
Following in Harmonia’s footsteps, we raised FAR 19.301(f) in the alternative last year arguing that a “small” architecture and engineering (“A&E”) contractor was competing solely based on its large subcontractor’s credentials. Specifically, the small contractor’s proposal put forward its large subcontractor’s personnel, relevant past work, capacity, contractually required A&E license, and related experience on similar projects. The record showed that the small prime contractor would supply only one key employee and it’s role would be limited to administrative functions, leaving the actual A&E work of the contract to be performed by the large subcontractor and its personnel. This makes sense since the small company had never done A&E work and wasn’t even licensed to perform the work of the project. Furthermore, there was no joint venture between the two companies and no mentor-protégé relationship.
In fact, there were striking similarities to size protest decisions like TKC Tech Sols., which concluded “qualitatively and quantitatively, [the large subcontractor] overshadow[ed] [the small prime] with [its] professional engineering and architectural experience (and licensing).” See TKC Tech Sols., LLC, Appellant, SBA No. SIZ-4783 at 9 (May 10, 2006). Our contention was that a reasonable Contracting Officer should have seen this as likely fraud and asked the SBA to issue a size determination.
The court agreed that the awardee’s proposal was potentially indicative of an ostensible subcontractor relationship for the reasons noted above, but ultimately declined to rule on the issue because it was simpler to agree that the awardee was ineligible to compete for the contract due to lacking the required architecture and engineering license.
While this decision was a success for the client, it has left the question of whether a contracting officer must refer facially suspicious proposals to the SBA twisting in the wind. I look forward to seeing another bid protest at GAO or COFC with similar facts raise this issue so it can be settled.
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