The Small Business Administration (SBA) Office of Hearings and Appeals (OHA) has yet again clarified that a company’s size change in connection with a merger-and-acquisition event generally does not prevent the company from continuing to bid on set-aside orders under its General Services Administration Federal Supply Schedule (FSS) contract. The new OHA decision is Size Appeal of LinTech Global, Inc., SBA No. SIZ-6287 (2024). The decision highlights widespread confusion—including within SBA itself—as to what the governing regulations mean.

The case involved a company that was awarded a GSA FSS contract in 2020. At that time, it certified as small under NAICS Code 541512. In mid-2022, the company was awarded a small business set-aside Blanket Purchase Agreement (BPA) under its FSS contract. In late 2022, the company was acquired and experienced a change in control. In early 2023, it timely recertified as other-than-small pursuant to FAR 52.219-28 and 13 C.F.R. § 121.404(g)(2). A few months after recertifying as large, the company bid on a small business set-aside task order under its FSS BPA. The contracting officer did not seek recertifications in connection with the order. The company was selected as the apparent awardee, which sparked a size protest from a disappointed bidder.

The SBA Area Office dismissed the size protest as untimely because the contracting officer had not requested a recertification in connection with the order. The SBA Area Director, however, then filed her own size protest (which is always timely), asserting that the contractor became ineligible to bid on any FSS set-aside procurements once it recertified as other-than-small in connection with the FSS contract itself. The SBA Area Office sided with its Area Director and determined the company to be ineligible to bid on the FSS order because it was no longer small.

The company appealed to OHA. Citing the text of 13 C.F.R. § 121.404(g), the company argued that its required recertification under the FSS contract did not alter its eligibility to bid on small business set-aside orders under the FSS contract, absent a request to recertify in connection with a particular order—which did not occur here. SBA’s Office of the General Counsel took the opposition position and defended the Area Office’s adverse size determination:

SBA has been clear since updating its rules for [MACs] that recertification because of merger and acquisition means replacing the original certification on the contract, and that after the firm recertifies it would no longer be eligible for contracts (task orders) set-aside for small businesses. . . .

Contrary to [Appellant’s] argument, the [e]ffect of recertifying size for a [MAC] (whether priced, unpriced, restricted, unrestricted, whether schedule or not) has not changed since 2013.  Large companies cannot buy into small business contracting and contracts.  Mergers and acquisitions require a recertification, and that recertification replaces the original certification and renders the large business ineligible for future small business contracts (in this case task orders).

Size Appeal of LinTech Global, Inc., SBA No. SIZ-6287 at *11-*12 (2024). SBA argued that, whatever one might say about the clarity of the regulation, its intent has been “extremely clear” for many years and the intent of the “base rule” for multiple-award contracts can be summed up as “when a recertification occurs [in connection with a merger-and-acquisition event], the new certification replaces the old, and the old certification ‘no longer exists.’” Id. at *11.  SBA argued the regulation, with its multiple nested paragraphs and various permutations, is meant to enshrine a longstanding “overarching policy goal” that “large entities should not be permitted to buy their way into small business set-asides through a merger or acquisition.”  Id. at *18.

OHA acknowledged SBA’s policy and intent arguments, but rejected them as contrary to the text of the regulation itself: “In order to be given legal effect, though, SBA’s general policy must be reflected in the regulations themselves. The plain text of § 121.404(g), and OHA case precedent, confirm that Appellant here was eligible to compete for, and be awarded, the instant task order.” Id.

Rather than be swayed by policy arguments, OHA hewed to its prior case law, consistent with the GAO’s recent decision in Washington Business Dynamics, B-421953, B-421953.2, Dec. 18, 2023 (which we covered in this blog a few months ago). Rejecting SBA’s formulation of the “extremely clear” “base rule,” OHA provided a different summary rule:

[D]ue to an acquisition, Appellant became other than small after its MAC was originally awarded but prior to submitting an offer for a task order that [is] set-aside for small businesses.  Appellant’s acquisition triggered a requirement to recertify at the contract level, thereby limiting the procuring agency from exercising options or counting awards towards small business goals.  13 C.F.R. § 121.404(g).  Neither the plain language of the regulation nor OHA case law, though, bars the contractor from competing for, or being awarded, future task orders, even if those orders are set aside or restricted for small business.

Id. The outcome would have been different if the ordering contracting officer had requested a size recertification at the order level. But, absent such a request, the company remained eligible to bid on and be awarded set-aside orders under its FSS contract.

Takeaways:

• An agency’s intended policies and contrary intentions must be reflected in the clear terms of its promulgated regulations.
• As a general rule, subject to exceptions, a previously small FSS contractor may continue to bid on set-aside FSS orders even after it recertifies as a large business following a transaction. Absent a request for recertification at the FSS order level, the recertification affects size goaling credits, and not award eligibility under the current regulations.
• The regulations governing award eligibility following a transaction are complicated, filled with exceptions, and difficult even for lawyers to untangle. Unless SBA reissues the regulations in much simpler and clearer form, small businesses being acquired and companies doing the acquiring would do well to seek counsel from attorneys who are well versed in these rules.
• The same company may be eligible for new set-aside awards under one contract, but ineligible under another contract. And, even under the same contract, eligibility may depend on the particulars of specific orders.

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