Government Contracts Monitor

SBA Area Offices Are Precluded from Reviewing a Duly-Approved 8(a) Mentor/Protégé Joint Venture Agreement, and May, But Are Not Required to, Refer Any Concerns to SBA’s Office of Business Development

April 24, 2019

The Small Business Administration (SBA)’s Office of Hearings & Appeals (OHA) recently reaffirmed that SBA Area Offices are precluded from reviewing the substance of an 8(a) Mentor-Protégé’s Joint Venture Agreement (JVA), once such agreement has been approved by the servicing SBA District Office. OHA further held that, while an Area Office has the discretion to refer any concerns the Area Office nevertheless may have as to the JVA to SBA’s Office of Business Development, the Area Office is not required, and may not be compelled, to do so. Size Appeal of North Wind Site Services, LLC, SBA No. SIZ-5988, decided Mar. 7, 2019.

By way of background, and as we have discussed in the past, one of the principal advantages of a Mentor/Protégé Agreement (MPA) is the ability for the Protégé to joint venture with its Mentor, and for the JV to compete as small for any contract for which the Protégé qualifies as small, notwithstanding SBA’s normal rule that joint venturers are deemed to be affiliated (see 13 C.F.R. §§ 121.103(h)(2) & (h)(3)(iii)). This is true under either SBA’s traditional 8(a) Mentor/Protégé Program or SBA’s new All-Small Program (ASMPP), provided the JVA complies with the applicable criteria. (See our recent blog on OHA’s STAcqMe, LLC decision.) One of the principal differences between the two Programs is that SBA requires pre-award approval of the SBA 8(a) M/P JVA for any contract being awarded through the 8(a) Program (13 C.F.R. § 124.513(e)(1)). This pre-award approval ensures that only duly-authorized 8(a) M/P JVs can receive 8(a) awards. In view of this pre-award approval requirement, OHA determined in a 2012 decision – Size Appeal of Trident3, LLC, SBA No. SIZ-5315 (2012) – that it is unnecessary and improper for an Area Office to conduct a separate review of the previously-approved JVA during the course of a size protest. Conversely, of course, it is standard in size protests not involving a pre-approved 8(a) JVA for an Area Office to review a JVA for compliance with the applicable requirements. This rule in the 8(a) context is consistent with the general rule that an 8(a) cannot challenge the eligibility status of another 8(a), although any party may bring information bearing on the eligibility of an 8(a) company to the attention of the Office of Business Development. (See 13 C.F.R. §§ 124.517(a) & (e).)

North Wind involved a U.S. Army Corps of Engineers (USACE) 8(a) set-aside competitive procurement for the remediation of contaminated soil and structures at the Iowa Army Ammunition Plant. The procurement was conducted under the Environmental Remediation Services exception to NAICS Code 562910, which has a 750-employee size standard. On September 21, 2018, the Contracting Officer (CO) announced that R8I Cabrera Remediation & Construction, LLC (R8I) was the apparent awardee. North Wind, a disappointed offeror, filed a timely size protest with the CO, alleging that R8I was either an improper prime/sub teaming relationship under the ostensible subcontractor rule, or an ineligible JV since Cabrera was not small.

The Area Office determined that R8I was a JV between Marketing Data Solutions, LLC d/b/a Region 8 International (MDS), an approved 8(a) Program participant, and its SBA-approved large business Mentor, Cabrera Services, Inc. (Cabrera). The Area Office further determined (1) that SBA had approved MDS’s MPA with Cabrera on May 17, 2018, well before proposal submission, (2) that MDS had been admitted into the 8(a) Program on November 6, 2016, and was still participating in that Program, (3) that MDS had fewer than 750 employees and no affiliates, and thus was small for the subject procurement, and (4) that the cognizant SBA District Office had approved the instant JVA. The Area Office therefore concluded that R8I was small and denied North Wind's size protest.

North Wind timely appealed this adverse size determination to OHA. OHA found no error, citing (1) the Area Office’s above findings qualifying R8I for the 8(a) M/P JV exception to affiliation, and (2) the Area Office’s proper reliance upon and correct implementation of Trident3.

North Wind highlighted that its size protest had asked SBA to “investigate R8I for compliance with the 8(a) Program regulations, based on specific concerns about R8I’s noncompliance,” including whether MDS would supply any of the equipment, facilities or resources needed to perform, and that MDS assertedly had no experience performing federal contracts and would be unduly reliant upon Cabrera. In an attempt to end-run Trident3, North Wind argued that the Area Office at least should have “scan[ned]” the JVA, and referred concerns to the Office of Business Development, citing Size Appeal of Carntribe-Clement 8AJV #1, LLC, SBA No. SIZ-5357 (2012).

OHA stated that “[t]his argument is meritless.” OHA pointed out that in Carntribe-Clement OHA found that the Area Office, contrary to Trident3, had impermissibly examined whether the M/P JVA met the 8(a) eligibility requirements. OHA remarked that, instead of conducting its own eligibility review, the Area Office, “if [it] harbored doubts about an 8(a) BD participant’s [eligibility], … should have directed the matter to the Office of Business Development pursuant to 13 C.F.R. § 124.517(e).” OHA pointed out that such regulation is permissive, and allows, but does not require, anyone with information questioning the eligibility of an 8(a) Participant to submit such information to the Office of Business Development. “Read in context, then, Carntribe-Clement merely indicates that, although an area office lacks authority to conduct its own 8(a) eligibility review, an area office may, in its discretion, relay 8(a) eligibility concerns to the Office of Business Development. OHA’s discussion does not connote that every protest allegation must be referred.” Importantly, there is nothing in OHA’s instant decision indicating that the Area Office here, in fact, had any concerns. Apparently what North Wind wanted was for OHA to mandate that the Area Office forward North Wind’s concerns for review. OHA refused to do this.

North Wind alternatively argued that OHA should modify or re-interpret Trident3 to “require the Area Office to refer an 8(a) [JVA] to the Office of Business Development as part of a size protest.” OHA stated that this would require a regulatory change, since, as discussed above, the underlying rule – 13 C.F.R. § 124.517(e) – permits, but does not require, interested parties to submit 8(a) eligibility concerns to the Office of Business Development. OHA stated, consistent with prior holdings, that OHA has no authority to determine the propriety of SBA regulations, or to change such regulations through case law.

OHA therefore denied North Wind’s size appeal, and sustained the Area Office’s finding that R8I is small.

The bottom line is that Area Offices do not have the authority to independently review an 8(a) M/P JVA once the servicing SBA District Office has approved the JVA. Moreover, while an Area Office has the discretion to refer any eligibility concerns that the Area Office may have to the Office of Business Development, the Area Office is not required to do so and cannot be so compelled through a size protest.

Attorneys

Hopewell Darneille