Government Contracts Monitor

Short Take: OHA Defers NAICS Code Size Standard Challenges Pending the Promulgation of New Governing Regulations

May 2, 2016

The 2016 National Defense Authorization Act (NDAA-16), 15 U.S.C. § 632(a)(9), authorizes SBA’s Office of Hearings and Appeals (OHA) to hear administrative challenges seeking reconsideration of NAICS Code size standards promulgated by SBA, “us[ing] the same process [OHA] uses to decide challenges to the size of a small business concern.” Id., § 632(a)(9)(A) & C). Such requests are to be filed “not later than 30 days after the publication in the Federal Register of the notice of final rule to revise, modify, or establish size standards.”

OHA recently decided that its present size appeal procedures are not adequate to handle the newly-authorized size standard reconsideration petitions, due to numerous differences between such petitions and current size appeals. OHA stated that processing the authorized new size standard petitions therefore must await SBA’s promulgation of new implementing regulations. Specifically, OHA stated that the new statutory language “is not detailed, consisting of only five complete sentences,” and “does not completely embody Congress’ intent as i[t] relates to the process for adjudicating size standard petitions,” noting certain further explication set forth in the legislative history. OHA concluded that “Accordingly, it is imperative that OHA promulgate new procedural regulations for size standard petitions so that all interested persons will understand specifically how such matters will be adjudicated at OHA.”

OHA therefore reaffirmed its earlier dismissal, without prejudice, of a petition by Wolverine World Wide, Inc., seeking review of SBA’s new 1,000 employee size standard for Footwear Manufacturing, NAICS Code 316210, published at 81 Fed. Reg. 4440 (Jan. 26, 2016). Wolverine filed its initial petition for reconsideration of the new size standard on February 26, 2016. OHA summarily dismissed the same, without prejudice, on March 2, 2016, on the ground that OHA had not yet promulgated the necessary procedural regulations. Wolverine sought reconsideration, arguing that Congress’ authorization was effective immediately and specified the procedures to be followed. SBA’s General Counsel’s Office (OGC) opposed Wolverine’s request, arguing that the existing size appeal procedures do not address a number of issues incident to the new size standards review, including, most importantly, (i) notice to other interested parties, and (ii) limitations on the relief that OHA can grant in such a proceeding, given that only the Administrator can establish or alter a size standard.

OHA concurred, and rejected Wolverine’s petition as premature, on two grounds: (1) OHA reaffirmed that new procedures are necessary, including as to who has standing to bring such petitions; and (2) Wolverine is not prejudiced by waiting, since (i) OHA’s dismissal was without prejudice, and specified that Wolverine could refile “within 30 days after OHA has published the necessary procedural regulations,” and (ii) the statute explicitly provides that exhaustion of the new administrative remedy is not a prerequisite to an Administrative Procedures Act (APA) challenge in District Court, and Wolverine therefore could go immediately to Court if it is unwilling to wait (Order Denying Request for Reconsideration).

The bottom line is that companies desiring to take advantage of the newly-provided administrative process to challenge SBA’s recently-adopted or future new NAICS Code size standards are going to have to wait for OHA to issue new regulations establishing the procedures that will govern such challenges. However, once the new procedures are in place, interested parties thereafter will have only 30 days within which to challenge SBA’s recently-implemented size standard changes.

Attorneys

Hopewell Darneille