Meghan Leemon and I caught up after her excellent presentation on joint ventures at the National HUBZone Conference in Virginia. Meghan, who practices out of PilieroMazza’s Colorado office, was involved in one of the most important joint-venture cases in years. She also had a fascinating tip on how larger small businesses can use JVs to keep their status longer.
We then talked through her recent wins on 8(a) suspensions and few recent SBA OHA decisions. Some of these cases create new regulatory guidance for 8(a) firms completing their annual reviews and responding to the ongoing SBA audit.
Links
Meghan Leemon on LinkedIn https://www.linkedin.com/in/meghan-leemon-710615b
PilieroMazza profile https://www.pilieromazza.com/people/meghan-f-leemon/
Primary Healthcare LLC d/b/a Anglin Distinctive Health Care JV LLC v. United States, Case No. 25-1795C (2026). https://ecf.cofc.uscourts.gov/cgi-bin/show_public_doc?2025cv1795-40-0
OS-DB-JV-2, LLC, B-424382, June 16, 2026. https://www.gao.gov/products/b-424382
Size Appeal of DSC-EMI II, LLC, SBA No. SIZ-6387 (2026). https://govt.westlaw.com/sbaoha/Document/I3277fc47670f11f1b5ede6c75ce634c0
SBA Unified Agenda: Joint Ventures in Government Contracting Programs. https://www.reginfo.gov/public/do/eAgendaViewRule?pubId=202510&RIN=3245-AI23
Matter of PolyCon Solutions, LLC, SBA No. BDPT-742 (2026).
Matter of ThirdPacket Technologies, SBA No. BDPE-763 (2026).
Matter of Parsco LLC, SBA No. BDPT-749 (2026). https://govt.westlaw.com/sbaoha/Document/I9258bebc790211f1bab1a69685c3e57d
Millbrook Support Services, Inc., B-424107, Feb. 23, 2026. https://www.gao.gov/products/b-424107
Size Appeal of A&H Ambica JV, LLC, SBA No. SIZ-6382 (2026). https://govt.westlaw.com/sbaoha/Document/I59112c234f9e11f1b1f6a9415ba6940b
Size Appeal of Tayrona Investments, LLC, SBA No. SIZ-6390 (2026). https://govt.westlaw.com/sbaoha/Document/Ieb859d2a79e111f19f5fb3c8f8e54d0b
Chapters
00:00 - Introduction to GovCon Intelligence
00:23 - Joint Ventures: Managing Receipts and Size Limits
03:07 - The Primary Healthcare Case: Size at Final Proposal Revision
08:44 - Consolidating SBA Joint Venture Rules and Certifications
12:40 - Contract-Specific Affiliation and Numbered Joint Ventures
15:57 - 8(a) Suspensions and Calculating Owner AGI
23:20 - Reporting Jointly Owned Assets in MySBA Certifications
26:30 - The Parsco Case: Submitting Documents to SBA
29:22 - Millbrook Support Services: Recertification on VA Task Orders
32:34 - The A&H Ambika JV Case: The Adverse Inference Rule
35:30 - The Non-Manufacturer Rule and Size Standards
37:47 - Conclusion and Contact Information
Transcript
Introduction to GovCon Intelligence
Sam: Welcome to GovCon Intelligence. We’re recording today on-site from the National HUBZone Conference in Chantilly, Virginia. And my guest today is Meghan Lehman. Meghan is a partner at PilieroMazza out of their Colorado office. She just gave a great presentation on joint ventures, and I’m really happy to have her on the show. Welcome to GovCon Intelligence, Meghan.
Meghan: Thanks for having me.
Joint Ventures: Managing Receipts and Size Limits
Sam: So tell me a bit about what you went over in your joint venture presentation on one of the lesser-known benefits of joint ventures, because I’ve been looking at joint ventures for probably over a decade now. And this was not one that had really registered with me until you said it. So we know about the normal benefits. You get to use your past performance. Maybe you have lower performance of work requirements because of the 60-40 split. But then you mentioned something about the effect on your size. Tell us a bit about that.
Meghan: Yeah, so for joint ventures, anyone, when they’re calculating their size, they have to include their receipts, not only from any affiliates or entities that they’re a part of, but also from any joint ventures that they’re a part of. The question then becomes, well, how does that impact size? In a traditional prime-sub relationship, a company takes on 100% of the receipts from that particular prime contract. In a $10 million contract, that can be significant depending on the size standard. If you’re doing a joint venture, the SBA’s regulations provide that you only take on the percentage of receipts commensurate with the work that you actually perform—the percentage of work that you perform within the JV. If the qualifying party to the JV is only performing 40% of the work, then they’re only taking on 40% of that $10 million in my example. So the impact of $4 million is obviously way less than $10 million and can help a company stay small longer.
This is not a short-term solution—it’s definitely something used as long-term planning, but taking on that percentage of receipts can help companies stay small longer. So it’s a tool not only to get extra past performance, get contracts, and do all of that, but you can actually try to keep your receipts down rather than if you were bidding as purely a prime. A lot of people assume, “I want to prime. I want to keep all of the work and all of the revenue.” You may want to if you’re trying to be gangbusters and grow. But if you’re trying to stay small longer and strategically stay under your size standard, using a JV can be a big tool for that.
Sam: So you could get two, maybe even three contracts for the price of one. And one basic part of it is, in SBA parlance, receipts is not profit. It’s not your net. It’s whatever is coming into your company, even if it’s going right out the door to some company.
Meghan: Right. Yeah. I mean, the regulation specifically says subcontractor costs are not excluded. So anything that you bring in, with very minimal exception, is factored into your receipts. It’s total income plus cost of goods sold. A lot of people assume maybe it’s profit or how much you make off of it. On a $10 million contract, you’re not making anywhere near the $10 million, but that is factored into your receipts. So you can use the JV to try to stay small longer.
The Primary Healthcare Case: Size at Final Proposal Revision
Sam: Well, let’s talk about some of the cases that you’ve been involved in. You mentioned one today involving joint ventures that went up to the Court of Federal Claims, which is the Primary Healthcare case. This was one that I tracked as it went through.
Meghan: Yeah, so generally speaking, when you’re bidding on a government contract, your size is determined at a very specific point in time: the date of initial offer, including price. That is so people can plan and they don’t have to worry about changes that are maybe outside of their control, depending on how long the procurement process takes and things along those lines. So the general rule, other than if there’s some sort of triggering event or anything along those lines, is that the date of initial offer, including price, controls for size. So you know exactly when you’re bidding that that is the date your size will be determined. Obviously, things change. If you’re bidding at the end of a calendar year, and you’re going to be other than small the next year, that is normally okay.
In Primary Healthcare, the issue was whether or not a joint venture continued to qualify as a small business where the mentor-protégé agreement was no longer in place as of the date of final proposal revisions. Ultimately, the decision was that not only are joint venture agreement requirements determined as of the date of final proposal revision, but also the size of the joint venture. So this can impact both small joint ventures, where both parties to the JV are small, or a mentor-protégé joint venture. If there are final proposal revisions that are occurring one, two, three, four, or however many years later—the procurement process can take many years. There can be protests, there can be amendments, there can be delays where the agency doesn’t pull back the solicitation, they just keep extending it. So in that case, where things are occurring years down the road, a mentor-protégé agreement could just expire on its own. If you don’t have that mentor-protégé agreement in place if there are final proposal revisions, and maybe even the protégé has grown to be other than small, that joint venture is now no longer eligible for that contract as a small business.
Sam: Well, that’s interesting. In this particular case, it was because the parties had terminated their mentor-protégé agreement between the offer and award. But you’re saying the implications of this are... Mentor-protégé agreement expired? That affects your eligibility. Size of the qualifying JV partner changed? That affects your eligibility. And that was something that people probably had not planned for. Is there any way to plan for that?
Meghan: No, which is a little scary if you’re bidding on especially these bigger procurements that can be drawn out for many years. I mean, the bigger ones, like Polaris, I think took...Was it three years, I think, to award?
A lot can change between the initial offer date and the final proposal revision or final award date if there are final proposal revisions. I don’t believe there were final proposal revisions in Polaris. There could have been, I’m not sure. But it’s important to understand that this is specifically if there are final proposal revisions. Most solicitations say the agency intends to conduct this procurement without discussions. So if there are discussions, that would result in a final proposal revision. The Primary Healthcare case says even if you don’t submit a final proposal revision, you’re still being judged as of that date. So it doesn’t matter if you change nothing to your proposal, you are still being judged as a joint venture, not just for JVA compliance, but also size as of the date of final proposal revision.
Sam: I’ll just tell you the reason for that rule, because I was at SBA when we came out with that rule. The reason for that rule is your final proposal revision might change how you propose to do the contract. It might change the split of work between the parties. And we wanted to make sure that the joint venture agreement that’s being reviewed by SBA for compliance is the joint venture agreement that matches up with your final proposal.
Meghan: Sure.
Sam: I don’t know that we thought through this scenario.
Meghan: I completely understand on the JVA compliance side of things. You may want to adjust the percentages, or you may want to adjust who’s doing what because if there are discussions, there is likely an amendment to the solicitation which has maybe changed some requirement. That makes complete sense to have the actual JVA on paper as of the date of final proposal revision. However, I don’t think anyone has appreciated until now that the courts have said that that is now applicable not only to JVA compliance but also size and presumably status as well. So if a company loses a small business status, if they lose SDVOSB status, or whatever the status may be, by the date of final proposal revision, that can completely undo the JV’s eligibility for award.
Sam: Well, watch out for that if you’re thinking about terminating your mentor-protégé agreement.
Meghan: Or even if you’re not terminating, it’s expiring soon. Because if you only have a little bit of runway left, you may want to try to plan as much as you can.
Sam: Oh, sure. So if you’re getting up to the end of your six years or twelve years...
Meghan: Right. If you have a second relationship available, you may want to consider a renewal at that point.
Sam: Right. And six into twelve. Yeah.
Consolidating SBA Joint Venture Rules and Certifications
Sam: Well, SBA announced its regulatory agenda last week. And one of the things they’re working on is consolidating the joint venture rules. Those of us who have been working in this space notice all the little differences between the WOSB and SDVOSB rules. This came up recently in a GAO case that came out. The GAO case, OS-DB-JV-2, which also went to the Court of Federal Claims last week, involved a VA procurement. But it’s an SBA regulation, 128.402(e), that says that joint venture members have to submit certifications to the contracting officer at the time of offer. At the time of offer. And the VA, to be fair to the VA, they did tell the companies what was happening and why they had to submit that. But this company was excluded because it did not submit that joint venture certification at the time of offer. And the VA eliminated it. GAO upheld [actually, denied] the protest. Is that the only program that that’s in?
Meghan: No, actually, there are normally three different certifications. There’s certification after award but before you begin performance, and certification of compliance. And then there’s the yearly reports and the project-end reports, generally speaking.
However, for SDVOSB...the regulation actually says at the time of offer and any additional offer.
Sam: Oh, wow.
Meghan: So it’s not just initial. So that gets back to the final proposal revision and all of that. The other one that has an additional certification requirement is HUBZone. HUBZone requires an additional certification at the time of offer as well. So there are a bunch of nuances between these types of set-asides that you have to be very careful with when you’re not only drafting and participating in JVs, but when you’re actually submitting a proposal. In this particular case, I think it was in the solicitation expressly. It said you need to submit this. It is in the JV regulation, but if it wasn’t in the actual solicitation, I’m not sure if that would have been something that the agency could have...
Sam: Maybe the agency would have let it pass.
Meghan: Right, but this was an express requirement. My understanding is it was in the solicitation itself. So read your solicitations very carefully and comply.
Sam: Another nuance is, I think in the WOSB program, you have to submit the actual agreement with your offer, or probably prior to award, to the agency. And that’s the only program that has that. Sounds like SBA is going to consolidate these. Do you think they’ll keep those slight nuances?
Meghan: One of the other nuances is in the small business joint venture regulation. In all of the other JV regulations, it says you will also submit quarterly financials and then project-end financials or something along those lines. In the small business JV regulation, it actually doesn’t have those requirements. It refers to the performance of work reports. So the last two requirements in the JVA compliance for small business are actually different in 125.8 as opposed to all of the other set-asides. So there are nuances.
And someone actually raised that in a comment during one of the SBA’s rulemakings. And it seemed to kind of get sidestepped and it wasn’t fully corrected in the regulation. But at the end of the day, you have to make sure you’re complying with the regulation that applies to the type of set-aside that you are pursuing. So they’re very similar, but there clearly are some nuances.
Sam: A few differences in SBA. Presumably, we’ll be looking at changing some of those as they go through this.
Meghan: It would be nice to have some consistency across the programs.
Contract-Specific Affiliation and Numbered Joint Ventures
Sam: But one more case I wanted to ask you about involving joint ventures. It’s from Judge Daniel George at SBA’s Office of Hearings and Appeals. And this gets to both the joint venture size rules and the limitations on subcontracting. This was a NAVFAC small business set-aside. And it said that both members of the joint venture were small, and therefore the joint venture could be small. The protest had argued that the Area Office had only looked at the joint venture itself, but when they went back to it, it doesn’t ask about whether the companies together are small. So it’s just one company and the other company being small. And that’s one of the advantages of a joint venture that you had mentioned before.
Meghan: Yeah, one of the exceptions, generally speaking, is if companies are coming together to form a JV for a contract, they could be considered affiliated and therefore their sizes are combined. However, one of the exceptions is if both companies are small under the size standard that’s applicable to the procurement. So you don’t look at them combined, unless they’re generally affiliated, but for contract-specific affiliation, i.e., a joint venture size, you look at the companies individually. If they’re individually small, together with whatever affiliates or anything that they may have, then those companies can come together and form a joint venture. And if you’re pursuing a small business set-aside only, not an SDVOSB, 8(a), HUBZone, or anything along those lines, there are actually no particular form of JV agreement requirements that are applicable. So you have a lot more flexibility in how you structure your joint venture in that particular instance, but it’s very specific.
Sam: Let me just name this case. This was the size appeal of DSC-EMI II LLC. You see a lot of these numbered joint ventures. Tell me the reason for why they’re numbered.
Meghan: Because joint ventures are limited to a two-year bidding lifespan after they receive their first contract award, novation, or a similarly situated subcontract. So once that occurs, the two-year clock starts ticking. That doesn’t mean the same JV partners cannot form a second contract. Or a third or however many JVs, especially if they’re still in an active mentor-protégé relationship. That could potentially, if you are timing things well, have you looking at four or five joint ventures depending on the timeline. But a lot of companies do prefer to just keep the JV name—because it does have to be a separate bidding entity—as Company 1, Company 2. And then if you are forming more, you know, 2, 3, whatever, as you go down the line.
Sam: Yeah, and in this case, one of the companies had formed a number of joint ventures and there was a very quick line that yes, the Area Office did account for all of those joint ventures. That was notable to me because I remember the company does have a lot of joint ventures. That’s very hard to account.
Meghan: It is complicated. That goes back to what we were talking about earlier in terms of the JV’s receipts. So it’s not just accounting to see if they exist, but then you’ve got to go through the analysis of if those JVs have a lot of contracts, how does that then impact their size? So it sounds like the area office did that in this case.
Sam: Yes. Yes, it went through that whole process.
8(a) Suspensions and Calculating Owner AGI
Sam: You’ve been working on a few 8(a) suspension cases now?
Meghan: Just a few.
Sam: Can you tell us how that’s been?
Meghan: It’s been interesting. The 8(a) suspensions have been a lot in terms of numbers, but thankfully, at least all of the ones that we’ve been handling since January have been lifted. So they’re going well in that sense, but it has taken some time.
Sam: Yeah, when it initially came out, there were at the peak over 1,100 suspensions, and now we’re down to a dozen or two.
Meghan: Yeah, and it’s interesting. I think the 1,100 suspensions were largely due to the data call, which for companies that didn’t respond, or maybe they had some technical issue and they responded late or something along those lines. But then there were more rounds of suspensions in the February-March timeframe regarding 8(a) eligibility based on annual reviews that were submitted at some point in 2023 or 2024. So there were kind of two rounds almost. So yes, but I’m not sure off the top of my head how many firms are still suspended from the program, but I think the numbers are significantly lower than where we started.
Sam: And from the perspective of looking at cases from the Office of Hearings and Appeals, this case law is helpful for the future because it helps 8(a) companies or even EDWOSB companies understand how SBA reads their financials and assesses their eligibility for those programs.
Meghan: Yeah, not just how they read it, but maybe how they should read it.
Sam: How they should read it. Just a reminder, SBA Office of Hearings and Appeals has independent judges that hear appeals of 8(a), WOSB, HUBZone, SDVOSB, and a lot of SDVOSB size and NAICS code cases. And in this period, they’ve been hearing hundreds of 8(a) suspension appeals. You have several cases that will be important precedent. The first one is PolyCon Solutions, and that has to deal with tax returns.
Meghan: Yeah, I think so. Yeah, so that one was actually before all of this kind of new craziness came about. That was on an 8(a) early graduation. There, the SBA calculated the qualifying owner’s AGI as above the $400,000 limit. During the proposed termination or early graduation response, the 8(a) firm provided SBA evidence of tax payments. And not only federal, but also state taxes that had been paid that the owner was accruing the liability for because of how the company is taxed. For a lot of companies, tax liability for the company flows through to the individual on their personal tax returns. And SBA’s regulations provide that company taxes are excluded from an owner’s income—money that you received and then used to pay taxes is excluded from an owner’s income calculation.
Sam: It’s just a pass-through.
Meghan: Yeah. So it comes off, because a lot of owners receive distributions that are technically income, but then it’s turned around to pay a company expense. So that’s not income that the person received and actually kept. So in that case, in addition to the taxes, there was also some company bank account interest income and things of that nature that showed up on the owner’s personal tax returns. That money is not income to the human; it’s income to the company, but it shows up again for tax purposes on the tax returns.
Sam: So that could be things like interest or investment income.
Meghan: Capital gains income, like sale of business property, things along those lines. There’s a number of different things that could show up on a tax return. So you really have to do the analysis of: is that income that was to the person, the owner individually, or is that income that was really to the company and was a pass-through, and actually is it money that went into, for example, the owner’s bank account?
For the graduation, we appealed, and on appeal, OHA found that SBA, instead of applying the actual taxes paid based on the federal and state, applied simply an “effective tax rate.” Up until this most recent round of terminations and suspensions, SBA would provide a chart essentially for anyone in terms of how they did the calculation of their AGI. And you would largely see a tax rate and a percentage associated with that. That percentage was based purely on a mathematical formula based on an owner’s income and their personal taxes. It did not account for actual taxes that were paid. There may be a number of reasons why someone would pay more in taxes than what their effective tax rate shows, whether a lot of companies file quarterly or do prepayments.
They’re estimating their tax liability, but they pay taxes not only to federal but also state. So in this particular case, SBA applied the effective tax rate rather than applying the actual taxes paid, where evidence was provided of those amounts, and found that the AGI was still over the limit. On appeal, OHA said the use of the effective tax rate is found nowhere in the regulation. So SBA should have looked at the evidence of the actual taxes paid and only income that went to the owner individually.
Sam: I think in most cases, the actual taxes paid are going to be larger.
Meghan: Generally, yes.
Sam: Than the effective tax rate, just because of the way marginal tax rates work and tax brackets. I’m a business owner myself, but I see that my income is being taxed lower than what I’m getting from the firm.
Meghan: And it’s not just that the effective tax rate is also applied at the federal level; that doesn’t include state.
Sam: Sure.
Meghan: I mean, the regulations provide monies paid for taxes is excluded. Hard stop. There’s no effective tax rate. There’s no “just federal.” So now we have this decision from OHA that confirms that. So hopefully, rather than the little chart with the percentage, SBA going forward will actually look at the actual taxes paid. And just as you’re completing your annual reviews and things going forward, it may be a good idea to get out ahead of that issue and upload evidence of those taxes paid rather than waiting for SBA to ask or potentially suspend you or propose you for termination.
Sam: And it may even be something to talk to your accountant about to make sure that you track the distribution that’s being used for the taxes paid so you can segregate those out.
Meghan: Yeah, I’m definitely not an accountant.
Reporting Jointly Owned Assets in MySBA Certifications
Sam: Another important case that you worked on in the current suspension environment is Third Packet Technologies. What happened in that case?
Meghan: A few things, but one of the most notable things is for jointly owned assets, especially real estate. A lot of people own their residence, or they have rental properties or things that they may own jointly with a spouse or someone else. The system, when you’re completing your annual reviews, generally speaking, asks for your share of the value for things like bank accounts, cars, whatever the case may be. You would input your 50%, assuming it’s a jointly owned asset; you would input your 50% share. For real property, the system asks what the full value is, but then it asks whether it’s jointly owned. And so if you answer yes, then you put in the percentage that you own. It does require some actual math and adjustment. So if you put in a value of a million dollars, but you own 50%, the net increase to your total assets—this is applicable for total assets, especially for your primary residence, because that’s generally excluded for net worth purposes—you would add only $500,000 as opposed to the full million.
However, if the system is just running a number, they’re going to run it based on the full million, not the half. So in that particular case, the sole reason the owner was over the $6.5 million total assets test is because SBA was factoring in 100% of the value of real property as opposed to 50%.
Sam: Even though they had put into their annual review the percentage?
Meghan: Yes.
Sam: Oh, wow. So how are you supposed to answer that question now from here on out?
Meghan: Well, I think you need to be very careful. I think you need to look at what the question asks specifically. The system is new now, the MySBA certifications instead of the certify.SBA.gov system. I think it still asks for the full value. You may want to consider including half the value, but then also uploading some sort of an explanation or something of how you arrived at the numbers. Or if you input the full value, you probably also want to input an explanation saying, “I’ve included the full value. However, to be clear, I only own 50%.” Unfortunately, this could still result in unwarranted proposed terminations or suspensions if SBA isn’t reviewing the documentation or the explanations uploaded. So I don’t think there is necessarily an easy answer or right or wrong answer, but something to keep an eye on for sure.
Sam: Yes, big flashing red light for SBA that this is jointly owned property. The case says it’s unclear from the administrative record why SBA attributed the qualifying individual with 100% ownership instead of joint ownership of the two real estate properties at issue. So you’re really supposed to discount...
Meghan: Right. If you were to sell it, you are only entitled to your percentage of it.
The Parsco Case: Submitting Documents to SBA
Sam: One other case I wanted to bring up with you is the Parsco LLC case. This was a pro se case, so you wouldn’t have been involved in it. But this was a case where SBA moved to terminate. So it’s an appeal of both the suspension and termination that was consolidated by OHA. And the company had appealed its suspension to OHA, and SBA terminated without considering the information that the company submitted on the suspension appeal. And SBA argued that the information in the appeal was not submitted into the MySBA certifications portal.
The judge said that SBA could not base this termination just on MySBA. She wrote, “I appreciate that SBA has good reason to require electronic submission via the MySBA certifications portal. And I believe the petitioner could have avoided lengthy proceedings simply by uploading the letter and spreadsheets to the MySBA portal. But absent any contractual obligation to use that portal, I cannot find that SBA has a lawful basis for requiring that suspended firms or firms that have been issued a letter of intent to terminate use the MySBA certifications portal as the exclusive method providing documentation to SBA.”
I’ve seen this in other cases as well where SBA is just looking at what’s in MySBA or not even maybe all the information. But there were things that date back to when SBA was using the former certify.SBA.gov system. There’s also stuff that’s submitted directly to the district office. And this case seems to say, “Look, you have to look at all of it. You can’t just limit it to the information that’s in the portal.”
Meghan: Yeah, I mean, I think the regulation says something along the lines of “all information within SBA’s possession” or something that they should have had. That doesn’t say that it was exclusively uploaded to MySBA or certify.SBA.gov or something along those lines. So in that case, it sounds like SBA had the information, even though it wasn’t uploaded in their preferred place. I wouldn’t rely on that, but...
Sam: You could, again, as the judge said, avoid a lengthy proceeding by putting stuff where SBA expects it to be put. But if you do end up in a termination or a suspension, you can put stuff in front of OHA that you had submitted to SBA previously as well.
Meghan: Yeah, and we’ve done that. In some of the suspension cases that we did, we had to object to the administrative record because the administrative record didn’t include documents that had previously been provided to SBA, either as part of the annual review or supplemental requests or things along those lines. So, yes, unfortunately, you may still have to go through that lengthy process. But things that have been sent to SBA is something that should be included in the complete body of the administrative record.
Millbrook Support Services: Recertification on VA Task Orders
Sam: Do you like working on size cases? That’s my favorite.
Meghan: I do.
Sam: That’s my favorite, the size cases. Just so much complexity, the numbers and all that. You worked on a GAO case that surprisingly involved size, Millbrook Support Services. And talk about nuances. This is a nuances case. Tell us about that.
Meghan: Yeah. So it’s similar in the sense of the general rule of date to determine size is the date of initial offer, kind of going back to the JV nuance for the final proposal revision. This is also another nuance, particularly for VA procurements. The VA has their own set of regulations, the VAAR. That in some respects is a little bit more specific than SBA’s regulations, depending on who you ask. But let’s just go for the sake of argument. They’re a little bit more specific.
There is a provision under the VAAR that says a company has to be SDVOSB at the time of offer and award. In that particular case, that dealt with an order under a Federal Supply Schedule. And the general rule for federal supply schedule or IDIQ contracts, GSA MAS, things along those lines, is that your size and status is determined at the contract level. So when you bid on that master contract, that is what governs your size and status for purposes of orders thereunder.
Sam: Unless the order specifically asks for a recertification of size or status.
Meghan: In this particular case and going forward for companies that are bidding on VA orders or contracts, it has been interpreted that the company not only has to be SDVOSB at the time of offer, but also at the time of award, not only for standalone contracts, but also orders under previously awarded contracts. Even if the order doesn’t expressly require that recertification, you have to look for certain VAAR clauses in the solicitation to see.
Sam: So it treats the task order as if it were a contract.
Meghan: Yes, it is treating the task order as a contract instead of an order.
Sam: The VA determined the protester was not identified as a small business on the RFQ’s NAICS code in the SBA database. As a result, the agency concluded the firm was not eligible for award under the VA’s governing regulations.
Meghan: So there’s becoming a lot of caveats and clarifications to what are supposed to be very clear, hard and fast rules.
Sam: And this is because of the discrepancy between the VAAR and the SBA. Is that based on statute? Is that just something that the VA came up with?
Meghan: It is based on Vets First.
Sam: Okay. That’s the Kingdomware status.
The A&H Ambika JV Case: The Adverse Inference Rule
Sam: One case that struck my eye, maybe because of the best practices implications and legal procedure, is a case called A&H Ambika JV. This is about the adverse inference rule at SBA.
And OHA reversed an SBA determination of an adverse inference because SBA failed to clearly communicate its document requests and didn’t permit the small business to respond. OHA said that the firm promptly provided documentation and detailed answers to the Area Office, and where the company did not address certain issues, it was because the Area Office did not make a request. So that seems like that could be important precedent in the future. What are your experiences with adverse inference?
Meghan: When a size protest is filed, the SBA sends a copy of the size protest and a letter requesting certain documentation to the company that’s being protested. The company is required to address the arguments that are raised in the protest and provide various documents that SBA may request and various information. That often includes tax returns and SBA Form 355, which details ownership and outside interests and things of that nature, amongst a number of other documents, governing documents, copies of subcontracts, whatever the case may be.
From there, generally, in my experience, SBA will likely come back with additional questions. Maybe they want to have something clarified. At the end of the day, size is all about affiliation and control and all of that.
In that particular case, certain companies or facts that were initially found to not be disclosed, and therefore prompted SBA to apply the adverse inference rule in the first place, were not ever asked of the company. SBA had apparent concerns that were never disclosed. It wasn’t in the protest and it wasn’t portrayed or asked about to the protested concern. So how can a company be expected to disclose or answer something that it’s never asked? And so the questions that were asked were not encompassed in the information that the company was providing.
SBA applied the adverse inference, even if the adverse inference rule provides that if you don’t explain something, regardless of if you would still be small even if you provided it, SBA is going to find you other than small. So in this particular case, the SBA never asked about the issues that they had. So therefore, OHA remanded the matter back to SBA for additional information. Fact gathering, if you will. Which could take a long time.
Sam: It can.
The Non-Manufacturer Rule and Size Standards
Sam: One last case before we let you go. Here on the non-manufacturer rule, this was from a company that apparently was between 500 and 1,500 employees. And the size standard on the contract was 1,500 employees. And the company said, “Well, I just have to be under 1,500 employees.”
But Judge Daniel K. George said that this company is not the manufacturer, Campbell Oil Company. It’s a Size Appeal of Tayrona Investments, but it was about Campbell Oil Company. And for whatever reason, Campbell Oil Company had to comply with a 500-employee size standard. Why is that?
Meghan: Because that’s exactly what the regulation says.
So under the non-manufacturer rule, there is a four-part test. So just to kind of take a step back, if a small business isn’t the actual manufacturer of the item that is being procured, they can... So in this case, it sounds like they were relying on the non-manufacturer rule rather than being the actual manufacturer. If they were actually the manufacturer of the product, they would have been able to use the 1,500-employee size count standard. But in this particular case, it sounds like they were having to comply with the non-manufacturer rule.
A component of the non-manufacturer test is that the company, the prime, is a small business under 500 employees, or 150 if you’re using the IT VAAR NAICS exception. But the regulation requires you to be under 500 employees regardless of the size standard that’s applicable to the NAICS code. One of the other requirements for the non-manufacturer rule is that you’re also providing the end item of a small business manufacturer that’s made in the United States. The size standard that would apply to the actual manufacturer would be the 1,500-employee size count. But for purposes of the prime offeror, it’s 500. So there’s definitely some nuances there. But yep, I mean, that is pretty clear, black and white, in my opinion, based on the regulations.
Conclusion and Contact Information
Sam: Well, Meghan, this has been a lot of fun. I could do this all day, just talking through cases with you, but I know you have a flight to catch. Tell us, how do people find you?
Meghan: Yeah, you can find me on LinkedIn, Meghan Leemon with an H in Meghan, or you can send me an email. My email is mleemon@pilieromazza.com.
Sam: Meghan, thanks so much for coming on GovCon Intelligence.
Meghan: Thank you for having me. It was a pleasure.
Sam: Thanks, everybody.
Meghan: Thank you.
With 20 years of Federal legal experience, Sam Le counsels small businesses through government contracting matters, including bid protests, contract compliance, small business certifications, and procurement disputes. Sam received his law degree from the University of Virginia and formerly served as SBA’s director of procurement policy. His website is www.samlelaw.com.
This video is for informational purposes only and does not constitute legal advice.
