Small business regulations create one of the stickier wickets in bid protest litigation. Although the Small Business Administration (SBA) has exclusive authority to determine a company’s size and socioeconomic status, the Government Accountability Office (GAO) sometimes must wrestle with size and status questions to adjudicate bid protests. The GAO’s recent decision in Washington Business Dynamics, B-421953, B-421953.2, Dec. 18, 2023, includes a lengthy analysis of a particularly complicated question: the effect of a merger or acquisition on a pending quotation for an order or Blanket Purchase Agreement (BPA) under a Federal Supply Schedule (FSS) contract. In this decision, the GAO held that, although a company recertified its size under an FSS contract following a merger or acquisition, that recertification did not trigger a further recertification in connection with its pending quotation for a BPA under that FSS contract. That, at least, was the outcome under the regulations as they stood at the time and the facts of this particular case.
Factual Background
The protest involved an Office of Personnel Management (OPM) Request for Quotations (RFQ) for a BPA under Federal Acquisition Regulation (FAR) Subpart 8.4. OPM issued the RFQ to service-disabled veteran-owned small businesses (SDVOSB) holding FSS contracts for professional services. The RFQ did not request vendors to recertify their size or status in connection with the procurement.
On February 1, 2023, the protester (which was the incumbent for these services) submitted its quotation in response to the RFQ. At that time, and as of the date of its initial offer for its underlying FSS contract, the protester was an SDVOSB. On June 28, 2023, which was 147 days after it submitted its quotation, the protester was acquired by a non-SDVOSB firm and lost its SDVOSB status as a result. In accordance with FAR 52.219-28(b)(2), the protester timely notified OPM under the protester’s incumbent BPA of the acquisition and that it was no longer an SDVOSB.
OPM completed the procurement for the new BPA, documented that the protester was no longer an SDVOSB, and awarded the BPA to a vendor with a lower price and equal non-price ratings. The protest followed.
Analysis
As a threshold matter—and the question on which this article focuses—OPM requested that the GAO dismiss the protest because the protester’s change in size status allegedly meant it was no longer eligible for award of the BPA. According to OPM, because the protester ceased to be an SDVOSB within 180 days after the submission of its BPA quotation, the protester was ineligible for award pursuant to 13 C.F.R. § 121.404(g)(2)(iii). That regulation, in the form it existed at release of the RFQ, provided:
If the merger, sale or acquisition occurs after offer but prior to award, the offeror must recertify its size to the contracting officer prior to award. If the merger, sale or acquisition (including agreements in principal [sic]) occurs within 180 days of the date of an offer and the offeror is unable to recertify as small, it will not be eligible as a small business to receive the award of the contract. If the merger, sale or acquisition (including agreements in principal [sic]) occurs more than 180 days after the date of an offer, award can be made, but it will not count as an award to small business.
13 C.F.R. § 121.404(g)(2)(iii) (emphasis added). SBA subsequently amended this regulation to provide that it applies not only to offers for the award of a contract, but also to offers for the award of an order or agreement; it appears unlikely this change would have altered the outcome here, but that is an open question, as the GAO found the amendment had no effect on this procurement. The GAO sought input from SBA, which apparently agreed with OPM and the awardee that the acquisition required the protester to recertify in connection with the procurement and, because the transaction occurred within 180 days after submission of the protester’s quotation for the BPA, the protester’s change in status made it ineligible for award.
The GAO disagreed and found that OPM’s and SBA’s interpretation of the governing SBA regulations was unreasonable. In the GAO’s view, these recertification and ineligibility provisions do not apply to quotations for orders and BPAs under an FSS contract. In Odyssey Systems Consulting Group, Ltd., B-419731 et al., July 15, 2021, 2021 CPD ¶ 260, the GAO previously considered the 180-day rule in the context of a task order competition under a non-FSS multiple-award contract, where the contract was previously set aside for small business. In that context, where the contracting officer had not specifically required a recertification in connection with the order, the GAO held that an offeror remains eligible for award of the order, regardless of any transactions or size status changes inside or outside the 180-day window. As we have previously discussed, SBA’s Office of Hearings and Appeals (OHA) has made the same determination. See Size Appeal of Odyssey Systems Consulting Group, Ltd., SBA No. SIZ-6135 (2021).
Turning to the FSS BPA competition at issue here, the GAO began by quoting OHA’s recognition of the general rule that “a prime contractor that is small at the time of the contract award remains small for all orders issued under the contract, unless the [contracting officer], in his or her role discretion, chooses to request recertification on an individual order-by-order basis.” Size Appeal of EBA Ernest Bland Assocs. PC, SBA No. SIZ-6139 (2022), 2022 WL 529352 at *5.
The GAO acknowledged that there are exceptions to this general rule. One of the exceptions applies to subsequent set-aside competitions under unrestricted multiple-award contracts. In such contexts, “a concern must recertify its size status and qualify as a small business at the time it submits its initial offer, which includes price, for the particular order or Blanket Purchase Agreement.” 13 C.F.R. § 121.404(a)(1)(i)(A) (for unrestricted multiple-award contracts assigned a single NAICS code); see also 13 C.F.R. § 121.404(a)(1)(ii)(A) (same for unrestricted multiple-award contracts assigned multiple NAICS codes). By the terms of the regulations themselves, however, this exception to the general rule does not apply to “orders and Blanket Purchase Agreements issued under any Federal Supply Schedule contract.” 13 C.F.R. § 121.404(a)(1)(i)(A); see also 13 C.F.R. § 121.404(a)(1)(ii)(A). Thus, there is no standalone requirement for vendors to recertify in connection with offers for orders or BPAs under an FSS contract. The GAO noted that SBA’s OHA has expressly held the same thing. Size Appeal of Oxford Gov. Consulting LLC, SBA No. SIZ-5732 (2016), 2016 WL 4990545 at *2 (“[R]ecertification is not required under a BPA issued against an FSS.”); see also Size Appeal of EBA Ernest Bland Assocs. PC, SBA SIZ No. 6139 (2022), 2022 WL 529352 at *6 (finding that, absent a specific order-level recertification requested by the contracting officer, there was no requirement to recertify at the FSS-order level).
The GAO briefly noted that, for contracts already awarded, 13 C.F.R. § 121.404(g)(2)(i) (like FAR 52.219-28(b)) requires a contractor to recertify as small or notify the agency of a change in status under an awarded contract within 30 days after a merger, sale, or acquisition, where contract novation is not required. If the contractor is no longer small, the agency may continue to exercise options and issue new orders under the contract but can no longer count them towards its small business goals. This post-award recertification/notification requirement does not apply to pending offers.
The GAO finally turned to 13 C.F.R. § 121.404(g)(2)(iii), which articulates the 180-day rule for pending offers. This rule is a creature of regulation and does not come from any specific statutory requirement. If a transaction occurs more than 180 days after the offer submission, and that causes a concern to exceed the size status, then, similar to 13 C.F.R. § 121.404(g)(2)(i), the concern remains eligible for the set-aside award, but the agency may not count the award towards its small business goals. If, however, the transaction occurs within 180 days after offer submission, then the concern will be ineligible to receive the award. The GAO agreed with the protester that 13 C.F.R. § 121.404(g)(2)(iii) is inapplicable to pending offerors for FSS orders or BPAs. The GAO observed that set-aside orders and BPAs issued against the FSS are expressly exempt from recertification requirements. 13 C.F.R. §§ 121.404(a)(1)(ii)(A), 121.404(a)(2). It also noted that SBA’s OHA has previously held that a transaction requiring an FSS contract-level recertification under 13 C.F.R. § 121.404(g)(2)(i) does not trigger a similar recertification obligation with respect to pending quotations for orders or BPAs under that FSS contract. Size Appeal of EBA Ernest Bland Assocs. PC, SBA SIZ No. 6139 (2022), 2022 WL 529352 at *4. Thus, consistent with this OHA holding, the GAO found the transaction had no effect on the protester’s eligibility for award of the BPA here.
The GAO acknowledged, in a footnote, that the SBA raised policy reasons to support its position that the recertification regulations apply to all orders and agreements, including those under the FSS. But policy considerations cannot override the text of the regulations, which the GAO found expressly exempted FSS orders and agreements.
The GAO, in another footnote, highlighted the “incongruous” results that would flow from OPM’s and SBA’s interpretation. Under the agencies’ interpretation, if the protester had been acquired before offer submission, then 13 C.F.R. § 121.404(a)(1)(ii)(A) would govern the subsequent BPA competition, under which the protester would not be required to recertify in connection with the offer and would be eligible for award. The GAO reasoned that, because there was no apparent reason for such an absurd result, the agencies’ preferred interpretation did not appear reasonable.
The GAO noted its decision was “limited to the unique factual circumstances presented in this case,” but that was enough to find the protester was eligible for award and thus was an interested party with standing to protest. Unless the SBA amends its regulations, though, this decision will be instructive for FSS contractors in the not so “unique factual circumstances” of undergoing transactions while they have FSS order or BPA bids pending.
Takeaways
- Small business regulations are complicated, as a general rule. And, as the GAO observed in Odyssey Systems, the regulations governing transactions in particular are “not a model of clarity.” Companies with small business contracts and proposals (and those interested in acquiring them) should seek legal counsel prior to any merger or acquisition.
- Don’t assume the rules applicable to contracts are also applicable to orders and BPAs, or that the rules governing FSS orders and BPAs are the same as those governing non-FSS orders and agreements.
- Careful parsing of the regulatory text is always necessary. What the small business regulations require and what the SBA intended them to require are not necessarily the same thing. Although the GAO will give due deference to SBA’s views, this and similar protest decisions show the GAO will not endorse an SBA interpretation that it finds is inconsistent with the text of a regulation.