Appeal of SBA Area Office size determination is denied. The protester alleged that the awardee of a small business set aside was affiliated with a large business under the ostensible subcontractor rule, the newly-organized concern rule, and the totality of the circumstances. OHA found no affiliation under the ostensible subcontractor rule because the alleged affiliate was not a proposed subcontractor. Also, there was no affiliation under the newly-organized concern rule because the founder the of the awardee had not been a key employee of the alleged affiliate. Finally, there was not enough indicia of affiliation for OHA to infer affiliation from the totality of the circumstances.
The National Highway Traffic Safety Administration issued an RFP seeking a contractor to review medical records and code injuries and injury causation from car crashes. The RFP was set aside for small businesses.
The agency announced that American Automotive Safety Research, LLC (AASR) was the apparent awardee. An unsuccessful offeror, Crash Research & Analysis, filed a size protest. Crash alleged that AASR was affiliated with a large business, Calspan Corporation, under the newly-organized concern rule. Crash contended that the founder of AASR was a former key employee of Calspan, and that AASR was effectively a spin-off of Calspan. AASR also asserted that AASR was unusually reliant on Calspan in violation of the ostensible subcontractor rule. Crash further alleged that AASR was affiliated by common-ownership and under the totality of the circumstances.
The SBA Area Office, however, concluded that AASR was a small business. The Area Office found that AASR and Calspan did not share common ownership; in fact, Calspan held no ownership interest AASR. The Area Office found no affiliation under the newly-established concern rule. Under that rule, the Area Office will only find affiliation if certain elements are met, including that the founder of the newly-organized company was a key employee of the alleged affiliate. In this case, however, AASR’s founder had never been a key employee of Calspan. The Area Office also found that the ostensible subcontractor rule had not been violated because Calspan was not proposed as a subcontractor. Finally, the Area Office rejected Crash’s totality of the circumstances contention, finding no meaningful indicia of affiliation between AASR and Calspan.
Crash appealed the size determination to the SBA’s Office of Hearing and Appeals. Crash dropped it common-ownership theory on appeal, but still asserted that AASR and Calspan were affiliated under the ostensible subcontractor rule, the newly-established concern rule, and the totality of the circumstances.
But OHA rejected all of the Crash’s argument. First, OHA reasoned that the ostensible subcontractor rule can only be violated when the alleged affiliate is, in fact, a proposed subcontractor. Here, AASR had not proposed Calspan as a subcontractor.
Second, the newly-organized concern rule has a four factor test to analyze affiliation. The first factor requires that a former key employee of the affiliate organize the new concern. In this case, the person that organized AASR was a former employee of Calspan but not a former “key employee.” A key employee is one who has critical influence or substantive control over the operations of a concern. Here, the AASR founder had only been on the fifth tier of authority when she worked at Calspan. There had been 85 managers above her. She lacked authority to hire and fire, to make financial commitments, or to participate in strategic decisions for Calspan. She was not a key employee of Calspan, so her new company was not affiliate with Calspan.
Finally, OHA found no affiliation under the totality of the circumstances test. There was no meaningful evidence—e.g., financial reliance, ownership—for OHA to infer affiliation from the circumstances.
Crash Research is represented by Adam K. Lasky and Bret C. Marfut of Seyfarth Shaw LLP. AASR is represented by Keith R. Szeliga of Sheppard Mullin, Richter & Hampton LLP.
