Appeal of an SBA decision finding that business was not a small concern is denied. The appellant argued that the SBA Area Office had erred in calculating its size based on the average of the company’s last three years of annual receipts. The appellant contended that the Small Business Runway Extension Act had changed the size standard used for calculating average annual receipts from three years to five years. The appellant asserted that if the Area Office had used the five year standard mandated by the Runway Extension Act, it would have found appellant to be small. OHA rejected this argument, reasoning that while the Runway Extension Act extended the period used to calculate annual receipts to five years, it did not change the provisions of the Small Business Act that mandate that size standards can only be changed by the SBA Administrator after a notice and comment rulemaking process. The SBA’s rulemaking process concerning the new five year standard was still ongoing. Thus, until a final rule SBA rules was issued adopting the five year standard, the three year standard governed.
The Army awarded a small business set-aside contract to Advanced Technology Systems Company (ATSC). A disappointed bidder filed a size protest, alleging that ATSC’s gross receipts exceeded the size standard set by the applicable NAICS code. The SBA Area Office sustained the protest, finding that ATSC’s average annual receipts for the last three years clearly exceeded the applicable size standard.
ATSC appealed to the SBA’s Office of Hearing and Appeals. ATSC acknowledged that for the last three years, its average annual receipts exceeded the applicable size standard. But in 2018 Congress passed the Small Business Runway Extension Act, which amended to the Small Business Act. The Runway Act changed the period for calculating average annual revenues from three years to five years. If the Area Office had applied the correct five year standard, ATCS argued, the company still qualified as small under the applicable size standard.
But OHA rejected ATSC’s argument and reaffirmed its previous holding in Size Appeal of Cypher Analytics, Inc.,SBA No. SIZ-6022 (2019). The Runway Extension Act did not alter the provisions of the Small Business Act, which specifically state that the SBA Administrator specifies the definition of size, and that the Administrator does so through rulemaking. Simply put, the definitions of size must come the SBA Administrator as part of notice and comment rulemaking. The Runway Extension may have changed the number of year to be used in determining size, but it did not change the SBA’s rulemaking requirement. Here, the SBA had not yet completed the rulemaking process implementing the size standards mandated by the Runway Extension Act. Until that process was done, the three year size standard was still operative.
ASTC contended that Congress had conducted hearings and issued an amendment—the Clarifying the Small Business Runway Extension Act—which unequivocally stated that Runway Extension Act took effect immediately. OHA was unpersuaded, noting, as an initial matter, the the Clarifying Act was not operative; it had been passed by the House but not the Senate. What’s more, the Clarifying Act did not state that SBA’s existing regulations were invalid. In fact, rather than short-circuiting SBA’s regulations, the Clarifying Act recognized those regulations, setting a timetable for amending the regulations to extend the three year period to five years.
ATSC is represented by Keven P. Connelly and Jeffrey M. Lowry of Veddar Price, P.C. The government is represented by Liana Gonzalez of the U.S. Small Business Administration.
