Small Business Was Acquired by a Large Business Right Before Proposal Submission. Why Was the Acquired Company Still Considered Small?

A small business was acquired by a large business before it was awarded a small business set aside. The SBA found the acquired business was no longer small. OHA reversed the size determination, finding the SBA had misapplied a regulation governing the duty to recertify size after a corporate transaction. 

Size Appeal of Foward Slope, Inc., SBA No. SIZ-6258 

• Solicitation and Acquisition – The Navy issued a solicitation for a task order under a multiple-award contract. The solicitation was set aside for small businesses. The appellant held the underlying contract. Shortly before the proposal deadline, the appellant was acquired by a large business. The Navy awarded the task order to the appellant.
• Size Determination – The SBA initiated an investigation and determined the appellant was no longer small. The SBA noted that under SBA regulations when a small business merges or is acquired, it must recertify its small business status or inform the procuring agency that it’s no longer small. Here, the SBA reasoned, the appellant had been acquired before the proposal deadline. Under the regulation, it was required to recertify as no longer small before the proposal deadline. Thus, the appellant no longer qualified as a small business for the procurement. 
• OHA Reverses – OHA found the SBA Area Office misapplied the merger/acquisition regulation. The consequence of a corporate transaction involving a small business is not that it becomes ineligible for award; rather, the procuring agency cannot claim the contract towards its small business goals. Absent a request for recertification from the contracting officer, a business that is small when it bids on a multiple-award contract, remains small for any order issued under the contract. Here, the contracting officer never requested recertification. Moreover, the merger regulation’s requirement to recertify is different from a contracting officer’s request to recertify. 

The appellant is represented by Devon E. Hewitt of Devon Law Group. 

–Case summary by Craig LaChance, Senior Editor