In the age of hyper-competitive small business procurements, it’s important that a bidder place its best foot forward. Sometimes, that might mean subcontracting work to an experienced company.
But small businesses should be cautious to not subcontract out too much of the work, or the most important work, lest they risk ostensible subcontractor affiliation.
As its name implies, ostensible subcontractor affiliation arises in the context of a prime/subcontractor relationship. SBA may find ostensible subcontractor affiliation in either of two scenarios:
First, if the subcontractor performs the contract’s “primary and vital” requirements, or
Second, if the prime contractor is unusually reliant on its subcontractor.
If affiliated under this (or any other) affiliation rule, the prime’s size will be added to that of its ostensible subcontractor, and their combined size must fall below the solicitation’s size standard for the prime contractor to be eligible for the work.
In other words, ostensible subcontractor affiliation might turn an otherwise-small contractor large, causing it to lose out on an award.
In this post, we’ll discuss the requirement that the prime contractor perform the contract’s primary and vital requirements. (In a later post, we’ll discuss unusual reliance on the subcontractor.)
The general requirement is that the prime contractor perform the contract’s primary and vital requirements.
So, how do you know whether a requirement is “primary and vital?” According to SBA’s Office of Hearings and Appeals, this requires making a comprehensive analysis of the entire solicitation. But there are things to look for:
- Start with the Solicitation’s NAICS code. Because the contracting officer is obligated to assign a NAICS code that closely corresponds to the solicitation’s principal purpose, that code will give insight into the primary and vital requirement. But keep in mind that the contracting officer’s say isn’t necessarily final.
- Look at the individual requirements to determine those that account for the bulk of the effort (in terms of manhours or FTEs) or that carry the largest dollar value. And, consider whether there’s a requirement that is a prerequisite to others under the contract.
- Consider also qualitative factors, like whether a task is more complex or important than the others.
As you might guess, determining the primary and vital requirements isn’t always a simple task. But it’s crucial: getting it wrong can mean losing the award.
Take the recent case of High Desert Aviation, LLC, SBA No. 6179 (2022), for example. There, the Bureau of Land Management awarded a contract to High Desert Aviation, for herbicide application over 51,000 acres of federal land. Under its proposal, High Desert would source the herbicides, but it subcontracted the actual spraying of that herbicide to an aerial spraying company.
A competitor protested High Desert’s size eligibility, arguing its arrangement violated the ostensible subcontractor affiliation rule. After the SBA granted this protest (finding High Desert ineligible for award due to affiliation), High Desert appealed to OHA.
OHA affirmed, saying that High Desert’s subcontractor would perform the primary and vital requirements. In this regard, OHA rejected the argument that acquiring the herbicides was the primary and vital requirements, citing solicitation language confirming that the contract’s purpose was to “secure services for herbicide spraying[.]”
Neither did OHA credit High Desert’s argument that its subcontractor was actually a vendor, thus making ostensible subcontractor affiliation inapplicable. To OHA, under the circumstances, the distinction was without a difference: because that company would perform the primary and vital requirements, it was an ostensible subcontractor.
High Desert was found ineligible, and lost the award.
Given the consequences of ostensible subcontractor affiliation, it’s crucial that small businesses keep it in mind when bidding on opportunities. As a best practice, small businesses should perform the primary and vital requirements—and avoid drafting teaming agreements, proposals, and subcontracts in a manner that makes it seem like a subcontractor will do that work.
If you have questions about small business teaming or affiliation, please give us a call.