An 8(a) small business was found to be affiliated with its large subcontractor under the ostensible subcontractor rule based in part on the fact that the large subcontractor was providing mentoring services to the small business–even though the SBA had rejected a proposed mentor-protege agreement between the companies.
The recent decision of the SBA Office of Hearings and Appeals in Size Appeal of Brown & Pipkins LLC, SBA No. SIZ-5621 (2014) is a warning to 8(a) firms about the potential dangers of accepting mentoring services outside the confines of a SBA-approved mentor-protege agreement.
OHA’s decision in the Brown & Pipkins case involved a NIH procurement for janitorial services at the National Institute of Environmental Health Sciences. The solicitation was set-aside for 8(a) participants under NAICS code 561720 (Janitorial Services).
Brown & Pipkins LLC submitted a proposal. Brown & Pipkins was an active 8(a) participant. As a stand-alone concern, Brown & Pipkins qualified as a small business under NAICS code 561720.
Before Brown & Pipkins submitted its proposal, it asked the SBA to approve an 8(a) mentor-protege agreement between itself and Able Services, a large business. Brown & Pipkins and Able apparently intended to pursue the contract as a mentor-protege joint venture, taking advantage of the 8(a) Program’s special affiliation exception for such joint ventures. Unfortunately for the prospective joint venturers, however, the SBA rejected the mentor-protege application (OHA’s decision does not specify the reasons for the rejection).
Because Brown & Pipkins and Able were unable to take advantage of the mentor-protege exception from affiliation, they submitted their proposal as a prime/subcontractor team. However, the proposal was still replete with references to Able serving as Brown & Pipkins’ mentor. For example, although Brown & Pipkins was to fill all of the key contractual positions, the proposal stated that Able would provide an advisor and mentor for each position. The proposal also indicated that Able would be heavily involved in other aspects of the contract, including by providing all of the custodial staff, performing recruitment, training, and employee documentation, leading the transition, providing quality control software, and so on.
After reviewing competitive proposals, NIH announced that Brown & Pipkins was the awardee. An unsuccessful competitor subsequently filed a SBA size protest challenging Brown & Pipkins’ eligibility.
The SBA Area Office found that Brown & Pipkins was affiliated with Able under the ostensible subcontractor affiliation rule. Among other things, the SBA Area Office noted that Able would provide an advisor and mentor for each key position, suggesting that Able was deeply involved in contractual management. The SBA Area Office issued a size determination finding Brown & Pipkins to be ineligible for award.
Brown & Pipkins filed a size appeal with OHA. Brown & Pipkins argued, in part, that while it intended to have Able provide ongoing training and mentoring during contract performance, this arrangement did not establish unusual reliance on Able.
OHA disagreed. OHA held that the SBA Area Office had not erred in finding Brown & Pipkins to be affiliated with Able under the ostensible subcontractor rule. OHA held that the unapproved mentoring relationship was evidence of unusual reliance:
It seems clear that Appellant and Able originally intended to compete for this contract as mentor and protégé, and thus take advantage of the exclusion from affiliation afforded by 13 C.F.R. § 121.103(h)(3)(iii). The proposal is replete with references to Able as a “mentor.” Most tellingly, Appellant’s key employees charged with executing the contract each have an Able “mentor” assigned to them. However, there is no approved mentor/protégé relationship here and Appellant and Able are presenting themselves as contractor and subcontractor. A contractor should not require “mentors” for its key employees to perform their tasks. The fact that these mentors are assigned indicates that Able is deeply involved in the management of this contract, and indeed that Appellant requires Able’s assistance to manage the contract. This supports the Area Office’s finding of unusual reliance.
OHA denied Brown & Pipkins’ size appeal.
A SBA-approved 8(a) mentor-protege relationship can bring tremendous benefits for both parties–including broad exceptions from affiliation. But as the Brown & Pipkins case demonstrates, only approved mentor-protege teams may take advantage of those special benefits. As was the case here, mentoring provided outside the context of an approved mentor-protege agreement may do more harm than good.
Author: Steven Koprince – Steven is a partner with Petefish, Immel, Heeb & Hird, LLP in Lawrence, KS, with a practice focusing on federal government contracts and small business law.
This article originally appeared on Steven’s Blog, SmallGovCon, and is reprinted with their permission.