SBA Authority to Hear Size Status and NAICS Code Protests

At the time of issuance of a federal contract solicitation, the contracting officer (CO) must designate the single North American Industry Classification System (NAICS) code that best describes the principal purpose of the solicitation and specify the corresponding size standard. The Small Business Administration (SBA) establishes the size standard for various NAICS codes. To participate in small business set-aside procurements, contractors must qualify under the relevant size standard based on maximum annual receipts or employee count. The Small Business Act gives the SBA conclusive authority to resolve protests and other matters related to the small-business size status of contractors for federal procurements. Similarly, the SBA Office of Hearings and Appeals (OHA) has the exclusive authority to resolve NAICS code appeals. Accordingly, the Government Accountability Office (GAO), in its bid protest function, does not review protests challenging a contractor’s size status, SBA decisions on whether a contractor is a small business, or whether the procuring agency selected the appropriate NAICS code for a particular procurement.  

In B-405417.2, the GAO declined to review a post-award challenge based on the awardee’s size status, along with the SBA’s determination regarding the same. The Army issued a small business set-aside invitation for bid (IFB) for solid waste services at Fort Lee, Virginia. The IFB contemplated an award to the lowest-priced, responsible, and responsive bidder. The awardee had the low bid of roughly $4.5 million, while the incumbent-protester had the second-lowest bid of roughly $4.6 million. The protester filed a size protest with the SBA, which was denied. Next, the incumbent contractor appealed the denial of the size protest to the SBA OHA, which remanded the matter for a new size determination. On remand, almost a year and a half later, the SBA again determined that the awardee qualified as a small business for the subject procurement. The protester again appealed to the OHA, but this time its appeal was denied, and the contract was awarded.  

Following the award, the protester filed a protest at the GAO and, amongst other arguments, challenged the award on the basis that the awardee no longer qualified as a small business due to a corporate ownership restructuring. Specifically, approximately three weeks after receiving the award, the awardee and another waste-disposal entity acquired ownership interests in a holding company. The awardee’s revenue, when combined with that of the holding company, was likely to exceed the contract’s $35.5 million SBA-established size standard. Accordingly, the awardee notified the Army CO that it no longer qualified as a small business. The protester argued for the termination of the awardee’s contract because the awardee had allegedly planned the corporate restructuring before the award was made. However, the GAO declined to review the protester’s challenge of the awardee’s size status, while noting that it was the SBA, not the GAO, that possessed the conclusive authority to determine matters of small business size status.  

The GAO also rejected the protester’s argument that the awardee’s failure to disclose its corporate restructuring plan to the agency constituted a material representation. In this regard, the GAO pointed to the SBA’s comments on the protest. In its comments, the SBA explained that the relevant time for determining the size status of an entity, including its affiliates, is as of the date it submits a written self-certification when submitting its initial offer. Here, due to the delays caused by the incumbent-protester’s size protests and appeals, the contract was awarded almost two years after the awardee submitted its bid. The GAO noted that the record did not indicate, nor did the protester allege, that the awardee had misrepresented its size status to the Army at the time of submitting its bid. Additionally, the awardee’s corporate restructuring did not occur until after the award, and years after its small-business self-certification. Thus, the GAO remained unpersuaded by the protester’s arguments concerning an alleged material misrepresentation.   

The SBA also has the exclusive authority to review challenges to a procuring agency’s selection of a NAICS code for a particular procurement. Any NAICS appeals must be filed with the SBA OHA within ten (10) days of the issuance of the solicitation or an amendment that impacts the NAICS code. In B-407028, the GAO declined to hear a challenge to the Air Force’s selection of a NAICS code for a request for proposals (RFP) contemplating the acquisition of systems and modular furniture. Under the first tier of the two-tiered acquisition, the Air Force planned to award four contracts to furniture manufacturers. Meanwhile, the second tier was set aside for small business dealers of the manufacturers identified in the first tier. Among other arguments, the protester challenged the identified NAICS code for the two-tiered acquisition, arguing that it allegedly precluded dealers from being considered small businesses. However, the GAO declined to entertain the argument, noting that the SBA had the exclusive authority to review the procuring agency’s choice of NAICS code.  

To qualify as small for small-business set-aside procurements, contractors must meet the relevant SBA size standard based on their annual revenue or employee count. The procuring agency CO designates the NAICS code best suited to the principal purpose of the procurement. Under the Small Business Act, the SBA has the conclusive authority over matters related to contractors’ small-business size status. Furthermore, the SBA OHA has the exclusive authority to resolve NAICS appeals challenging the NAICS code assigned by the procuring agency. Contractors are required to file their NAICS appeals with the SBA OHA within ten days of the issuance of the solicitation. Alternatively, if the appeal concerns an amendment affecting the NAICS code, contractors must file their NAICS appeal within ten days of the amendment’s issuance. As demonstrated by the protests above, given the SBA’s authority to review size-status protests and NAICS appeals, the GAO does not resolve these matters under its bid protest function.

This Federal Procurement Insight is provided as a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.