SBA Rulings Outline Intricacies of Small Business Set-Aside Rules

The Small Business Administration’s Office of Hearings and Appeals (OHA) recently issued two decisions that touch upon the “ins and outs” of two small business set-aside rules:

A Small Business Set-Aside Can Have Only One NAICS Code: In Technica Corporation, a contractor appealed the agency’s assignment of NAICS code 541512 (Computer Systems Design Service) to a procurement by arguing that NAICS code 517110 (Wired Telecommunications Carriers) encompassed the wide range of services the solicitation required.  Rather than defend its initial NAICS selection, the agency simply added NAICS code 517110 to the procurement so that two NAICS codes then applied to the solicitation.  The agency’s position was that the services required under the contract were “equally distributed” between the two codes, and neither code represented the majority of the required work.  The SBA OHA rejected the use of two codes: although the “SBA regulations do not require the CO to designate the perfect NAICS code . . [i]t is, however, crucial that a prospective offeror know which size standard is applicable to the procurement in order to determine whether it may represent itself as a small business.”  Also, assigning two NAICS codes with different size standards to the same work “effectively renders the code with the smaller size standard meaningless.”  Ultimately OHA decided that the agency’s original NAICS code – and only that code – best fit the procurement.  NAICS Appeal of: Technica Corporation, SBA No. NAICS-5248, June 20 2011.

Amounts Paid In Taxes Count Towards A Contractors’ Size Status:  In a novel argument, a contractor argued that revenues it paid in taxes should be excluded from its total revenue for the purpose of determining its size status.  Although taxes are typically included in a contractor’s revenues, the contractor argued that a narrow exception to the size standards that excludes certain tax payments made on behalf of other entities applied in its case.  The OHA concluded that the Mississippi state tax was imposed directly to the contractor and was not one “collected for and remitted to a taxing authority.”  The OHA denied the appeal.  Size Appeal of: Malouf Constr., LLC, SBA No. SIZ-5250, June 16, 2011.

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