Failing to Promptly Respond to a Size Protest: The Easiest Way to Lose a Contract Award

\Recently, the United States Small Business Administration Office of Hearing and Appeals (“SBA-OHA”) provided a reminder of the risk that a contract awardee takes by not promptly responding to a size protest.  The awardee in Size Appeal of OxyHeal Medical Systems, Inc, SBA No. SIZ-5707 (2016) learned the hard way when, after it failed to timely respond to protest concerning its size, SBA applied the adverse inference rule to find the awardee other-than-small and, as a result, ineligible for its contract award.

In this case, the the Air Force awarded a small business set aside contract to OxyHealth Medical Services (OHMS) for hyperbaric chamber maintenance support services.  Rohmann Services, Inc. (RSI), an unsuccessful offeror for that contract, filed a size protest arguing that OHMS was not a small business due to its alleged affiliation with another company.

As required by the applicable regulations, the SBA Area Office notified OHMS about the size protest, and requested OHMS respond to RSI’s allegation, return a completed SBA Form 355, and provide other specific documentation relevant to the Area Office’s size investigation.  The Area Office gave OHMS six days to respond.  When the Area Office did not receive a response by the deadline, it emailed a final warning to OHMS: “Your response was due at this office COB yesterday. If I don’t receive your response by 3 p.m. today, I will assume your firm is not responding to the protest. . . .”  Then, citing SBA’s ‘adverse inference’ rule (13 C.F.R. § 121.1008(d)), the Area Office warned OHMS that due to its failure to submit requested information regarding its size within the time allowed by SBA, the Area Office could “presume that missing information would demonstrate that [OHMS] is other than a small business.”  All of the Area Office’s communications were directed to OHMS’s Director of Finance.  Unbeknownst to the Area Office, OHMS’s Director of Finance was “frantically busy” and “only skimming emails” at the time, as she was also managing OHMS’s accounting and HR departments due to recent vacancies in those positions.

OHMS did not respond to SBA’s final warning, and nine days later the Area Office issued its size determination that OHMS was an other-than-small business and therefore ineligible for the contract award.  The basis for the Area Office’s decision was the adverse inference rule – it presumed the missing information would have demonstrated that OHMS was other-than-small business.

After receiving the size determination, OHMS finally spoke up, and filed a size appeal with SBA-OHA.  OHMS argued that the underlying size determination should be vacated because the initial size protest was untimely and not specific.  While it’s possible that OHMS untimeliness argument may have had some merit, SBA-OHA refused to consider these arguments.  OHMS had never raised these argument in response to the size protest (since it had not responded at all to the size protest), and therefore, SBA-OHA, following its rule that it will not decide issues raised for the first time on appeal, refused to consider OHMS’s arguments regarding the size protest being untimely and not specific.

OHMS also argued that the Area Office erred in applying the adverse inference rule.  Using its three-part test for whether the adverse inference rule was correctly applied, SBA-OHA rejected OHMS’s argument, finding that the requested information was (1) relevant, (2) logically related to an issue in the size determination, and (3) the request for information was specific.

Nevertheless, OHMS argued that the Area Office erred in applying the adverse inference rule because “when the Area Office received no response to the communications directed at [OHMS’s Director of Finance]” the Area Office “had an obligation to to contact [OHMS’s] other officers.”  Not surprisingly, SBA-OHA completely rejected this argument, pointing out that “the Area Office cannot be on notice of [OHMS’s] staffing difficulties, or the fact that [OHMS’s Director of Finance] was overwhelmed with work.”

Small business contractors should take this case as a reminder that you need to promptly monitor and respond to any communications from SBA, especially if it relates to a size protest.  As SBA-OHA made clear in this case, it is not the Area Office’s obligation to make sure that the contractor is actually reading their emails:

Appellant’s argument that the Area Office should have done more is also wrong as a policy matter. It is worth emphasizing that the Area Office properly addressed its communications to Appellant, and Appellant received them. To hold that the Area Office erred here would be to require area offices to go on extended rounds of contacting official after official at challenged concerns when they do not receive a response to their communications. This is neither required by due process nor practical. The real error here was Appellant’s, in failing to properly monitor its communications.

Contractor’s should also take this as a reminder that failing to meet deadlines in bid or size protest litigation has major consequences.  Not unlike GAO’s treatment of its bid protest deadlines, SBA is unforgiving if a contractor misses a deadline related to a size protest. As a size protestor, if you miss a deadline your protest is likely going to be dismissed.  As a protested concern, if you miss a deadline the Area Office may apply the adverse inference rule and find you other-than-small, which will likely result in you losing your contract award (and you will be ineligible to self-certify as small at the same size standard or a lower standard without first obtaining recertification from the SBA).  While the three working days deadline for the protested concern to respond to a size protest is especially short (13 C.F.R. § 121.1008(c)), this is not a legitimate excuse for failing to provide a complete response, as SBA will almost always grant an extension to this deadline if promptly requested.