Ostensible subcontractorsOstensible subcontractors Background InformationBackground Information

JSC issued an RFP for Calibration & Metrology JSC issued an RFP for Calibration & Metrology Services which was a small business set aside Services which was a small business set aside

Proposals were due on May 24, 2004 and four Proposals were due on May 24, 2004 and four proposals were received from companies that proposals were received from companies that certified they were SB firms for the NAICS code of certified they were SB firms for the NAICS code of 541380 applicable to this procurement541380 applicable to this procurement

Award was made on November 30, 2004 to Award was made on November 30, 2004 to Anardarko, a small business affiliated with the Anardarko, a small business affiliated with the Wichita IndiansWichita Indians

A small business size challenge was received from A small business size challenge was received from Rohman Services Inc.Rohman Services Inc.

On January 10, 2005, SBA determined Anadarko to On January 10, 2005, SBA determined Anadarko to be a large business based on the existence of an be a large business based on the existence of an ostensible subcontractor, Wyle Inc.ostensible subcontractor, Wyle Inc.

Ostensible subcontractorsOstensible subcontractors

What is an ostensible subcontractor ?What is an ostensible subcontractor ? A sub that performs primary and vital requirements of the contract orA sub that performs primary and vital requirements of the contract or A sub that the prime is unusually reliant uponA sub that the prime is unusually reliant upon

How do it is determined that such an arrangement exists?How do it is determined that such an arrangement exists? The SBA uses a “Seven Factor” test to determine the size status of the The SBA uses a “Seven Factor” test to determine the size status of the

prime/sub relationshipprime/sub relationship If it is determined such an arrangement exists, then what?If it is determined such an arrangement exists, then what?

If an ostensible sub arrangement does exist, the CO must consider the If an ostensible sub arrangement does exist, the CO must consider the revenue of both firms in determining if they meet the size standard for revenue of both firms in determining if they meet the size standard for the procurementthe procurement

For instance, our procurement had the NAICS code of 541380 with a For instance, our procurement had the NAICS code of 541380 with a standard of $10M. The combined revenue of Anardarko and Wyle standard of $10M. The combined revenue of Anardarko and Wyle exceeded the $10M standard.exceeded the $10M standard.

If the combined revenue exceeds the standard, then the company If the combined revenue exceeds the standard, then the company would be considered large business for the purpose of the current would be considered large business for the purpose of the current procurement.procurement.

Ostensible subcontractors –the Ostensible subcontractors –the TestTest

The “ Seven Factor” testThe “ Seven Factor” test The seven factor test is includes the following The seven factor test is includes the following

items:items: Which party will be managing the contract?Which party will be managing the contract? Which party possesses the requisite background and Which party possesses the requisite background and

expertise to carry out the contract?expertise to carry out the contract? What party pursued the contract award?What party pursued the contract award? What degree of collaboration was there on the proposal What degree of collaboration was there on the proposal

effort?effort? Were the tasks allocated to be performed by each party or Were the tasks allocated to be performed by each party or

is there commingling of personnel and material?is there commingling of personnel and material? What is the amount of work to be performed by each What is the amount of work to be performed by each

party?party? Which party will perform the more complex and costly Which party will perform the more complex and costly

contract functions?contract functions?

Ostensible Subcontractors-Ostensible Subcontractors-concernsconcerns

In answering the seven questions, consider these items:In answering the seven questions, consider these items:

Review a breakdown of management and technical tasks with regard Review a breakdown of management and technical tasks with regard to which firm is performing the “primary and vital” portions of the to which firm is performing the “primary and vital” portions of the work. The prime contractor must be doing the majority of the work. The prime contractor must be doing the majority of the managerial and technical work. managerial and technical work.

The work force ratio should look at both the number of employees as well as The work force ratio should look at both the number of employees as well as the wages of those employees, which is in contrast to previous practice of the wages of those employees, which is in contrast to previous practice of just doing a 49%/51% of the employee head count analysis. just doing a 49%/51% of the employee head count analysis.

The overall percentage of work subcontracted out The overall percentage of work subcontracted out Status of the subcontractor Status of the subcontractor

Are they the incumbent? Are they the incumbent? Have they grown in size such that they are now ineligible for award of this Have they grown in size such that they are now ineligible for award of this

contract?)contract?) The past performance of each vendor. The prime must have relevant The past performance of each vendor. The prime must have relevant

experience in the area under consideration. experience in the area under consideration. The allocation of key persons between the prime and subcontractor. The allocation of key persons between the prime and subcontractor.

Be alert to instances where key persons remain on staff with the Be alert to instances where key persons remain on staff with the subcontractor, especially if that company is the incumbent.subcontractor, especially if that company is the incumbent.

Which party pursued the award and degree of collaboration on the Which party pursued the award and degree of collaboration on the proposal proposal

Ostensible subcontractors-Ostensible subcontractors-concernsconcerns

Items of concern :Items of concern : Whether the challenged concern identified the firms as a teamWhether the challenged concern identified the firms as a team Whether the challenged concern is hiring now-large Whether the challenged concern is hiring now-large

incumbent’s project management team and subcontracting incumbent’s project management team and subcontracting significant portions of the contract to the incumbentsignificant portions of the contract to the incumbent

Whether the challenged concern failed to identify discrete Whether the challenged concern failed to identify discrete tasks each concern would performtasks each concern would perform

Whether the challenged concern lacks, and subcontractor Whether the challenged concern lacks, and subcontractor possesses the qualifications relevant to the contract possesses the qualifications relevant to the contract requirementsrequirements

Whether a greater share of labor costs are borne by the Whether a greater share of labor costs are borne by the ostensible subcontractorostensible subcontractor

Whether the challenged concern has inexperience in the Whether the challenged concern has inexperience in the primary and vital requirements of the solicitationprimary and vital requirements of the solicitation

Whether the challenged firm plans to hire a substantial Whether the challenged firm plans to hire a substantial number of the incumbent’s (and ostensible subcontractor’s) number of the incumbent’s (and ostensible subcontractor’s) employees.employees.

These items can be “red flags” that an ostensible These items can be “red flags” that an ostensible subcontractor arrangement existssubcontractor arrangement exists

Ostensible subcontractorsOstensible subcontractors After doing the seven factor analysis:After doing the seven factor analysis:

In looking at the “totality of circumstances”, if it can be In looking at the “totality of circumstances”, if it can be determined that the subcontractor is performing a determined that the subcontractor is performing a significant portion of the work or if it can be determined significant portion of the work or if it can be determined that the prime contractor is not capable of doing the that the prime contractor is not capable of doing the work independently, then an ostensible subcontractor work independently, then an ostensible subcontractor arrangement exists.arrangement exists.

If the CO considers the prime to be LB, she must If the CO considers the prime to be LB, she must refer the matter to the SBA for a formal size refer the matter to the SBA for a formal size determinationdetermination