Size Matters:  the Ostensible Subcontractor Rule

Size Matters: the Ostensible Subcontractor Rule

Size Matters

Size Matters

First, what in the world does “Ostensible” mean?

According to dictionary.com, is an adjective and has two meanings:

  1. Outwardly appearing as such; professed; pretended: an ostensible cheerfulness concealing sadness.
  2. Apparent, evident, or conspicuous: the ostensible truth of their theories.

Does anyone else find this humorous?  Really?  Cheerfulness concealing sadness?  The Ostensible Subcontractor Rule is anything but cheerful.

An “Ostensible Subcontractor” is one that “performs primary and vital requirements of a contract,” or is a subcontractor that the prime contractor is “unusually reliant” upon.  The Small Business Administration (SBA) regulations affiliate a prime contractor with all of its ostensible subcontractors for size determination purposes.

Affiliation is not a word anyone wants to hear in the government contracting arena.  Especially after an award has been made.

Affiliation can disqualify companies for set-asides due to a partners combined size.  The location and industries are not relevant.  It is about power and control of the large subcontractor over the prime contractor.  The “Ostensible Subcontractor” rule is often the most common type of affiliation found between a prime contractor and the subcontractors with which it teams.

The purpose of the rule is to prevent other than small firms from forming relationships with small businesses to evade the SBA’s size requirements.

The key for a Small Business to avoid falling victim to the ostensible subcontractor trap is to ensure that its proposal, proposal-related documentation, and teaming agreements do not indicate, on their face, that an ostensible subcontractor relationship exists.

Specifically, small businesses must be careful not to “oversell” the technical expertise, past experience, or work to be performed by their subcontractors in the proposal or proposal-related documentation.

While it may be necessary for a small business to emphasize the positive qualities of a large subcontractor to compete effectively for a contract award, the small business does not want to make it evident that they are solely relying on the large subcontractor to perform.

A small business must ensure that it proposes to perform a significant portion of the contract work or management with its own resources or to spread this work and management out amongst multiple subcontractors to ensure it is not “unusually reliant” on one subcontractor.

According to the article, Ostensible Subcontractor Affiliation: Beware These “Four Key Factors,” Says SBA OHA, the proposal in question had a small business prime contractor that perform 51.1% of the contract services, and the large business would perform the remaining 48.9%.  Of a total workforce of 20 personnel, 10 employees would go to the prime contractor and 10 employees would work for the subcontractor.

A very typical scenario is to split the employees between two contractors to meet the subcontracting percentages.

The four factors from this article that can contribute to this affiliation are:

  1. The proposed subcontractor was the incumbent contractor, and not eligible to compete for the procurement.
  2. The prime contractor planned to hire the vast majority of its workforce from the subcontractor.
  3. The prime contractor’s proposed management previously served with the subcontractor on the incumbent
  4. The prime contractor lacked relevant experience and was obliged to rely on its more experienced subcontractor to manage the contract.

As a small business, you must be very careful to follow all the rules completely.  The small business mentioned in this article tried to fight the size standard ruling and lost.

Why Start a Government Contracting Business?

Why Start a Government Contracting Business?

I have owned DynaGrace Enterprises, a Women-owned Small Business (WOSB) and 8(a) firm for almost a decade.  So why did I start a government contracting business in the first place?  The answer is quite simple.  I was younger and dumber and wanted to see if I could.  I did not know what I should have known when I started.  Maybe this article can give you some insight and help you determine if it was the good idea you thought it was.

There are several types of government contractors, and the one I am most familiar with provides services to the federal government.  The manufacturing part and being able to offer a product to the government might be better for you, but I am not as familiar with that type.

Federal government contracting can be a way to start a small business.  The market is worth over $100 billion in sales to small businesses each year.  Providing services or products to the government is quite different than selling to the commercial sector.

Government contracts can guarantee ongoing revenue for your business. A stable cash flow enables a business to develop marketing budgets, hire staff and grow their business intelligently. The reoccurring monthly business generated from government contracts can also hedge against months that are slow. In fact, many contracts have 3-5 continuous year contract terms.  Keep in mind though it can take 30 to 90 days to get paid.  But once the payments start you are usually fine.

The procurement process for a government contract is extensive.  You can speed up this process by marketing to government customers that have a budget.  That can be like finding a needle in the haystack.  The government goes through cycles for services.  Sometimes they ramp up contractors and some years they ramp up on civilian employees.

You should be prepared for long hours when responding to solicitations.  The last couple I have lost to very low bidders.  I am not sure how they expect to give any benefits to their employees, but the government will get what they bid for, hence the term, “low bidder”.  It is like buying the cheapest vehicle and realizing the plastic cracks in the sun after a month of owning it.  I refuse to win a bid on the backs of my employees so the contract goes to a company that will.  I run a respectable government contracting business.

The good part is I have some fantastic employees, and I have met some wonderful business people who are involved in government contracting.  I started out as a civilian employee way back when and then worked for about four contractors before starting my own small contracting business.  Having a small budget or lack of budget is a huge problem.  The government employees in charge of budgets are usually friendly and appreciate the services we have to offer.

I would never even have thought about having my own business, and this opportunity has given me the experience and the pleasure of being an entrepreneur.  It is an excellent way to get started and the SBA offers some training but expect to learn a lot on your own and with the help of mentors.

Sba Final Rule Concerning Women-Owned Small Business (Wosb) and Edwosb

Sba Final Rule Concerning Women-Owned Small Business (Wosb) and Edwosb

My company is DynaGrace Enterprises (DGE).  We are a certified 8(a) (Small Disadvantaged Business (SDB)) as well as 8(m) (Women-Owned Small Business (WOSB) / Economically Disadvantaged Women-Owned Small Business (EDWOSB)).  We have been in business since 2006 and the 8(a) is a great program but DGE will women owned small businesseventually graduate.

The U.S. Small Business Administration (SBA) issued a final rule authorizing federal agencies to award sole-source contracts to WOSB’s eligible for the WOSB Federal Contract Program. It was published in the Federal Register September 14, 2015, and was effective October 14, 2015.  The rule levels the playing field for WOSB across the federal contracting marketplace.

Here is a link to the rule as it appears in the Federal Register on September 14, 2015. https://www.federalregister.gov/articles/2015/09/14/2015-22927/women-owned-small-business-federal-contract-program

It appears that for now, the current list of applicable North American Industry Classification System (NAICS) codes published by SBA for WOSB and EDWOSB contracting set-asides will remain in force, and will be used to facilitate sole source awards until superseded by new data.  This NAICS code list can be found here:

2012 WOSB-EDWOSB NAICS Codes

DGE has past performance in the following NAICS codes:

237130 EDWOSB Power and Communication Line and Related Structures Construction
238210 EDWOSB Electrical Contractors and Other Wiring Installation Contractors
238990 EDWOSB All Other Specialty Trade Contractors
541330 EDWOSB Engineering Services
541511 EDWOSB Custom Computer Programming Services
541512 EDWOSB Computer Systems Design Services
541519 EDWOSB Other Computer Related Services
541990 EDWOSB All Other Professional, Scientific, and Technical Services
561621 EDWOSB Security Systems Services (except Locksmiths)
561990 WOSB All Other Support Services
811310 EDWOSB Commercial, Industrial Machinery/Equipment (except Automotive  & Electronic) Repair & Maintenance

This new regulation is great news and represents an opportunity for women-owned small businesses.  If you are interested in working with DGE, please contact us.

What is 8(A)?

What is 8(A)?

Named for Section 8(a) of the Small Business Act, this program was created to help small and disadvantaged businesses compete in the marketplace.

It also helps these companies gain access to federal and private procurement markets. The program is designed for socially and economically disadvantaged individuals. You can read more here in the article titled “What is 8(a)?” which is an excellent 8 aarticle describing the 8(a) program.

Why use the 8(a) program?

Contracts can be directly awarded to an 8(a) firm, under $4M for Services and $6.5M for Manufacturing, without much of the normal contracting process overheads:

  • A qualified 8(a) firm is considered to be a lock-tight sole source justification which means Justification & Approval (J&A) is not required for contract award per FAR 6.204, FAR 6.302-5(b)(4), and 15 U.S.C. 637
  • 8(a) contracts are one of the exceptions listed in FAR 5.202(a)(4), which waive the requirement to publish the synopses of contract actions for section 8(a) of the Small Business Act
  • Can continue to use the same 8(a) company for follow-on contracts per FAR 19.805-2(d).
  • 8(a) contracts can be issued much quicker than other processes, even IDIQ type task orders
  • Even over the $4M/$6.5M threshold, SBA may accept sole source if there is not a reasonable expectation that at least two eligible and responsible 8(a) firms will submit offers at a fair market price per FAR 19.805-1(b).

What are the advantages of using DynaGrace Enterprises as an 8(a)?

As a small business, we have low overhead structure and costs. With technical competence and competitive rates, we strive to provide the best service and support to our clients.

Is the contracting process really that easy?

8(a) Procurement Process

8(a) Procurement Process

  1. The government customer has a requirement that could be awarded to an 8(a) firm.  For sole source awards the amount will be under $4M for Services and $6.5M for Manufacturing.
  2. The government customer drafts a Performance Work Statement (PWS) and meets with the Small Business Office (SBO) or contracting agency.
  3. The Purchase Request (PR) is coordinated through the normal approval process, including base/agency small business office and contracting. On block 12, REMARK section of
    the PR, the statement “Recommend sole-source award to 8(a) firm, DynaGrace Consultants, Cage Code 4KM96” is added.
  4. Base/Agency contracting office sends an “offer letter” to the SBA, and SBA sends an “acceptance letter” to base/agency contracting office.
  5. Request For Proposal (RFP) is sent to DynaGrace Enterprises where they present an oral or written offer. The rates and cost are negotiated.
  6. The Base/Agency contracting office negotiates directly with DynaGrace Enterprises for the contractual terms.
  7. The order is issued to the SBA.

How long does the contracting process take?

Typically between 30 and 60 days.

For more information Contact Us.

We have excellent references available upon request.

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