O’Riordan Bethel Wins Key Ruling on Veteran-Owned Business Set-Asides

Here is an interesting and important bid protest case that a team from O’Riordan Bethel won earlier this year in the Small Business Administration’s Office of Hearings and Appeals.

The holding of the case was that a mentor-protégé joint venture formed under Section 8(a) does not qualify for a set-aside as a service-disabled veteran-owned small business (SDVOSB) unless both the mentor and the protégé firms are small businesses.

A joint venture called EKCG, LLC, was selected for an information security services contract by the U.S. Department of Justice. EKCG was a mentor-protégé joint venture between Espire Services, LLC, and Knowledge Consulting Group, Inc. (KCG). Espire, the protégé, was a small business, but KCG, the mentor, was not. Our client, AlphaSix Corporation, lost out in the bidding but filed a status protest against the award. The SBA’s Director of Government Contracting agreed with AlphaSix that EKCG was not eligible for the set-aside and should not have received the award.

EKCG took the position that since Espire and KCG were parties to an SBA-approved 8(a) mentor-protégé relationship, such mentor-protégé joint ventures are eligible to bid as a small business on any federal procurement, provided that the protégé is a small business. The size of the mentor, EKCG said, was irrelevant.

On appeal by the joint venture from the decision of the Director, an Administrative Judge in the Office of Hearings and Appeals agreed with our client’s position and said the contract should not have been awarded as it was.

In the Administrative Judge’s April 6, 2016, ruling, he noted that EKCG had advanced the argument that two sections of the relevant procurement rules state that a mentor and protégé “may joint venture as a small business for any Federal government prime contract or subcontract.” But the judge also noted that “a close reading of the rules demonstrates that the regulations grant mentor-protégé joint ventures an exception to affiliation for size purposes, but do not indicate that a mentor and protégé also are exempt from other program-specific requirements.” These other program-specific requirements include the requirement that both be small businesses.

In other words, mentor-protégé joint ventures are exempt from the usual set-aside rules only for the purpose of the affiliation test – but not for the purpose of determining the size of the companies themselves and making sure that each one is a small business.

The ruling emphasizes how seriously the SBA will take the congressional desire to grant preferences to small businesses, including SDVOSBs.

The winning team for AlphaSix included Carol L. O’Riordan and Anthony J. Marchese of O’Riordan Bethel as well as Kenneth A. Martin of the Martin Law Firm in McLean, Va.

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