On February 19, the Office of Hearings and Appeals (OHA) denied an appeal from an unsuccessful bidder who argued the awardee was large due to an acquisition that occurred while the award was pending. OHA found that Small Business Administration (SBA) regulations prohibit awards to concerns where a merger or acquisition occurs, resulting in the new business becoming “large,” within 180 days of the initial offer rather than a final proposal revision. This understanding follows the general rule that SBA determines a concern’s size as of the date of the initial offer. We explore the decision and its implications below.

Background of the SBA’s OHA Decision

In August 2023, the Department of the Navy issued a solicitation for Systems Engineering Contractor Support Services, designated as a small business set-aside. Sabre submitted its initial proposal on October 2, and after a series of revisions, was awarded the contract on November 5, 2024. However, in September 2024, Sabre was acquired by private equity firm CM Equity Partners (CMEP)—more than 180 days after the initial proposal, but less than 180 days after one of its proposal revisions. The appellant filed a size protest on November 13, 2024, arguing that Sabre’s acquisition within 180 days of its final proposal revision (due May 17, 2024) made it ineligible for the small business award, citing the regulation 13 C.F.R. § 121.404(g)(2)(iii).

The protest was dismissed on November 22, 2024, by the area office, which found the acquisition did not occur within 180 days of the initial offer. The protest was based on the interpretation that the 180-day rule only applies to mergers or acquisitions within 180 days of the initial offer, not subsequent proposal revisions.

The appellant appealed this decision, arguing that the regulation applies to any offer, including a final proposal revision, not just the initial offer. The appellant argued that applying the regulation to only the initial offer ignores its plain text and could lead to a scenario where multiple overlapping 180-day periods are created in a single procurement process.

Sabre disagreed, emphasizing the importance of a clear, single 180-day period after an offer, arguing that interpreting the rule differently would create ambiguity and allow for strategic manipulation of the timing. Sabre also pointed out that the purpose of the regulation was to allow firms the flexibility to engage in legitimate business transactions without forfeiting eligibility for small business awards.

OHA’s Decision on SBA Regulations

OHA found Sabre an eligible small business, disagreeing with the appellant’s interpretation of the regulation. More specifically, under SBA regulations, a business is considered “small” based on its size at the time it submits its initial offer for a procurement. Once awarded a contract as a small business, it retains that status for the life of the contract. However, the SBA recognized that a business’s size might change over time, particularly if it merges with or is acquired by a larger entity, and therefore promulgated a rule in 2020 that explained whether a firm would remain eligible for small business set-asides following an M&A event.

The final rule, published in October 2020, stated that if a merger or acquisition occurred within 180 days of the offer, and the business is no longer small, then the business will be ineligible for the contract as a small business. However, if the merger or acquisition occurred 180 days after the offer was submitted, the business could still be awarded the contract.

OHA found that while it is true that “a final proposal revision meets the definition of an offer at FAR 2.101,” the regulatory history of the rule demonstrates that “SBA clearly meant that the word ‘offer’ in the regulation meant a concern’s initial offer and that would create one single 180-day period within which a merger or acquisition which rendered the concern other than small would also make it ineligible for award.” In promulgating the final rule, the SBA specifically addressed concerns that if the 180-day period was too long it would “discourage legitimate business transactions that arise months after an offer is submitted.” Therefore, the intermediate position SBA created in the final rule to “prohibit awards to concerns that may have simply delayed a contemplated action prior to submitting offer, but not prohibit legitimate business decisions that could materialize months later” supports a finding that the initial offer is the only relevant offer for determining when the 180-day period begins.

Future Implications of the OHA Decision

The ruling underscores that only the initial proposal submission date, not subsequent revisions, is relevant when determining if an acquisition affects small business status. Contractors should be mindful of this timeline when planning mergers, acquisitions, or other changes in ownership, ensuring that such events occur more than 180 days after their initial offer to avoid eligibility issues.

Please contact the author if you have any questions about how this OHA decision will affect your business.