Ostensible Subcontractor Rule Does Not Apply to Similar Entities

A recent bid protest decision confirmed that the ostensible subcontractor rule cannot apply to similarly situated entities. The rule can result in a finding of affiliation if a small business prime contractor is determined to be unusually reliant on its subcontractor.  However, on October 20, 2017, the GAO denied a protest that was partially based on an ostensible subcontractor violation based on the fact both the prime contractor and its subcontractor were similarly situated entities.

In Kodiak Base Operations Services, LLC, B-414966, B-414966.2, B-414966.3, the protestor alleged the awardee, Choctaw Defense Services, Inc. (“CDS”), an 8(a) disadvantaged business, lacked adequate past performance to perform the contract.

The protestor also argued CDS was unusually reliant on its subcontractor, violating the ostensible subcontractor rule.  The subcontractor was also an 8(a) small business, resulting in the GAO determining the rule, on its face, did not apply because the two entities are similarly situated.

Citing to the definition of “Similarly situated entity” in 13 C.F.R. § 125.1, the GAO held “prime contractors with the same small business program standard and size status as their subcontractors, such as CDS and its subcontractor, would be exempt from the ostensible subcontractor rules.”