OHA Decides 3-Year Gross Receipts Standard Still Applies

By: Anthony J. Marchese, Esq. and Andrew Campbell

In addition to the GAO decision mentioned in our previous blog, another case was brought against SBA’s decision to not adhere to the Runway Extension Act immediately after it became law. This time, SBA’s Office of Hearings and Appeals (OHA) heard the case and ruled that the three-year standard applies to all federal government contractors, instead of the five-year standard imposed by the 2018 Runway Extension Act.

In connection with a pending award from the Defense Information Technology Contracting Organization, SBA issued a formal size determination finding that Cypher Analytics, Inc. was not a small business. In its review, SBA concluded that Cypher was not considered a small business based on the $15 million size standard imposed on it by its NAICS code. SBA used the three-year gross receipts standard to determine Cypher’s small business status.

On June 12, 2019, Cypher appealed this size determination to OHA, contending that the Runway Extension Act required the application of the five-year standard when determining its status. It is important to note that Cypher would have been eligible to receive the award if the SBA used the five-year standard. Cypher argued that by not specifying an effective date within the Act, Congress intended it to take immediate effect upon passage. To this effect, case law has historically held that a law that does not specify an effective date is to go into effect immediately. The SBA responded to the appeal arguing, again, that it has the conclusive authority to set size standards.

OHA, like GAO, concluded that SBA has sole authority to set size standards and denied the appeal. In doing so, OHA reaffirmed SBA’s position that the Runway Extension Act does not apply under current SBA rules. OHA goes further by reasoning that the Runway Extension Act changes 15 U.S.C. § (a)(2)(C)(ii)(II), not 15 U.S.C. § (a)(2)(A) from which SBA is granted its authority to set size standards. Therefore, SBA must create a rule to reflect the five-year standard, and, until then, the three-year standard will apply per SBA rules, according to OHA.

What Does This Mean for Small Businesses?

As of now, the three-year size standard still applies despite the Runway Extension Act. In June 2019, SBA proposed a rule on the five-year standard and accepted comments through August 23, 2019. This rule, however, has yet to be promulgated. Additionally, in an attempt to clarify the Runway Extension Act, the House passed H.R. 2345, “Clarifying the Small Business Runway Extension Act,” stating that the Act has been in effect since signed into law on December 17, 2018. This bill remains in the Senate as of July 16, 2019. It is unclear which will come first, the promulgation of SBA’s proposed rule or the passage of the clarification bill, but, as of now, given the GAO and OHA decisions, the three-year standard remains.

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