An offeror bidding on a federal contract set-aside for small businesses may challenge another offeror’s representation that it is a small business concern. Such size protests are referred to the Small Business Administration (SBA) area office where the challenged offeror is headquartered. The challenged concern must then establish that it is indeed a small business. Per SBA regulations, if the challenged concern fails to submit a completed SBA Form 355 regarding size determination information or otherwise does not adequately respond to requests for information or size protest allegations in a timely manner, it risks the SBA presuming that the disclosure of the requested information would demonstrate that the concern is other than small. In this regard, the SBA Office of Hearings and Appeals (OHA) has developed a three-factor test to determine whether an adverse inference is appropriate. First, the information the SBA area office seeks must be relevant to an issue in the size determination. Second, there must be a level of connection between the entity being protested and the entity the SBA area office is seeking information from. Third, the request for information by the area office must be specific. If the challenged concern does not provide the requested information and these three factors are met, the SBA may infer that the disclosure of the information would show that the concern is other than small.
In SBA No. SIZ-6397, a decision issued on July 28, 2026, the SBA OHA denied the Appellant concern’s size appeal after concluding that the SBA area office was justified in applying this adverse inference rule to determine that the Appellant concern was not an eligible small business for the purposes of the procurement at issue. The Department of Veterans Affairs (VA) awarded a 100% Service-Disabled Veteran-Owned Small Business (SDVOSB) set-aside contract to the Appellant concern for services for a Community Based Outpatient Clinic in Kosciusko, Mississippi. A size protest was filed following the award, and the relevant SBA area office sent a request for information to the challenged concern. Along with other information, the area office requested that the challenged concern submit tax returns or financial statements from specified years for certain joint ventures (JVs), along with a breakdown of work for its active JVs and relevant contract information. However, the challenged concern failed to adequately respond to the area office’s request for information. Consequently, the Area Office applied an adverse inference and found that the challenged concern was not a small business for the purposes of the instant procurement. The challenged concern filed an appeal with the SBA OHA.
In applying the three-factor test, the OHA determined that the SBA area office appropriately applied the adverse inference rule in this case. First, the information the area office requested, such as the tax return information and financial statements for the challenged concern’s JVs, was relevant to the size determination because the requested information was helpful in determining whether the JVs were affiliated with the challenged concern. Second, although the challenged concern presented arguments opposing the relevance of requiring tax returns and financial statements for two of the JVs, it made no such argument regarding a third JV entity that was active and still in operation. Thus, at least a connection existed between the challenged concern and this third JV entity. Finally, the final factor was also met because the SBA area office’s request for information was specific. The SBA sent a letter to the challenged concern requesting tax returns or financial statements for specified years for its JVs, along with a breakdown of workshare and a list of all awards made to the JVs, including dates of initial offer and award, total dollar value, and other specific financial information. Thus, the three factors were met, and because the Appellant concern failed to respond to the request for information, the SBA appropriately applied the adverse inference rule and deemed it other than small for the procurement at issue.
Once a specific and credible size protest is filed, the challenged concern must establish that it is a small business. To do so, the challenged concern must respond timely and adequately to the protest allegations and provide any size determination information the SBA area office requests. If it fails to provide an adequate response, the challenged concern risks an adverse inference by the area office that it is other than small for the instant procurement. The OHA has a three-factor test to determine whether an adverse inference is appropriate in a given case. When the challenged concern fails to provide the requested information and the three factors are met, the SBA may make an adverse inference that the undisclosed information would show that the concern is other than small for the procurement in question. Finally, it is worth noting that to properly utilize the adverse inference rule, the SBA area office must observe the basic principles of due process in its requests for information. That is, the SBA area office must clearly communicate its request and allow the challenged concern an adequate opportunity to respond. If the area office is at fault for the challenged concern’s failure to adequately respond to the request for information, the adverse inference may be overturned.
This Federal Procurement Insight is provided as a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.
