If you are a small business federal contractor facing a size protest for the first time, your inexperience could cost you dearly if you make this one mistake.

If the Small Business Administration asks you to document your company’s size and you do not respond immediately—oops, you may lose your contract.

Harsh or not, that appeared to be the lesson learned for a small peanut butter vendor that recently was ruled ineligible for an Agriculture Department contract it already had won.

Company officials did not get very far in trying to explain that they are still learning the ropes of how to work with the SBA.

Here is what happened.

The USDA set aside a peanut product contract for small businesses. After evaluating competitive bids, the contract was awarded to American Blanching Co. of Fitzgerald, GA on Sept. 13.

On Oct. 16, the USDA’s contracting officer filed a size protest with the SBA’s area office challenging American Blanching’s eligibility as a small business because it apparently was owned by a larger company.

On Oct. 18, the SBA area office sent a letter notifying American Blanching of the size protest and requesting standard documentation of size and eligibility, including company bylaws and financial statements, within three working days. The letter also warned not to ignore the request.

On Oct. 25, having received no response, the SBA area office declared American Blanching ineliible under the adverse inference rule. Under that rule, the SBA is allowed to assume that if a protested company does not respond to an SBA request to document its size, then the company is not small.

The company appealed, seeking to present evidence that it is small and the outside ownership is minimal. Furthermore, company officials said they were inexperienced in dealing with the SBA and asked to be excused for what was essentially a beginner’s error.

But the SBA Office of Hearngs and Appeals denied those arguments. A judge ruled American Blanching ineligible for the contract. The evidence offered about size was not considered because it was secondary in light of the application of the adverse inference rule, wrote Christopher Holleman, administrative judge.

The adverse inference rule was applied in a clear cut fashion because the company submitted no response at all, the judge added.

“The regulation clearly requires that the protested concern communicate with the SBA. There is no second bite at the apple for a concern that did not take the trouble to understand the regulation the first time,” the judge wrote.

That suggests that had the company asked for an extension, or at least made a phone call within three days, it might have helped, Steven Koprince, government contracts attorney, told Set-Aside Alert.

Was American Blanching actually eligible as a small business? The case file does not tell us. Company officials were not available to provide details.

The broader lesson is to ignore the SBA at your peril. Sometimes companies are guilty of this inadvertently because a message gets lost or key personnel go on vacation, Koprince said.

He warned: “Failing to timely respond within the allotted time can be fatal.”

Also, while competitors must file size protests within a five-day window, federal contracting officers may file size protests at any time, Koprince added. He advised watching out for such protests at all times, even nearing the end of a contract.

More Information: Steven Koprince blog entry: http://goo.gl/2bmNk
SBA decision (Search for “American Blanching”): http://www.sba.gov/oha/3393#