On May 2, 2025, the U.S. Small Business Administration (SBA) Office of Hearings and Appeals (OHA) issued a significant decision in Size Appeal of Bowhead Enterprise, Science, and Technology, LLC, SBA No. SIZ-6352. The decision reinforces a critical defense against ostensible subcontractor affiliation allegations: demonstrating compliance with the SBA’s limitation on subcontracting requirements.

Background of the Appeal

The case arose from a size protest filed by Bowhead Enterprise, Science, and Technology, LLC challenging the eligibility of a competitor for a small business set-aside contract awarded by the U.S. Army. The protest alleged that the competitor was affiliated with its subcontractor under the “ostensible subcontractor” rule and thus exceeded the applicable size standard.

Specifically, the protestor argued that the competitor’s subcontractor would be performing the primary and vital requirements of the contract and that the competitor was unusually reliant on the subcontractor, a larger business entity.

The SBA Area Office denied the protest, finding that the competitor was not unusually reliant on its subcontractor and had demonstrated that it would independently perform the primary and vital portions of the contract.

Bowhead appealed the decision to OHA.

OHA’s Analysis

OHA affirmed the SBA Area Office’s decision, holding that the SBA Area Office gave appropriate weight to the competitor’s demonstrated compliance with the limitation on subcontracting requirements under 13 C.F.R. § 125.6.

OHA explained that compliance with the limitation on subcontracting is highly probative of whether the prime contractor is performing the primary and vital contract requirements. Specifically, the record showed that:

• The competitor would self-perform well over 50% of the contract value, as required by 13 C.F.R. § 125.6(a)(1);
• The competitor would employ the majority of the personnel performing the contract;
• The competitor — not the subcontractor — would be responsible for contract management, reporting, and interface with the government; and
• The competitor would perform the majority of the substantive work, particularly in the core areas of the contract’s performance work statement (PWS).

Notably, OHA went on to state:

[T]he standard is now that of a brightline rule, where in respect to a services, specialty trade construction, or supply contract: “SBA will find that a small business prime contractor is performing the primary and vital requirements of the contract or order, and is not unduly reliant on one or more subcontractors that are not small businesses, where the prime contractor can demonstrate that it, together with any subcontractors that qualify as small businesses, will meet the limitations on subcontracting provisions set forth in § 125.6 of this chapter.” 13 C.F.R. § 121.103(h)(3)(iii), (emphasis supplied). SBA itself also noted during the issuance of the rule that it “believe[d] that meeting the applicable limitation on subcontracting requirement is sufficient to overcome any claim of the existence of an ostensible subcontractor.” 88 Fed. Reg. 26,164, 26,166 (Apr. 27, 2023), (emphasis supplied).

When the subject procurement is viewed in the aggregate — between the engineering, the program managements, and all other requirements — DNI is performing a majority of the total work required by the contract. The specific methods and mechanisms through which a proposal seeks to comply with the pertinent regulations are irrelevant so long as they are being complied with. After comprehensive review — especially in light of the recent revisions — the record strongly indicates that DNI is compliant with the limitations on subcontracting. That DNI is meeting the applicable limitations on subcontracting, in turn, provides sufficient evidence to overcome Appellant’s claim — indeed, any claim — regarding the existence of an ostensible subcontractor.

In light of these facts, OHA concluded that the competitor was not unusually reliant on its subcontractor. While the subcontractor would perform some technical support tasks, OHA emphasized that this alone does not constitute performance of the “primary and vital” requirements unless those tasks constitute the central purpose of the contract.

Key Takeaways for Government Contractors

1. Limitation on Subcontracting as a Shield – This case makes clear that demonstrating compliance with the limitation on subcontracting is strong evidence that the small business will perform the “primary and vital” portions of a contract. Contractors should carefully document and be prepared to show how they will meet the self-performance thresholds.
2. Holistic Review of Responsibilities – OHA reaffirmed that affiliation under the ostensible subcontractor rule requires a holistic review, including an analysis of which party will manage the contract, employ the personnel, and perform the substantive tasks.
3. Avoiding Undue Reliance – Small businesses must avoid contractual structures or proposal narratives that suggest dependence on a subcontractor for key personnel, technical approach, or overall performance responsibility.
4. Proposal Documentation Matters – Contractors should ensure that proposals clearly articulate the prime contractor’s role in executing the PWS, managing the team, and interfacing with the government.

Conclusion

The Bowhead case provides a valuable precedent for small business contractors seeking to defend against ostensible subcontractor affiliation allegations. The decision underscores that compliance with the SBA’s limitation on subcontracting regulations is not just a requirement for contract eligibility — it can also serve as compelling evidence that a small business is truly the one performing the core functions of the contract.

Small businesses should proactively structure their proposals and teaming agreements with these principles in mind to minimize affiliation risk and preserve their eligibility for small business set-aside contracts.