Aron C. Beezley and Gabrielle A. Sprio | BuildSmart
The Small Business Administration’s (SBA) ostensible subcontractor rule remains one of the most consequential — and misunderstood — affiliation principles in federal procurement. For small businesses pursuing set-aside contracts, failing to navigate this rule properly can result in bid protests, loss of eligibility, and even contract termination.
What Is the Ostensible Subcontractor Rule?
Under 13 C.F.R. § 121.103(h)(4), the SBA may find that a small business prime contractor and its subcontractor are affiliated for size determination purposes when the subcontractor is considered an ostensible subcontractor — meaning it performs “the primary and vital requirements” of a contract or the prime contractor is “unusually reliant” on the subcontractor.
If such a finding is made, the SBA treats the two firms as effectively being one and the same for size determination purposes. If their combined size exceeds the applicable size standard, the small business is deemed ineligible for the set-aside award.
How SBA Determines “Ostensible Subcontractor” Status
SBA’s Office of Hearings and Appeals (OHA) — which is a quasi-judicial body that hears appeals of size protests — applies a totality-of-the-circumstances test when determining whether a subcontractor is considered an ostensible subcontractor. While each case turns on its facts, several common factors recur:
- Performance of the primary and vital work – If the subcontractor performs the most significant requirements of the contract, SBA may find affiliation.
- Key personnel and management control – Reliance on the subcontractor for key personnel or proposal preparation can indicate unusual dependence.
- Experience and past performance – If the subcontractor possesses the necessary experience and the prime lacks it, OHA may view the subcontractor as the true contract performer.
- Business relationships – Long-standing or exclusive relationships between the firms can also weigh toward affiliation.
OHA Guidance
Recent OHA decisions continue to emphasize that proposal details matter. For example, in Size Appeal of Winergy LLC,SBA No. VSBC-445-P (2025), OHA found that the subcontractor was not ostensible because the small business prime retained meaningful management responsibilities, employed key personnel, and would perform significant portions of the work. Moreover, in Size Appeal of Bowhead Enterprises, Science, and Technology, SBA No. SIZ-6352 (2025), OHA held that the small business prime contractor demonstrated compliance with the SBA’s limitation on subcontracting requirements and that this served as a defense against the ostensible subcontractor affiliation allegations. Conversely, in Size Appeal of Veteran Elevated Solutions, LLC, SBA No. SIZ-6350 (2025), OHA found that the protested company was not performing the primary and vital requirements of the contract and thus the prime contractor and the large business subcontractor should be deemed to be affiliated under the ostensible subcontractor rule.
These decisions illustrate that OHA closely scrutinizes division of labor, control, and experience — and that even subtle proposal language can tip the balance.
Practical Takeaways for Contractors
To minimize ostensible subcontractor risk, government contractors should:
- Define clear performance responsibilities in both the proposal and teaming agreement.
- Retain key management and technical control at the prime level.
- Avoid excessive reliance on a large subcontractor’s past performance, facilities, or personnel.
- Document independent capabilities of the prime contractor, particularly in performing primary and vital contract functions.
In short, small business primes should ensure that their teaming relationships reinforce — rather than undermine — their independent ability to perform the contract.
Conversely, if your small business has lost a contract award to a company that you suspect violates the ostensible contractor rule, then your company should consider filing a size protest on that issue.
Conclusion
The ostensible subcontractor rule underscores the SBA’s broader policy objective: ensuring that small business set-asides are performed by truly independent small businesses. With careful planning, clear documentation, and disciplined proposal drafting, small businesses can structure compliant teaming relationships while maintaining competitiveness in complex procurements.
When one of your cases is in need of a construction expert, estimates, insurance appraisal or umpire services in defect or insurance disputes – please call Advise & Consult, Inc. at 888.684.8305, or email experts@adviseandconsult.net.
Republished with permission. The article, “Understanding the Ostensible Subcontractor Rule: Avoiding Hidden Affiliation Risks in Small Business Contracting” was originally published on BuildSmart by Bradley Arant Boult Cummings LLP. Copyright 2025.