SBA Uses “Adverse Inference” Rule to Find Firm Affiliated with 27 Other Companies

One of the most fundamental requirements of Small Business Administration’s (SBA) size protest regulations is that the protested firm must timely produce information/documents that SBA requests to perform its investigation of the firm’s size/status. What is the penalty for failing to provide requested information/documents? SBA may presume the missing information would demonstrate that the concern is other than a small business. This is known as the “adverse inference” rule.

The harsh realities of the “adverse inference” rule were on full display this past month in the Size Appeal of Elite Construction Management Corp., SBA No. SIZ-5565 (2014). In that case, Elite’s size was challenged based on the allegation that Elite was affiliated with 27 other companies through familial identities of interest. In investigating the size protest, SBA requested that Elite produce tax returns and other financial information for 25 of these companies, but Elite only produced the requested information for four companies. Because of Elite’s failure to produce the requested information, rather than allow Elite to rebut the presumption of affiliation, SBA applied the “adverse inference” rule to find that Elite was affiliated with all 27 companies, and thus Elite was not a small business. This finding was affirmed by the SBA Office of Hearings and Appeals (OHA).

The Elite case should serve as a reminder to any protested firm that it must strictly comply with SBA size protest regulations and any requests for information/documents made by SBA during the protest process. A protested firm’s failure to strictly comply with SBA’s requests may result in the protested firm being deprived of the right to contest the allegations on the merits.