Mark Pestronk
Q: My agency qualifies as a small business under the U.S. Small Business Administration's (SBA) size standard for travel agencies. We have several clients that are government contractors, and they count us as a small-business subcontractor for purposes of fulfilling their required subcontracting goals. If we are acquired by a larger company that does not qualify as a small business, are we still considered a small business? If not, are we going to lose the client when it finds out about the acquisition?
A: You won't necessarily lose the client. It will be up to the client to decide what, if anything, to do about the acquisition.
Every company submitting a proposal or bid on a contract worth at least $700,000 (or $1.5 million for construction contracts) must submit a small-business subcontracting plan as part of its proposal or bid. The plan must contain a lot of goals, and it must be approved by the government as part of any award.
Among other goals, the prospective contractor must provide the number of dollars that it proposes to award to subcontractors that qualify as small businesses under SBA size standards.
If the prospective contractor wins, it must make a good-faith effort to achieve those goals, and it must send periodic reports to the government on its progress.
A travel agency that qualifies as a small business can be a subcontractor for travel services obtained in connection with work on the contract.
The travel agency can self-certify as a small business, which means that it is not necessary for its size to be reviewed or approved by the SBA or any other government agency. The government contractor can take the travel agency's word for it.
Once the subcontract is in effect, there is no law or regulation stating that the small business must tell the contractor that it is no longer small because it has been acquired by a big business or for any other reason.
While it is possible that your subcontract itself may contain a requirement to notify the contractor, I have never seen such a clause.
What I have seen in standard subcontracts is a clause stating that the subcontract may not be assigned to any other company without the contractor's consent.
So if you sold the assets of your agency to another entity, the contractor would necessarily find out about the acquisition by a big company when you sought the contractor's consent.
What's done with that information is entirely up to the contractor. It can terminate your subcontract, decline to renew it or just keep it in effect.
If it does the last thing, then it can no longer count your agency as a small business subcontractor when it files its periodic reports with the government.
Incidentally, if the large buyer buys your company's stock instead of its assets, the contractor can no longer report you as a small business (if it finds out about the acquisition), either, as the SBA's rules require that all of a company's affiliates' revenue be included in determining size status. A parent and subsidiary are considered affiliates of each other.