On May 18, 2023, the U.S. District Court for the District of Columbia (DDC) issued a decision with significant potential consequences for federal contractors and the U.S. Small Business Administration (SBA). SBA's Office of Hearings and Appeals (OHA) has long held that SBA must calculate contractors' annual receipts—which are used to determine whether companies meet federal size standards that dictate eligibility to perform many federal contracts and subcontracts—based on contractors' federal tax returns. But the DDC held that annual receipts may include revenue that contractors do not report in their tax returns. In other words, under the DDC's interpretation of SBA's regulations, contractors cannot always rely on their tax returns alone when calculating their annual receipts and certifying their size status.

The decision is noteworthy because federal contractors and SBA typically do rely on tax return data to calculate annual receipts. The DDC's decision suggests not only that such calculations may be incomplete, but that they could lead to False Claims Act (FCA) liability. Federal contractors and subcontractors should confer with counsel to determine whether to review their methodology for calculating annual receipts in light of this decision.

How Did a Size Protest Turn into an FCA Case?

When the defendant, CWS Marketing Group, submitted a proposal for a federal contract that was set aside for competition by small businesses only, CWS certified that it was a small...

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