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Shelley Hall
• 32 years in Department of Defense (retired Nov 2015)
• USAF (AFMC and AFSPC)
• Held unlimited Contracting Officer’s warrant for 23 years
• Community Relations and Content Manager for Skyway
• Expertise in services and supplies, Federal Supply Schedules, pre-and
post-award, simplified acquisition to large dollar technically complex
source selections, Foreign Military Sales, and commercial and noncommercial
<< Record >>
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Skyway
©
Insight
Webinar
Training From Contracting Officers
Topic: Small Business Affiliation Guide
April 13, 2017
Host: Shelley Hall
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Agenda
• Small Business Affiliation Guide
• What is Affiliation?
• Red Flags
• Recent Changes
• Court Case on Affiliation
• Final words
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Small Business Affiliation Guide
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Small Business Affiliation Guide
• Small Business Affiliation Guide
• Size Matters - In order to be eligible for certain Federal programs and
certain Federal contracts and subcontracts, you must be a “small business
concern.” SBA’s size regulations, which are set forth at 13 CFR part 121,
are used to determine eligibility for all SBA and Federal programs that
require a concern to be small.
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Small Business Affiliation Guide (cont’d)
• SBA’s size rules also apply to small business loan programs and grant
programs. A number of government agencies, including the Food and
Drug Administration and the Department of Veterans Affairs, operate
programs for which small business status is a requirement for eligibility.
The size rules apply to these programs, as well.
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What is Affiliation?
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What is affiliation?
What is an “affiliate”?
• SBA determines whether an entity qualifies as a small
business concern by counting its receipts, employees, or other
measures including those of all its domestic and foreign
affiliates, regardless of whether the affiliates are organized
for profit. 13C.F.R. §121.103(a)(6).
• SBA has a specific set of rules that explain when another
person, business or entity is considered an affiliate for size
purposes.
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What is affiliation? (cont’d)
Where do I find SBA’s affiliation rules?
• SBA’s rules on affiliation for its programs (except SBIR and
STTR) are found at 13 C.F.R. §121.103 (available online at
http://www.ecfr.gov).
• For the SBIR and STTR program, SBA’s affiliation regulations
can be found at 13 C.F.R. §121.702. For specific affiliation
rules for the SBIR and STTR programs, go to www.sbir.gov.
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What is affiliation? (cont’d)
What are the general principles of affiliation?
• Generally, affiliation exists when one business
controls or has the power to control another or
when a third party (or parties) controls or has the
power to control both businesses. Control may arise
through ownership, management, or other relationships
or interactions between the parties
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What is affiliation? (cont’d)
SBA will consider the totality of the circumstances when
determining whether affiliation exists and may find affiliation
based on them even though no single factor alone may be
sufficient to constitute affiliation. If SBA determines that
affiliation exists, SBA will count the receipts, employees, or
other measure of size for the concern whose size is at
issue combined with the receipts, employees, or other
measure of size for all of its domestic and foreign affiliates,
regardless of whether the affiliates are organized for profit.
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Red Flags
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Red Flags
• Ownership
• Common Management
• identity of Interest (family members, economic reliance)
• Newly Organized Firm
• Joint Ventures
• Ostensible Subcontractors (sub performs primary req’ts, prime is unusually reliant on sub)
• License Agreements
• Totality of Circumstances
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Recent Changes
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Recent Changes
Final Rule (May 2016)
• This rule amended the Small Business Administration's regulations to
implement provisions of the National Defense Authorization Act of 2013,
which pertain to performance requirements applicable to small business,
socioeconomic program set-aside contracts, small business, and
affiliation.
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Recent Changes (cont’d)
• Changed § 121.103(f), which defines affiliation based on an identity of
interest. Paragraph 121.103(f) discusses the circumstances where an
identity of interest between two or more persons leads to affiliation
among those persons and their interests are aggregated. SBA included
additional guidance on how to analyze affiliation due to an identity of
interest.
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Recent Changes (cont’d)
• Paragraph 121.103(f)(1) includes clarification regarding the type of
relationships between individuals that will create a presumption of
affiliation due to an identity of interest. Language was added that a
presumption of affiliation exists for firms that conduct business with each
other and are owned and controlled by persons who are married couples,
parties to a civil union, parents and children, and siblings.
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Recent Changes (cont’d)
• In paragraph 121.103(f)(2), SBA adopted a presumption of affiliation
based on economic dependence. Specifically, if a firm derives 70% or
more of its revenue from another firm over the previous fiscal year, SBA
will presume that the one firm is economically dependent on the other
and, therefore, that the two firms are affiliated. Previously there was no
fixed percentage that SBA applied when evaluating this criteria.
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Court Case on Affiliation
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Court Case on Affiliation
ProSol Associates, LLC – Size Appeal (Feb 2017)
• In this appeal, the SBA Office of Hearings and Appeals held that a son’s
company was affiliated with a company owned by his father because the
son had worked for several years at the father’s company, the son’s
company leased office space from the father’s company, and the two
companies engaged in significant amounts of subcontracting.
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Court Case on Affiliation (cont’d)
• The SBA Area Office found that the father and son were presumed to
have an identity of interest under the SBA’s affiliation
regulations. Although the presumption of affiliation based on an identity
of interest can be rebutted by showing a clear fracture, there was no
clear fracture between the two companies because of the lease and
continuous subcontracting relationships. The affiliation caused the son’s
company to be ineligible for the contract (because the affiliation caused it
to be a large business).
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Questions
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Questions
• What if I share an office with another SB?
• It depends on the nature of your agreement. What does the lease say? Do you
have clearly different lines of management? How reliant are you on the other
company?
• What if I’m working for a SB, but I start up my own SB while I still continue to
work for the other SB full time?
• This would not definitely show an affiliation. Do the companies do the same
type of business? Are you financially reliant on the company you continue to
work for? Can they make business decision on how you run your company?
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Questions
• What if another company “loans” me money or equipment so I can start my
own business, get my 8a, and subcontract to them?
• This one sure sounds like affiliation. You are financially dependent on them
(loan), you are using their assets (equipment), and you’re subcontracting to
them. Better check with SBA.
• What if I own a business and my spouse owns a business, but we really work on
both businesses?
• This is covered in the identity of interest. There is nothing that prohibits this
but if the two companies combined bid on a contract as a small business and
the affiliation makes them a large business, they would not be eligible for
award.
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Questions
• What is the pricing relationship between a large business and small
business reseller (who represents/sells the large businesses product to
the Gov’t)?
• It depends on how a contract is priced. If it is a small business set aside
and the SB has to do 51% of the work, then the SB should price out that
work, while the LB prices out the portion they are doing. This could
effect limitations on subcontracting issues also.
• Bottom line is that the prime ultimately presents the pricing to the
government.
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Final Words
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Final Words
• Be aware of affiliation rules
• If you have questions, contact the offices listed on the last two pages
of the SB affiliation guide. They are the experts.
• As with anything in Federal contracting, find out FIRST if this is an
issue, not after you have submitted a bid and another offeror has
filed a size appeal challenge.
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Skyway Acquisition Solutions, LLC
Shelley Hall
Email: [email protected]
www.skywayacq.com