5 Things You Should Know: Affiliation

Affiliation might be one of the scariest words to small business government contractors. But why?

Here are five things you should know about affiliation:

  1. It can make a small business large.

To qualify as a small business for purposes of a government contract, a business has to be small under the size standard associated with the North American Industry Classification System (NAICS) code assigned to the solicitation. In addition to considering the firm’s own revenues or employee count, the SBA will add the size of any affiliates. So if your business’s size, together with that of any affiliates, exceeds the applicable size standard, your business won’t be eligible for the award.

  1. How is affiliation found?

Affiliation is, at its most basic, a determination that one business can control another, or that a third party controls both. The SBA will find two companies to be affiliates when one has the power (either by taking some action or withholding consent) to control the affairs of another (or a third party has the power to control both)—even if that control isn’t actually exercised.

The SBA may consider all aspects of the parties’ relationship (the totality of the circumstances, in legal-speak) to determine whether this ability to control exists. Some of the most common reasons for finding affiliation, however, are when firms share common ownership or management, one entity is basically a spin-off or is economically dependent on another, or a company is unusually reliant on another as its ostensible subcontractor.

  1. Another bidder or the contracting officer may challenge the awardee’s size.

The SBA may determine affiliation in a variety of contexts, but an affiliation analysis often arises due to a formal size protest. After your business is named the awardee under a small business set-aside solicitation, another bidder (or even the contracting officer) may file a protest questioning your company’s size. If so, and if the protest satisfies certain jurisdictional prerequisites, it will be up to you to show that affiliation doesn’t exist.

If your business’s size is successfully protested in connection with a set-aside solicitation, you won’t be eligible to receive the award. If the contract has already been awarded, it will likely be terminated. Affiliation should therefore be taken very seriously.

  1. Joint ventures enjoy some protection from affiliation.

Many of the small business owners I speak with operate under the belief that their business will be exempt from affiliation with its joint venture partner. This isn’t true—the members of a joint venture enjoy some special affiliation benefits, but not blanket immunity. Don’t let this same mistaken assumption jeopardize an award to your joint venture.

  1. Affiliation can be fractured (or mitigated).

Affiliation should be a serious concern for every small government contractor. If you’re concerned that your small business might be affiliated with another company, there are steps you can take to try to fracture that affiliation before you submit an offer on a small business solicitation. Doing so could help save a contract.

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Affiliation can make your small business large and, in doing so, jeopardize an award. If you have concerns about affiliation, please call me to discuss.