So-called “common investments” affiliation under the SBA’s affiliation rules arises most frequently when individuals own common interests in at least two operating companies. But common investments affiliation can also be based on common interests in real estate.
In a recent decision, the SBA Office of Hearings and Appeals held that the SBA had performed an inadequate size determination because the SBA Area Office asked the protested company about common investments in companies–but didn’t directly ask about common investments in real estate.
OHA’s decision in Size Appeal of Costar Services, Inc., SBA No. SIZ-5745 (2016) involved a NAVFAC solicitation for base operations support services. The solicitation was issued as a small business set-aside under NAICS code 561210 (Facilities Support Services).
After evaluating competitive proposals, NAVFAC announced that Mark Dunning Industries, Inc. was the apparent awardee. Costar Services Inc., an unsuccessful competitor, then filed a SBA size protest, alleging that MDI was affiliated with various other entities.
Among its allegations, Costar alleged that MDI’s owner, Mark Dunning, shared an identity of interest with Gregory Scott White under the common investments affiliation rule. MDI contended, in part, that Mr. Dunning and Mr. White jointly owned interests in various real estate properties in Alabama. Costar attached evidence supporting its contentions. Costar argued that, because of the identity of interest, MDI was affiliated with companies controlled by Mr. White.
In the course of its size investigation, the SBA Area Office asked MDI whether “Mr. Dunning ha[s] any ownership interest or serve[s] as a director or officer in any company with Mr. Scott White?” MDI responded by stating that the only “business association” between the two men was joint ownership of White & Dunning, LLP, “which is an entity formed for the sole purpose of collecting rent for a single piece of property, a hunting cabin.”
The SBA Area Office determined that Mr. Dunning and Mr. White did not share an identity of interest under the common investments rule, and issued a size determination finding MDI to be an eligible small business for purposes of the NAVFAC procurement.
Costar filed a size appeal with OHA. Among its contentions, Costar argued that the SBA Area Office had performed an incomplete investigation of the potential for common investments affiliation between Mr. Dunning and Mr. White.
OHA agreed. It wrote that “[t]he Area Office did not directly inquire into whether Messrs. Dunning and White have common investments in entities that are not companies, nor ask MDI specifically to address” the Alabama properties identified by Costar. OHA stated that the SBA Area Office had improperly accepted MDI’s responses “without further inquiry,” even though MDI’s representation that Mr. Dunning and Mr. White had no business relationship except their joint ownership of White & Dunning LLP “appear[s] inconsistent with the evidence submitted by” Costar. OHA granted Costar’s size appeal and remanded the matter to the SBA Area Office for a more thorough investigation of the potential identity of interest between Mr. Dunning and Mr. White.
As the Costar Services size appeal demonstrates, common investments affiliation need not be based on shared interests in operating companies. Instead, as OHA suggested, such affiliation can also be based on shared investments in real estate.