DoD Mentor-Protege Program: Major Changes Finalized

The DoD has issued a final rule making major changes in the DoD “Pilot” Mentor-Protege Program.  The rule took effect on March 23, 2018.

Among the major changes, DoD has both expanded and contracted the universe of potential proteges–and has included a mandatory certification that seems to completely misunderstand the SBA’s joint venture rules and processes.

Here is my take on the good, the bad, and the ugly from the final rule.

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Nonprofits Not Exempt From Affiliation Rules, Says SBA OHA

A recent SBA Office of Hearings and Appeals decision confirms that there is no exception for nonprofit organizations when it comes to affiliation issues.

In the case, SBA OHA found affiliation between a self-certified small business and a nonprofit organization based on close family members controlling both the business concern and ​the ​nonprofit.​ Adding in the receipts from the affiliated nonprofit made the business in question ineligible for small business status.

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Familial Relationship Affiliation: SBA Treats Spouses As “One Party”

One common way that contractors attempt to avoid affiliation is by limiting a particular individual to a minority ownership interest (often 49%).

But as a recent SBA Office of Hearings and Appeals case demonstrates, when a company’s owners are spouses (or other close family members), the SBA may disregard the legal ownership split, and treat the family members as one person for purposes of the affiliation rules.

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Father/Son Companies Were Affiliated, Says SBA OHA

Companies controlled by a father and son, respectively, were affiliated under the SBA’s affiliation rules because there was no clear fracture of the family members’ business relationships.

In a recent size appeal decision, 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 many 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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Businesses Controlled By Brothers Were Presumed Affiliated, Says SBA

Businesses controlled by brothers were presumed affiliated under the SBA’s affiliation rules.

In a recent size determination, the SBA Office of Hearings and Appeals held that a contractor was affiliated with companies controlled by its largest owners’ brother, even though the companies had only minimal business dealings.  OHA’s decision highlights the “familial relationships” affiliation rule, which can often trip up even sophisticated contractors–but the decision, which was based on a March 2016 size determination request, did not take into account changes to that regulation that went into effect a few months later.

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SBA Clarifies Family Relationship & Economic Dependence Affiliation Rules

The SBA has changed its affiliation regulations to clarify when a presumption of affiliation exists due to family relationships or economic dependence.

In its major final rulemaking published today, the SBA clears up some longstanding confusion regarding affiliation based on a so-called “identity of interest.”

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Family Members’ Joint Involvement In Third Company Created Affiliation, Says SBA OHA

A self-certified small business was found affiliated with a company owned by the business owner’s father, even though the son’s company had no meaningful business relationship with the father’s company.

In a recent size appeal decision, the SBA Office of Hearings and Appeals found that the self-certified small business had not rebutted the presumption of affiliation with the father’s company because the father and son were jointly involved in a third business, and thus could not establish that their personal business interests were separate.

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