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.
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.
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.”
As few as two common outside investments can result in a presumption of identity of interest, and therefore likely affiliation, according to a recent decision by the Small Business Administration Office of Hearings and Appeals.
OHA’s decision in W. Harris, Government Services Contractor, Inc., SBA No. SIZ-5717 (Mar. 7, 2016), lends some clarity to the SBA’s identity of interest affiliation rule, which provides that businesses or firms are affiliated when they have identical or substantially identical business interests. Although it brings the rule more into focus, the decision in W. Harris could prove troublesome to some small business owners, who may have assumed that a handful of common outside investments would not result in affiliation.
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.
Individuals who had common investments in eight different companies were treated as a single person for purposes of the SBA’s affiliation rules–and the aggregation of those owners’ interests cost one company a small business set-aside award.
In a recent decision, the SBA Office of Hearings and Appeals explained how the little-understood common investments affiliation rule works, and in so doing, provided an important warning to business owners who may not realize that affiliation can result from common investments in multiple entities.
The SBA’s regulations regarding affiliation between companies controlled by close family members would be clarified under a proposed rule introduced on December 29.
Under the SBA’s current affiliation regulations, companies controlled by family members may be presumed to be affiliated, but the regulation leaves it to the SBA Office of Hearings and Appeals to determine how close the family relationship must be for the presumption to apply. The proposed rule would clarify exactly when the presumption applies.