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.
The SBA affiliation rules are not always intuitive, and perhaps no SBA affiliation rule is as little understood as the so-called “identity of interest” rule under 13 C.F.R. 121.103(f).
Identity of interest affiliation can arise in several ways, including when close family members also have business ties. As demonstrated in a recent SBA Office of Hearings and Appeals decision, a close family relationship between two business owners, plus significant business ties, may cause affiliation between the businesses.
Can an SBA 8(a) program mentor and protege be affiliated, notwithstanding their 8(a) mentor-protege arrangement, if the firms engage in extensive employee sharing?
In a recent decision, the SBA Office of Hearings and Appeals suggested that extensive employee sharing between an 8(a) protege and its mentor might be outside the bounds of protected “assistance” under the 8(a) mentor-protege program. And in the same case, SBA OHA raised an interesting question: does a mentor-protege relationship protect the mentor from affiliation, as well as the protege?
Affiliation based on family relationships is perhaps one of the least understood SBA affiliation rules, and continues to trip up many small government contractors. Case in point: a recent SBA Office of Hearings and Appeals decision finding a small business affiliated with a company controlled by the mother of the small business’s owner, based on the family relationship and subcontracts between the companies.
Indian tribes, their holding companies, and companies owned by those holding companies are entitled to broad exceptions from the ordinary SBA affiliation rules, according to a recent SBA Office of Hearings and Appeals size appeal decision.
SBA OHA’s decision in Size Appeal of Roundhouse PBN, LLC, SBA No. SIZ-5383 (2012), holds that the SBA cannot use non-applicable affiliation rules to circumvent the regulatory exception from affiliation between tribal companies. In its ruling, SBA OHA also sidestepped an interesting tribal size question: did Congress truly intend for some tribal companies to be “small” for 8(a) program purposes, but “other than small” for all other government contracts?
As you can probably tell, the Roundhouse PBN case is not your run-of-the-mill SBA OHA size appeal decision, meaning a slightly longer-than-normal blog post is in order. Let’s dive right in.