A Program Management Office manager was not a “key employee” within the definition of the SBA’s affiliation regulations, according to the SBA Office of Hearings and Appeals.

In a recent size appeal decision, OHA found that the fact that a small business’s CEO served as another company’s PMO manager did not result in affiliation between the two companies because the individual in question could not control the second company through his PMO manager role.

OHA’s decision in Size Appeal of INV Technologies, Inc., SBA No. SIZ-5818 (2017) involved an Air Force solicitation for training services and support at the Oklahoma City Air Logistics Complex.  The solicitation was issued as a small business set-aside under NAICS code 611430 (Professional and Management Development Training) with a corresponding $11 million size standard.

After evaluating proposals, the Air Force announced that INV Technologies, Inc. was the apparent awardee.  An unsuccessful offeror filed an SBA size protest challenging INV’s small business status.

The SBA Area Office determined that INV’s owner and President, Chandan Jhunjhunwala, also worked as a Program Management Office manager for SNAP, Inc.  INV and SNAP also had other relationships, including a number of subcontracts issued between the companies.

The SBA Area Office issued a size determination finding INV and SNAP to be affiliated.  Among the reasons for affiliation, the SBA Area Office found that Mr. Jhunjhunwala was a key employee of SNAP, meaning that INV and SNAP shared common control.  The affiliation with SNAP caused INV to be ineligible for the Air Force contract.

INV filed a size appeal with OHA, alleging that the SBA Area Office’s decision was erroneous.  Among its arguments, INV contended that Mr. Jhunjhunwala was not a “key employee” of SNAP and could not control that company.

OHA explained that under the SBA’s affiliation regulations, “the touchstone issue is control.  A connection between two concerns does not necessarily cause affiliation.  There must be an element of control present.”

OHA stated that while a “key employee” may be found to control a company, “[a] key employee is one who, because of his position in the concern, has a critical influence over the operations or management of the concern.”  An employee “with no authority to hire and fire or to enter into contracts is not likely to be a key employee.”  Conversely, “an employee who is critical to a concern’s control of day-to-day operations is a key employee.”

In this case, INV was “owned and solely controlled by Mr. Jhunjhunwala.”  However, “the record does not support the conclusion that [Mr. Jhunjhunwala] could control both [INV] and SNAP.”

OHA continued:

Here, the record contains no evidence demonstrating that the Area Office considered Mr. Jhunjhunwala’s role, duties, or authority at SNAP.  Rather, the determination that he is a key employee appears to be based merely on his title.  Further, the record does not support finding him to be a key employee, either.  According to his resume, he provides PMO support, but there is no indication that he has the authority to hire and fire, enter into contracts, or otherwise control the operations of SNAP as a whole.

OHA granted INV’s size appeal and reversed the SBA Area Office’s size determination.

The SBA affiliation rules can seem confusing and complex.  But in one respect, they are simple: affiliation turns on common control.  Although a “key employee” can control a company within the meaning of the SBA affiliation rules, the employee in question must have critical influence over the company’s day-to-day operations.  When an employee doesn’t exercise such influence, he or she will not be found to control the company.