Back to Basics: SBA’s OHA Reminds Area Offices How to Apply the Ostensible Subcontractor Rule

We’ve discussed the “ostensible subcontractor rule” quite a few times on the blog (including most recently here and here) because it is one of the most frequent grounds for size protests. It’s also frequently misunderstood. A recent SBA Office of Hearings and Appeals decision, Contego Environmental, LLC, SBA No. SIZ-6054 (May 19, 2020), demonstrates how even SBA Area Offices can misapply the rule and provides useful reminders to contractor looking to avoid violating it.

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SBA OHA confirms 3-year look-back period for economic dependence affiliation

Under the SBA’s regulations, affiliation between two companies might exist where one company derives 70% or more of its receipts from the other over the preceding three fiscal years. See 13 C.F.R. § 121.103(f)(2).

This economic dependence affiliation, as it is called, can be tricky to identify in practice—it is, after all, a rebuttable presumption of affiliation. That is, a company might be able to demonstrate that economic dependence doesn’t exist if, for example, it has only been in business for a limited amount of time and has only been awarded a limited number of contracts.

Recently, the SBA’s Office of Hearings and Appeals considered the bounds of the economic dependence affiliation rule and interpreted the three-year look-back period.

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YouTube Tuesday: What is Affiliation? An Overview

Affiliation is a broad and often confusing concept that commonly arises in the context of government contracting. In this YouTube video, I walk you through the basics of affiliation, including the main types of affiliation and the implications of being found affiliated.

Stay tuned to our blog for additional overviews of important government contracting concepts. And if you need more personalized assistance or advice regarding affiliation or any of your government contracting needs, please call us at Koprince Law. We are always here to help.

SBA’s Paycheck Protection Program: What’s Going On with Affiliation?

Since the SBA’s Paycheck Protection Program went into effect last Friday, there has been considerable confusion about eligibility and, in particular, what affiliation rules apply to program applicants. The affiliation rules are important for helping companies determine if they can seek out these important loans. In this blog post, I’ll let you know which affiliation rules apply to the program’s applicants and explain some exceptions to the applicable affiliation rules.

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Paycheck Protection Program under the CARES Act: Keeping Small Business Workers Employed

In the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Congress appropriated $349 billion for loans to small businesses. These loans, issued under the Paycheck Protection Program, are aimed at helping small businesses keep their workers on payroll by providing loans, up to $10 million, that are partially forgivable. Let’s explore some of the details of this important program instituted as part the U.S. Government’s response to COVID-19.

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Too Late for Take-Backs: Ostensible Subcontractor Analysis Won’t Consider Post-Proposal Changes

In Warrior Service Company, LLC, SBA No. SIZ-6046 (Jan. 24, 2020), the SBA reminded small business contractors that it determines whether a contractor has violated the ostensible subcontractor rule as of the date of bid submission; SBA won’t consider any changes that come later.

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OHA: Sold Corporate Division Isn’t a Former Affiliate

Affiliation is a dirty word to small business federal government contractors. For good reason: it can turn a small business into a large one and destroy its eligibility for socioeconomic programs and set-aside contracts. Proactive small business contractors, therefore, routinely audit their affiliation risks and, if necessary, take actions to fracture that affiliation.

One of the ways a company might try to fracture affiliation is to sell a division or business line to a third party. Because this division is sold, the company might be tempted to assume that its corresponding revenues are not considered as part of the affiliation analysis (under the former affiliate rule).

A recent OHA decision, however, instructs that a division or line of business does not qualify under the former affiliate rule.

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