Economic dependence affiliation under the SBA’s affiliation rules can be created by a single ongoing contract, according to the SBA Office of Hearings and Appeals.
In a recent size appeal decision, SBA OHA held that a single contract amounting to more than 90% of an 8(a) applicant’s revenues over two years resulted in economic dependence affiliation.
A contractor’s economic dependence on another company can cause affiliation under the SBA affiliation rules, but economic dependence can also be a major problem when a company applies for 8(a) program certification.
As demonstrated in a recent decision of the SBA Office of Hearings and Appeals, if an 8(a) program applicant has received most of its revenues from another company, the SBA may find that the applicant is economically dependent on the other company–and therefore, ineligible for admission to the 8(a) program.
A contractor is not economically dependent upon another firm where it receives only a small proportion of its revenues from the other firm as of the self-certification date for a set-aside contract–even if the contractor previously received more than 70% of its annual revenues from the other firm.
This was the commonsense decision of the SBA Office of Hearings and Appeals in a recent size appeal case, in which SBA OHA held that a contractor’s prior economic dependence on another company does not necessarily mean that the companies are still affiliated under the SBA’s affiliation rules.
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.
When I was young, my parents gave me my first weekly allowance. Grand total: twenty-five cents. It doesn’t sound like much now (and it wasn’t then, either—I’m not that old!) but it was still 100% of my income. I was economically dependent on my parents.
When it comes to the SBA affiliation rules, a small business need not receive 100% of its revenues from another company in order to be considered an affiliate by virtue of economic dependence. For several years, the SBA followed a hard-and-fast rule: if a small business earned 70% or more of its revenues from another company, the two businesses were automatically affiliated.
But in Size Appeal of Argus & Black, Inc., SBA No. SIZ-5204 (2011), the SBA’s Office of Hearings and Appeals backed off the bright-line 70% rule, at least a little. In a commonsense decision, SBA OHA held that in limited circumstances, applying the 70% rule would be unfair.