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.
Common investment affiliation can arise when SBA believes that two individuals’ common investments in multiple entities may make the individuals in question act with a common purpose. As few as two common investments can form the basis for affiliation.
A recent SBA Office of Hearings and Appeals opinion examines the argument that the number of common investments should be counted the same way the number of entities is treated for tax purposes. OHA’s answer: Nope.
A recent SBA Office of Hearings and Appeals decision confirms that there is no exception for nonprofit organizations when it comes to affiliation issues.
In the case, SBA OHA found affiliation between a self-certified small business and a nonprofit organization based on close family members controlling both the business concern and the nonprofit. Adding in the receipts from the affiliated nonprofit made the business in question ineligible for small business status.
To encourage joint venturing, the SBA’s size regulations provide a limited exception from affiliation for certain joint venturers: a joint venture qualifies for award of a set-aside contract so long as each venturer, individually, is below the size standard associated with the contract (or one venturer is below the size standard and the other is an SBA-approved mentor, and they have a compliant joint venture agreement). In other words, the SBA ordinarily won’t “affiliate” the joint venturers—that is, add their sizes together—if the joint venture meets the affiliation exception.
Because of this special treatment, it can be easy for the venturers to assume that they are completely exempt from any kind of affiliation. But as the SBA Office of Hearings and Appeals recently confirmed, however, the exception isn’t nearly so broad.
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.