Tag Archives: SBA affiliation rules

8(a) Mentor Protege Agreements And Shared Employees: A Risk Of Affiliation?

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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?

Maybe.

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?

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Ostensible Subcontractor Rule: Lessons Learned From SBA OHA

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Avoiding affiliation under the SBA’s ostensible subcontractor rule can be difficult, especially since the ostensible subcontractor rule itself, 13 C.F.R. § 121.103(h)(4), does not provide many examples of the factors that may cause ostensible subcontractor affiliation.

A recent decision of the SBA Office of Hearings and Appeals, Size Appeal of InGenesis, Inc., SBA No. SIZ-5436 (2013), demonstrates that even when a proposed subcontractor will play a major role in the procurement, ostensible subcontractor affiliation may be avoided if the parties carefully structure their relationship.

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Ostensible Subcontractor Rule: SBA 8(a) Mentor-Protege “Shield” Does Not Apply

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The SBA 8(a) mentor-protege affiliation “shield” does not prevent a mentor and protege from being affiliated under the so-called ostensible subcontractor rule, according to a recent decision of the SBA Office of Hearings and Appeals.

In Size Appeal of InGenesis, Inc., SBA No. SIZ-5436 (2013), SBA OHA held that the broad exception from affiliation for 8(a) proteges and their mentors does not prevent the SBA from deeming the companies affiliated under the ostensible subcontractor rule.

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SBA Affiliation Rules: Directors’ Control “Illusory,” Says SBA OHA

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A director does not “control” a company under the SBA affiliation rules when that director can be removed at any time by the majority shareholder, according to a recent size appeal decision of the SBA Office of Hearings and Appeals.

In Size Appeal of Environmental Quality Management, Inc., SBA No. SIZ-5429 (2012), SBA OHA arrived at the commonsense conclusion that when a majority shareholder has unfettered discretion to fire a company’s directors, the majority shareholder–not the directors–control the company for purposes of the SBA affiliation rules.

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SBA Affiliation Rules: No Exception For Non-Profits (Usually)

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Under the SBA affiliation rules, there is no broad exception from affiliation with a non-profit, according to a recent SBA Office of Hearings and Appeals decision.

In Size Appeal of Asklepion Pharmaceuticals, LLC, SBA No. SIZ-5410 (2012), SBA OHA held that the SBA Area Office properly found a company affiliated with several non-profits, causing the company to be ineligible as a small business.

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Congress Authorizes SBA Mentor-Protege Program For All Small Businesses, Centralizes Oversight

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Congress has authorized the SBA to create a mentor-protege program for all small businesses, not just socioeconomically disadvantaged companies.

This major change was included in the 2013 National Defense Authorization Act and signed into law by President Obama on January 3.  The 2013 NDAA also addresses the recent proliferation of agency mentor-protege programs (and, by extension, the SBA’s refusal to acknowledge an exception from affiliation for participants in most other agencies’ mentor-protege programs) by requiring most procuring agencies to obtain SBA approval for their mentor-protege programs.

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SBA OHA: 21.2% Minority Owner Controlled Contractor

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A minority owner with a mere 21.2% stake in a government contractor controlled that contractor for SBA size and affiliation purposes, according to a recent SBA Office of Hearings and Appeals decision.

SBA OHA’s decision in Size Appeal of Civitas Group, LLC, SBA No. SIZ-5424 (2012) is an important reminder that a contractor’s single largest minority shareholder may be deemed to control the company under the SBA size and affiliation rules–even if the contractor’s governing documents do not grant that shareholder actual legal control.

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