A small government contractor needs to keep a close eye on its relationships with large businesses, as almost any type of interaction between the companies, such as contracts, bonding assistance, and overlaps in employees or officers may be considered evidence of SBA affiliation in a size appeal. But, at least in one opinion issued by the SBA’s Office of Hearings and Appeals, the capital contributions of a large business member were irrelevant to an affiliation analysis.
Tag Archives: SBA affiliation rules
SBA Affiliation Rules and Economic Dependence: SBA OHA Backs off “70% Rule” (A Little)
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.
Applying for 8(a) Certification? Address Potential SBA Affiliation Problems First
Affiliation under the SBA’s rules typically becomes a problem when a small business submits an offer on a set-aside procurement, and a competitor files an SBA size protest, challenging eligibility. But the SBA will examine affiliation issues in other contexts, including when a small business submits an application for the SBA’s 8(a) Business Development Program.
As one unfortunate contractor recently learned, if you do not solve any affiliation problems before you submit your 8(a) application, the SBA may not only reject your 8(a) Program application, but deem you a large business, ineligible to obtain small business set-aside contracts in your primary NAICS code.
SBA OHA: Ostensible Subcontractor Rule Shouldn’t “Close the Door” to New Businesses
A small business’s relative inexperience should not be the primary basis for a determination that the small business is affiliated with its subcontractor under the “ostensible subcontractor” rule, according to the SBA’s Office of Hearings and Appeals. SBA OHA’s decision in Size Appeal of Fischer Business Solutions, LLC, SBA No. SIZ-5075 (2009), held that the SBA’s Area Office improperly relied upon a small business’s lack of experience in a particular field to find it affiliated with its subcontractor.