Tag Archives: totality of the circumstances affiliation rule

OHA Finds Totality of the Circumstances Affiliation Based on Loans and Close Oversight of Operations

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Long-time SmallGovCon readers are probably aware of the thorny issues presented by an SBA finding of affiliation. When set aside contracts are dependent on a small business size status, an allegation of affiliation with a large business can be a crisis for a small business contractor. SBA’s affiliation doctrine is large and complex (so much so that we have an entire handbook dedicated to the subject).  But there is one catch-all affiliation provision that is perhaps the murkiest area of all, meaning the hardest to predict). If SBA does not find affiliation based on things like common ownership or common management (relatively straightforward concepts), it can nonetheless find affiliation based on “the totality of the circumstances.”

A recent OHA decision found affiliation based on totality of the circumstances, in part based on loans causing economic dependence, heavy reliance on infrastructure of an affiliate, and involvement in banking and operations.

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Back to Basics: Types of Affiliation

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This is a the second article of two taking you back to the basics of affiliation. The first, giving you a general overview of affiliation, can be found here. This follow-on article goes through the different bases for affiliation, as set forth in SBA’s affiliation regulations. Keep in mind though, this is still affiliation “basics” and does not go into a detailed analysis of each type of affiliation, as that would be a novel–not a blog.

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OHA Remands Size Determination Because Area Office Failed to Provide Due Process to Protested Concern

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SBA’s Office of Hearing and Appeals (OHA) recently said that the SBA Area Office should have informed the protested concern of the issues its adverse size determination focused on before ruling against the concern’s size eligibility on that basis. In addition to its lesson on due process, OHA also took this opportunity to distinguish totality of the circumstances affiliation (the basis on which the Area Office found affiliation here) from ostensible subcontractor affiliation (the basis for affiliation alleged in the size protest). OHA vacated and remanded the Area Office’s decision.

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Joint Venture Affiliation Exception Isn’t Unlimited, OHA Says

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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.

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SBA OHA: Historic Ties Do Not Equal Affiliation

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A history of close ties between companies does not mean that the companies are presently affiliated, according to a recent size appeal decision of the SBA Office of Hearings and Appeals.

In Size Appeal of A&H Contractors, Inc., SBA No. SIZ-5459 (2013), SBA OHA overturned a finding of affiliation because most of the ties relied upon by the SBA Area Office had been severed before the applicable date for determining size.

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SBA OHA: Tribal Companies Entitled to Broad Affiliation Exceptions

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Indian tribes, their holding companies, and companies owned by those holding companies are entitled to broad exceptions from the ordinary SBA affiliation rules, according to a recent SBA Office of Hearings and Appeals size appeal decision.

SBA OHA’s decision in Size Appeal of Roundhouse PBN, LLC, SBA No. SIZ-5383 (2012), holds that the SBA cannot use non-applicable affiliation rules to circumvent the regulatory exception from affiliation between tribal companies.  In its ruling, SBA OHA also sidestepped an interesting tribal size question: did Congress truly intend for some tribal companies to be “small” for 8(a) program purposes, but “other than small” for all other government contracts?

As you can probably tell, the Roundhouse PBN case is not your run-of-the-mill SBA OHA size appeal decision, meaning a slightly longer-than-normal blog post is in order.  Let’s dive right in.

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