Affiliation Issues in Small Business
Contracting: Structure Your Proposal
and Relationships for Success
NATIONAL 8(a) CONFERENCE
Presented by
S. Lane Tucker
lane.tucker@stoel.com
(907) 263-8411
Affiliation Issues in Small Business Contracting
February 3,
Orlando,
Florida
O R L2015
A N D O , F LO R
IDA
F E B R U A RY 3 , 2 0 1 5 •
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Cornerstone of Affiliation: Control
• General Principles of Affiliation -- Concerns and entities are affiliates
of one another when one controls or has the power to control the
other, or a third party or parties controls or has the power to control
both. It does not matter whether the control is exercised, so long as
the power to control exists. 13 CFR 121.103(a)
• Totality of the Circumstances -- SBA considers factors such as
ownership, management, previous relationships with or ties to
another concern, and contractual relationships, in determining
whether affiliation exists. 13 CFR 121.103(b)
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Affiliation Issues in Small Business Contracting
F E B R U A RY 3 , 2 0 1 5 •
ORLANDO, FLORIDA
The Ostensible
Subcontractor
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Affiliation Issues in Small Business Contracting
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Ostensible Subcontractor Rule
• Under the Ostensible Subcontractor Rule,
13 CFR 121.103 (h)(4), a would-be prime
contractor and its subcontractor are treated
as joint venturers, and therefore affiliates, for
size determination purposes if the
subcontractor has too great of a role under
the teaming arrangement
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Affiliation Issues in Small Business Contracting
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Prime Unusually Reliant on
Subcontractor
• More specifically, “an ostensible subcontractor is a subcontractor
that performs primary and vital requirements of a contract, or of an
order under a multiple award schedule contract, or a subcontractor
upon which the prime contractor is unusually reliant. All aspects of
the relationship are considered, including, the terms of the proposal
(such as contract management, technical responsibilities, and the
percentage of subcontracted work), agreements between the prime
and subcontractor (such as bonding assistance or the teaming
agreement), and whether the subcontractor is the incumbent
contractor and is ineligible to submit a proposal because it exceeds
the applicable size standard for that solicitation.”
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Affiliation Issues in Small Business Contracting
F E B R U A RY 3 , 2 0 1 5 •
ORLANDO, FLORIDA
What does this mean?
This is what SBA looks at:
What are the business and other affiliations
between the prime and its subcontractors,
including common ownership, management
and family relationships?
Which party “chased” the contract?
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Affiliation Issues in Small Business Contracting
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This is what SBA looks at:
 What degree of collaboration was there between
prime and subcontractor on the bid or proposal
preparation?
 Which party, if any, possesses the requisite
background and experience to carry out
contract?
 Which party will manage the contract?
Affiliation Issues in Small Business Contracting
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ORLANDO, FLORIDA
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This is what SBA looks at:
 Are there discrete tasks to be performed by each party
or is there commingling of personnel and material?
 What is the amount of work to be performed by each
party (the percentage of work subcontracted)?
 Which party performs the vital, more complex and costly
contract functions?
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Affiliation Issues in Small Business Contracting
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This is what SBA looks at:
 Was the subcontractor an incumbent on the current
contract and if so, was it ineligible to submit a proposal
because it exceeds the applicable size standard?
 What is the prior business relationship among the
companies?
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Affiliation Issues in Small Business Contracting
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Best Practices
 Work “closely” or “seamlessly” together rather than
“team” or “partner.”
 Be very specific about what each entity is doing.
 Explain that prime is in charge and the chain of
command goes through prime personnel (org charts,
etc.).
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Affiliation Issues in Small Business Contracting
F E B R U A RY 3 , 2 0 1 5 •
ORLANDO, FLORIDA
Joint Ventures / Procurement
• Generally, members to a joint venture are
considered affiliated for purposes of the
contract to be performed.
– A few exceptions at 13 C.F.R.
§121.103(h)(3)(i):
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Affiliation Issues in Small Business Contracting
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Joint Ventures / Procurement
• (h)(3) Exception to affiliation for certain joint ventures. (i)
A joint venture of two or more business concerns may
submit an offer as a small business for a Federal
procurement without regard to affiliation under paragraph
(h) of this section so long as each concern is small under
the size standard corresponding to the NAICS code
assigned to the contract, provided:
• (B) The procurement is other than bundled or
consolidated requirement within the meaning of
§125.2(d) of this chapter, and:
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Affiliation Issues in Small Business Contracting
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Joint Ventures / Procurement
• (B)(1) For a procurement having a receipts based size
standard, the dollar value of the procurement, including
options, exceeds half the size standard corresponding to
the NAICS code assigned to the contract;
• This means if the size standard is $35 million and the
procurement is worth $17.5 million or more you can JV
with other small businesses as long as each member
meets the $35m standard.
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Joint Ventures / Procurement
OR
• (B)(2) For a procurement having an employee-based
size standard, the dollar value of the procurement,
including options, exceeds $10 million.
• This means if there is an employee based size standard
of, for example, 500 employees, and the procurement is
worth more than $10m, you can JV with other small
businesses meeting the 500 employee size standard
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Joint Ventures / Procurement
Another exception:
• (h)(3)(ii) A joint venture of at least one 8(a) Participant
and one or more other business concerns may submit an
offer for a competitive 8(a) procurement without regard
to affiliation under paragraph (h) of this section so long
as the requirements of §124.513(b)(1) of this chapter are
met.
• §124.513(b)(1) provides that one member of the JV has
to be an 8(a) that is less than half the size standard
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Affiliation Issues in Small Business Contracting
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GAO Past Performance
• The use of sister company, affiliate, predecessor
company, and/or key personnel experience for
procurement purposes
– FAR 15.305(a)(2):
• (iii) The evaluation should take into account past performance
information regarding predecessor companies, key personnel who have
relevant experience, or subcontractors that will perform major or critical
aspects of the requirement when such information is relevant to the
instant acquisition.
• (iv) In the case of an offeror without a record of relevant past
performance or for whom information on past performance is not
available, the offeror may not be evaluated favorably or unfavorably on
past performance.
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GAO Past Performance
• You can use the past performance of predecessor
companies, and of key personnel, under the
following conditions
– Where the firm's proposal demonstrates that resources of
the parent or affiliate will affect the performance of the
offeror.
• The relevant consideration is whether the resources of the parent or
affiliated company – its workforce, management, facilities, or other
resources – will be provided or relied upon for contract
performance, such that the affiliate will have meaningful
involvement in contract performance.
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Affiliation Issues in Small Business Contracting
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GAO Past Performance
• You can use the past performance of predecessor
companies, and of key personnel, under the
following conditions (cont.)
– Where you can show the follow-on company is closely
related to the predecessor company.
• Factors (according to GAO) are: the follow-on company has the
same program manager, company principals, and very similar
service offerings. These are indicia that the two companies are
sufficiently related such that the resources of the predecessor
company are likely to affect the performance of the follow-on
company. GAO – Protest of Staff Tech Inc., B-403035.2;
B-403035.3, September 20, 2010
Affiliation Issues in Small Business Contracting
F E B R U A RY 3 , 2 0 1 5 •
ORLANDO, FLORIDA
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QUESTIONS?
THANK YOU
S. Lane Tucker
lane.tucker@stoel.com
(907) 263-8411
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Affiliation Issues in Small Business Contracting
F E B R U A RY 3 , 2 0 1 5 •
ORLANDO, FLORIDA