Affiliation Issues in Small Business
Contracting: Structure Your Proposal
and Relationships for Success
National 8(a) Association
2014 Summer Conference
Presented by
S. Lane Tucker
sltucker@stoel.com
(907) 263-8411
Affiliation Issues in Small Business Contracting
June 17-18,
Alaska
• A2014
N C H O R A
G EAnchorage,
, AK
JUNE 17-18, 2014
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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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ANC Exception
Exceptions to Affiliations for ANCs
121.103(b)(2)(i) Business concerns owned and controlled by Indian Tribes, Alaska Native Corporations
(ANCs) organized pursuant to the Alaska Native Claims Settlement Act (43 U.S.C. 1601 et
seq.), Native Hawaiian Organizations (NHOs), Community Development Corporations (CDCs)
authorized by 42 U.S.C. 9805, or wholly-owned entities of Indian Tribes, ANCs, NHOs, or
CDCs are not considered affiliates of such entities
121.103(b)(2)(ii) Business concerns owned and controlled by Indian Tribes, ANCs, NHOs, CDCs, or
wholly-owned entities of Indian Tribes, ANCs, NHOs, or CDCs are not considered to be
affiliated with other concerns owned by these entities because of their common ownership or
common management. In addition, affiliation will not be found based upon the performance of
common administrative services, such as bookkeeping and payroll, so long as adequate
payment is provided for those services. Affiliation may be found for other reasons.
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Affiliation Issues in Small Business Contracting
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The Ostensible
Subcontractor
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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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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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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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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?
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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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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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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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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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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
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SBA Affiliation
• Affiliation Among Sister Companies
– ANC’s, 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
applicable to 8(a) companies: Size Appeal of
Roundhouse PBN, LLC, SBA No. SIZ-5383
(2012).
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SBA Affiliation
• OHA held that because there was no indication Tepa (the
parent holding company) or the sister companies were
subcontractors on the procurement. Indeed, SBA OHA
noted that “Tepa itself is a holding company that does
not directly perform federal contracts.” SBA OHA also
held that relying on Tepa’s employees and the corporate
experience of the sister companies was not a basis for
finding affiliation because such reliance is part and
parcel of common ownership and management, which is
protected from affiliation under 13 CFR § 121.103(b)(2).
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SBA Affiliation
• OHA stated “concerns owned by the same Indian tribe
will always share economic interests based on their
common management and ownership.” However,
under 13 CFR § 121.103(b)(2), common ownership
and management cannot be used to find affiliation
between tribal companies. In addition, SBA OHA held
that the “mere fact that companies operate in similar
lines of work, or in close proximity to one another,
does not give rise to affiliation . . ..”
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SBA Affiliation
• OHA found that Tepa – not Tepa EC –
employed all of the employees in question,
shifting them between companies as
needed. Thus, the employees in question
were never former Tepa EC employees, as
required to find affiliation under the rule.
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QUESTIONS?
THANK YOU
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