Subcontractor Totality of the Circumstances Affiliation Test In Size Appeal Litigation at SBA OHA and Appeals Can be Very Tricky

Small Business Size Appeal - Totality of The Circumstances Test - SBA OHA Office of Hearings and AppealsWhat the SBA Office of Hearings and Appeals (SBA OHA) applies the totality of the circumstances test in small business size appeal and subcontractor size protests cases based upon control or the power to control under 13 CFR 121.103(a).

Many contractors understand the basic control rule. However, many attorneys on appeal to SBA OHA fail to assess the disastrous ability to control rule and totality of the circumstances. This is where a large percentage of small businesses in OHA size appeal litigation.

Under that regulation, affiliation means  “one [concern] controls or has the power to control the other, or a third party or parties controls or has the power to control both.”) See Size Appeal of LGS Management, Inc., SBA No. SIZ-5160, at 3 (2010) (“control is always the principal question when addressing affiliation“).

The key issue when considering the totality of the circumstances test is that you have to make informed decisions as to whether to have someone on your proposed staff that also has ties with another company to which you are involved in a current procurement.

  • You must assess the facts carefully before executing relationships with your subcontractor.
  • You want to carefully look at any loans that you might have had with an affiliated company.
  • Typically, if the loan is already paid then your case may be stronger.
  • You might want to readjust how you select teaming partners and joint venture relationships. The more facts you have showing ties with another company the more risk of losing in an SBA Office of Hearings and Appeals size appeal protest.

In a size appeal, the Small Business Administration  may find affiliation based solely on the totality of circumstances, but it must [first] find facts and explain why those facts caused it to determine one concern had the power to control the other.”  See Size Appeal of Faison Office Products, LLC, SBA No. SIZ-4834, at 11 (2007); see also Size Appeal of Diverse Constr. Group, LLC, SBA SIZ-5112, at 7 (2010) (under a totality of circumstances analysis, “a review of all the factors may lead to the conclusion one business has the power to control the other and, thus, both are affiliated.”). See additional information about small business merger and acquisition and the present effect rule.

SBA Size Determination Decisions Can Be Appealed: You should note that simply because the SBA says so is not the end of the discussion. The decision to appeal a “totality of the circumstances” decision must be supported by the facts and reasonableness also comes into play.

SBA OHA Size Appeal Decision Issues – Business Control;  One problem that you may run into is that the SBA often looks at the history of key personnel and whether they serve in positions at the other company. That by itself is not determinative in a small business size appeal. The question of affiliation also hinges on the CURRENT ability to control your business. This can be supported by 13 CFR 121.1001(b)(9).

In Size Appeal of OBXtek, Inc., SBA No. SIZ-5451, at 12 (2013) SBA Office of Hearings and Appeals reversed the SBA’s size determination decision because the challenged firm had severed its longstanding economic dependence upon an alleged affiliate one month before the date to determine size, and “[s]o long as affiliation ceases before the date for determining size, the firms are former affiliates and their receipts will not be aggregated.”)

Under SBA size protest regulations, when you hire people in your company that has also served in a management capacity in another company, you may want to ensure that you balance the time of the hire before you submit a proposal for an existing government contract. SBA OHA and Appeals looks at inferences and deductions.

You also want to avoid having a key member of your staff that still is involved with another company. This one is not so easy to get around. In addition, although the size appeal case law tends to show that if a person in your company has a very small percentage ownership in the other firm that affiliation is not conclusive, you may want to err on the side of not hiring that person.

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Always consider getting legal advice from an experienced small business size appeal and subcontractor size determination lawyer that understands how the SBA Office of Hearings and Appeals (SBA OHA) analyzes “totality of  the circumstances test.”

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