Affiliation Issues in 8a Contracting and Native American Contracting

Native American contracting still has its ups and downs. SBA OHA is still faced with subcontractor affiliation appeals despite what some may consider easy to understand rules under 13 CFR 121.103.

native american government contractingAs recently as April 2017, the Small Business Administration (SBA) found Olgoonik Diversified Services, LLC to be affiliated due to its relationships with its sister companies. Benefiting the special rules of Native American Tribes, Olgoonik appealed the small business size determination to SBA OHA and requested reversal.

The key issue for a court to decide on appeal is whether rules for Native American government contracts exempt super 8a tribal entities from affiliation with sister companies if the parties do not perform jointly on a contract, share resources, nor share in any profits.

The legal issue becomes more problematic if there is an official joint venture agreement between the companies. In federal Native American government contracts, if neither of the sister companies are subcontractors for the specific procurement, a de facto joint venture should not lead to a finding of a joint venture based on SBA 8a regulations. Every case is fact-specific and subcontractor arrangements should be carefully reviewed.

Native American Contracting Under the Diplomatic Security Act 22USC 4852(a)

Section 402 of the  Diplomatic Security Act requires, with certain exceptions, that only “United States persons” and “qualified United States joint venture persons” may bid on diplomatic construction or design projects which exceed $5 million or which involve physical or technical security. 22 USC 4852(a).

A “United States person” is defined at length, but essentially it is a business concern organized in the United States. See 22 USC 4852(c)(2). A “qualified United States joint venture person” is a joint venture in which a United States person or persons owns at least 51% of the joint venture’s assets. 22 USC 4852(c)(3).

SBA Interpretation: Under SBA’s regulations, the parties to a joint venture are affiliated for the performance of the contract for which they have submitted an offer, absent certain exceptions  Under 13 CFR 121.103(h)(2). OHA makes a distinction between joint ventures under SBA’s regulations and joint ventures under the Diplomatic Security Act.

When Do Tribal and ANC Contractors Have Special Rights in Federal Contracting?

Generally, tribal 8(a) companies ANC contractors enjoy the unique rights in federal government contracting in the following procurement areas:

SBA 8(a) Program

Super 8a companies can receive Tribal and ANC sole source 8(a) contracts regardless of dollar size, with no upper limit. Whereas, traditional 8a certified companies cannot.

  • Special Rights Under the A-76 Program
  • The not-so- popular 5% Subcontracting Bonus – Pursuant to statutory language and implementing regulations, a DOD contractor that subcontracts with a firm that is 51% or more Native American owned is entitled to receive a bonus equal to 5% of the amount of the subcontract award.

When are Native American Government Contractors Affiliated?

In Size Appeal of Roundhouse PBN, LLC, SBA No. SIZ- 5383 (2012) OHA found that subsidiary of an ANC 8a was affiliated with its sister companies because it was unduly reliant upon them for bonding, past performance, and experience. In roundhouse, that appellant referred to the sister companies as its “toolbox,” implying that these subsidiaries were at that appellant’s disposal for contract performance.

In that case, SBA OHA found that the ostensible subcontractor rule did not apply because none of the alleged affiliates were actually subcontractors to the challenged concern. The risk of affiliation in Native American sole source contracts becomes more apparent when the offeror list the sister companies as subcontractors and then rely on them too much.

Although Native American contracting has some very unique rules and substantial statutory benefits, companies can still be found affiliated despite common belief.

  • Relying upon affiliates for performance invites scrutiny from the courts.
  • Reliance upon a parent company by shifting personnel among its various subsidiaries can be an aspect of the concerns’ common ownership and common management, and thus exempt from a finding of affiliation.

Application of the Ostensible Subcontractor Rule

SBA OHA has frequently ruled that in order for the ostensible subcontractor rule to apply, the alleged affiliate must actually be a subcontractor of the challenged concern. Size Appeal of Active Deployment Systems, Inc., SBA No. SIZ-5230 (2011); Size Appeal of Alutiiq Intl. Solutions, LLC, SBA No. SIZ-5098 (2009); and Size Appeal of Tiger Enterprises, Inc., SBA No. SIZ-4547 (2004).

  • In a small business size protest, there must be a subcontractor relationship between the challenged concern and its alleged affiliate. If not, the alleged affiliate cannot be found to be an ostensible subcontractor.

Common SBA Mistakes with Tribal and ANC 8 a Sole Source Contracts

Sometimes in 8a contracts, the SBA makes mistakes in its legal analysis of relationships between Native American tribes. This is also true when looking at Native American sole source contracts.  In it common for Native American government contractors to rely upon sister companies for past performance, transfer employees from its sister companies to perform the contract. Sometimes the SBA may decide that Native American tribe’s reliance on their sister companies’ personnel for contract management were indicative of determining that a joint venture exists. However, when Native American prime transfers personnel among its sister companies as part of the common management of its concerns, there is an expressed exception to a finding of affiliation under 13 CFR 121.103(b)(2). See affiliation based upon identity of interest.

As stated earlier, subcontractor relationships in Native American contracting can be somewhat confusing. When the SBA makes mistakes, a thorough understanding of the regulations can be helpful when seeking a reversal from OHA.

See How We Can Help You With Joint Venture & Teaming Matters

For additional help or representation with Native American contracting rules regarding affiliation or general help with tribal and ANC 8 a sole source contracts call our size protest lawyers at 1-866-601-5518.