Does Your Teaming Agreement Avoid the SBA Definition of Affiliation?

When small businesses become subject to the SBA definition of affiliation, there is generally a sba affiliation definition and meaninggovernment bid submitted where there are teaming agreements or joint venture agreement relationships.

Having improper relationships can cause companies to lose the contract and income for their respective businesses.

There are several decisions from SBA-OHA that address the various affiliation approaches and adverse decisions from the SBA.

General SBA Affiliation Meaning & Definition 

Although the new SBA affiliation rules reduce the chances of affiliation between similarly situated companies, cases are litigated every day because of the unique facts of each case. Your company can reduce the likelihood of losing a contract in a size protest by keeping the following points when defining the affiliation meaning.

  • Concerns and entities are affiliates of each other when one controls or has the power to control the other, or a third party or parties control or has the power to control both. It does not matter whether the control is exercised, so long as the power to control exists. See also information on SBA 8a annual report, SBA form 601 and SBA Form 1450.
  • SBA affiliation rules consider factors such as ownership, management, previous relationships with or ties to another concern, and contractual relationships, in determining whether affiliation exists.
  • Control may be affirmative or negative. Negative control includes, but is not limited to, instances where a minority shareholder has the ability, under the concern’s charter, by-laws, or shareholder’s agreement, to prevent a quorum or otherwise block action by the board of directors or shareholders.
  • Affiliation may be found where an individual, concern, or entity exercises control indirectly through a third party.
  • In determining whether affiliation exists, SBA will consider the totality of the circumstances and may find affiliation even though no single factor is sufficient to constitute affiliation. See also SBA Joint Venture Definition.
  • In determining the concern’s size, SBA counts the receipts, employees, or other measures of the size of the concern whose size is at issue and all of its domestic and foreign affiliates, regardless of whether the affiliates are organized for profit. 

Why is Your Company’s Size Critical?

To become eligible for the award of federal contracts your company must meet the definition of a “ small business concern” as defined in 13 CFR part 121.  Part of avoiding the affiliation meaning under SBA size standards means that at the end of the day your company size must be small.

Otherwise, you stand to lose the contract. Small business size is especially important when you are competing for small business set-asides, Historically Underutilized Business Zone (HUBZone) program contracts; Women-Owned Small Business (WOSB) and Service-Disabled Veteran-Owned Small Business (SDVOSB) program. SBA affiliation and the importance of maintaining SBA size rules are also very important for small business loan programs and grant programs.

SBA Affiliation Regulations

The SBA’s affiliation regulations for its various programs (except SBIR/ STTR/ Business Loans/ Disaster Loans, and Surety Bonds) are found at 13 CFR 121.103. You can also find the affiliation regulations online at Part 121 of Title 13 of the Code of Federal Regulations (CFR). See SBA Joint Venture Agreements Will Get No Mercy When Violating Three in 2 Rule.

Important concepts and general principles of affiliation?

Under the SBA’s definition and meaning, small business affiliation exists when your business controls or has the power to control another company or when a third party controls or has the power to control both businesses. Under the affiliation rules, control can arise in a variety of circumstances including ownership, management, or other relationships or interactions between the parties.

Control may be either affirmative or negative. Negative control affiliation can include situations when a minority shareholder in the company has the ability, under the concern’s charter, bylaws, or its shareholder’s agreement, to prevent a quorum or otherwise block action by the board of directors or shareholders.

Definition of Affiliation Under 13 CFR 121.103 SBA Affiliation Rules

The SBA definition of affiliation can be tricky. When writing proposals, companies must be extremely careful about what tasks the teaming partner or subcontractor will be performing.  See also Small Business Set Aside Bid Protests. See Signs of Being Under Investigation (Federal)

Government contractors that are not familiar with what does affiliation mean and the complex rules and legal applications should seek legal advice before submitting their proposals. Otherwise, they may become the subject of a small business size protest. See more information about SBA affiliation rules and mergers and acquisitions of government contractors.

13 CFR part 121.103 How does SBA determine affiliation?

(a)General Principles of Affiliation.

(1) Concerns and entities are affiliates of each other 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.

(2) SBA considers factors such as ownership, management, previous relationships with or ties to another concern, and contractual relationships, in determining whether affiliation exists.

(3) Control may be affirmative or negative. Negative control includes, but is not limited to, instances where a minority shareholder has the ability, under the concern’s charter, by-laws, or shareholder’s agreement, to prevent a quorum or otherwise block action by the board of directors or shareholders.

(4) Affiliation may be found where an individual, concern, or entity exercises control indirectly through a third party.

(5) In determining whether affiliation exists, SBA will consider the totality of the circumstances, and may find affiliation even though no single factor is sufficient to constitute affiliation.

(6) In determining the concern’s size, SBA counts the receipts, employees, or another measure of size of the concern whose size is at issue and all of its domestic and foreign affiliates, regardless of whether the affiliates are organized for profit.

(7) For SBA’s Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, the bases for affiliation are set forth in § 121.702.

(8) For applicants in SBA’s Business Loan, Disaster Loan, and Surety Bond Guarantee Programs, the size standards and bases for affiliation are set forth in § 121.301.

Exceptions to SBA Affiliation Rules

When companies are making subcontracting arrangements with other companies, not every situation runs afoul of SBA affiliation rules. For example and according to the Legal Information Institute (LII), 13 CFR 121.103 makes an exception for the following:

  • Business concerns owned in whole or substantial part by investment companies licensed, or development companies qualifying, under the Small Business Investment Act of 1958.
  • 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. 1601et 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.
  •  Business concerns that are part of an SBA approved pool of concerns for a joint program of research and development or for defense production as authorized by the Small Business Act are not affiliates of one another because of the pool.
  • Business concerns that lease employees from concerns primarily engaged in leasing employees to other businesses or which enter into a co-employer arrangement with a Professional Employer Organization (PEO) are not affiliated with the leasing company or PEO solely on the basis of a leasing agreement.

  • For financial, management or technical assistance under the Small Business Investment Act of 1958, as amended, (an applicant is not affiliated with the investors listed in paragraphs (b)(5) (i) through (vi) of this section.

  • A firm that has an SBA-approved mentor-protégé agreement authorized under 13 CFR 124.520 or § 125.9 is not affiliated with its mentor firm solely because the protégé firm receives assistance from the mentor under the agreement. Similarly, a protégé firm is not affiliated with its mentor solely because the protégé firm receives assistance from the mentor under a federal mentor-protégé program where an exception to affiliation is specifically authorized by statute or by SBA under the procedures set forth in § 121.903. Affiliation may be found in either case for other reasons as set forth in this section. See SBA Joint Venture Rules & SBA Approval.
  • The member shareholders of a small agricultural cooperative, as defined in the Agricultural Marketing Act (12 U.S.C. 1141j), are not considered affiliated with the cooperative by virtue of their membership in the cooperative.
  •  These exceptions to affiliation and any others set forth in 13 CFR 121.702 apply for purposes of SBA’s SBIR and STTR programs.
  •  In the case of a solicitation for a bundled contract, a small business contractor may enter into a Small Business Teaming Arrangement with one or more small business subcontractors and submit an offer as a small business without regard to affiliation, so long as each team member is small for the size standard assigned to the contract or subcontract. The agency shall evaluate the offer in the same manner as other offers with due consideration of the capabilities of the subcontractors. See SBA Certificate of Competency COC Program & Bid Protests

Avoid Costly Mistakes in SBA Program Litigation. See What We Do to Help

See information about SBA OHA Affiliation Decision Defeats Contractor Argument that Subcontractor Was Similarly Situated

For help applying the SBA definition of affiliation its affiliation rules to your teaming and SBA subcontracting relationships, call Watson’s government contract and SBA lawyers at 1-866-601 5518. FREE INITIAL CONSULTATION.

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