SBA Rules - Important New Small Business Affiliation RulesBy virtue of congressional mandates, and under the National Defense Authorization Act (NDAA), the Small Business Administration regulations (SBA) has made recent changes to various affiliation rules that regulate small business contracts including those set aside for designated SBA programs and the limitation on subcontracting.

The highlights include mention of similarly situated small businesses and how previous SBA affiliation rules impact the amount of work subcontracted to teaming partners and joint venture arrangements.

Small businesses should be aware that although the new rules tend to relax the availability of size protests, the Small Business Administration regulations can still find affiliation if the statutory requirements are not followed.

SBA Rules About Affiliation in General

The new SBA rules address procurements for bundled contracts and suggest that a small business can engage in teaming agreements with other small business if each team member or subcontractor qualifies as small under the respective size standards. This is based on the small business size standard that the contracting officer assigns to the prime contract and that assigned to the subcontract.

SBA Affiliation and Joint Ventures

The newly published SBA rules also have incorporated changes to apply to joint ventures. Before, small businesses entering a joint venture agreement were presumed affiliated and subject to the ostensible subcontractor rule if they were unusually reliant on the subcontractor. They would only escape affiliate if they met the statutory exemption for SBA affiliation rules.  Under the 13 CFR 125.1, joint ventures would not be affiliated if they pass on work to similarly situated subcontractors.

Limitations on Subcontracting

To avoid confusion with the old limitations on subcontracting rules that applied to 8(a) participants, the SBA now includes 13 CFR 125.6.

Service-disabled veteran-owned small business SDVOSB. The new SBA small business affiliation rules for SDVOSB state that when a small business represents itself as an SDVOSB it must also represent that it will comply with the limitation on subcontracting in accordance with 13 CFR 125.6 as part of the initial offer.

Companies owned by married couples

 The new SBA rules suggest that small business companies owned and controlled by married couples are presumed to be affiliated. This is in addition to parties to a civil union, parents, children, and siblings. The SBA states that such a presumption can be rebutted by showing of a clear line of fracture between the small business concerns. Of note, other types of familial relationships (cousins etc.) are not grounds for presuming affiliation on family relationships.

Authority for PCRs

 Procurement Center reps are often located at federal government agencies and on military bases. Under the SBA affiliation rules, the PCR must now review all acquisitions that are designated as a total small business set aside.

The reason for this oversight is for the PCR to decide whether a set-aside or sole source award to a small business is appropriate and to identify alternative strategies to maximize the participation of small businesses in the procurement. This level of oversight was also part of the small business specialist requirements. However, over the years, the agency small business specialist may not have had much teeth in the procurement decision process.

Also under the new rules, the PCR role as an advocate has been amplified especially for against bundling of government contract procurement requirements,

The new SBA small business affiliation rules introduce the idea that PCRs can accept unsolicited proposals from small businesses. This allows for some level of meaningful dialogue with the PCR and contracting personnel.

Prime contractor responsibilities when choosing small business subcontractors: Under the new SBA regulations, if you are a prime contractor and during the bidding stage you identify a named small business, you now have to notify those subcontractors, in writing

This amendment to the rules adds pressure to those prime subcontractors that really do not intend to use subcontractors named in their bid submission.

SBA Affiliation Rules Penalties for Violations

For companies that violate this notification rule, they can now be subject to false statement claims. They can now be referred to the SBA’s Office of Inspector General (SBA IG).

All other small business concerns as to whether a prime contractor or subcontractor has complied with SBA rules or otherwise acted in bad faith may be reported to the Government Contracting Area Office where the firm is headquartered.

Contractors who are deemed to act in bad faith can be found in material breach of contract and subject to liquidated damages under their contract.

Speak to an Attorney & Get a Free Initial Consultation

For additional information about important aspects of new SBA affiliation rules and small business guidelines, call the government small business contract lawyers at Watson & Associates LLC at 1-866-601-5518.