SBA Size Protest Family Relationship & Identity of Interest

---

Often times, small businesses enter into family relationships that can impact the SBA Size standards application. When competitors challenge a government contract award in an SBA size protest, the analysis will usually be conducted under an Identity of Interest and family relationship basis.

Companies that do not understand these rules can find themselves losing out on millions of dollars in federal contracts.

When the SBA makes a size determination, you can always appeal the decision to SBA OHA. However, as the Appellant, you have the burden of proving, by a preponderance of the evidence, all elements of the appeal.

Specifically, to appeal the SBA’s size determination, you must prove that the size determination is based upon a clear error of fact or law. See 13 CFR 134.314.

• The best way to preserve your rights for appeal is to make sure that you present all facts and evidence at the initial size protest level.

Note: Although an SBA size protest based upon family relationships and identity of interest involve longstanding rules, there is also a rebuttable presumption to affiliation that the protested company can defend against. See 13 CFR 121.103(f).

Appealing the SBA’s Identity of Interest Analysis: Sometimes the SBA does make mistakes in its small business size determinations. When investigating family relationships, the identity of interest review can be flawed and not in your favor. Things that the SBA might not have considered include:

• Accepting employee count on SBA Form 355, without obtaining supporting documentation, such as payroll records.
• The awardee having a limited workforce.
• Whether the prime small business uses independent contractors and if it included those individuals as part of its employee count.

For example, in SBA Size Protest Appeal of SolarCity Corporation, SBA No. SIZ-5257 (2011), OHA aggregated interests of family members to analyze control, and concluded that the family members collectively held a sufficiently large block of stock to control the challenged firm.

• The SBA’s goal should be to investigate the facts to see who actually controls, or has the ability to control, the prime contractor.
• Also, the SBA should also look to see whether there is sufficient evidence of clear fracture to overcome the presumption of identity of interest, 13 CFR 121.103(f).

When forming your business entity, always make sure that other family member business does not impact your company’s future. There are several other situations that can cause you to violate SBA program and small business rules.  Getting the proper guidance can avoid expensive litigation.

Appealing Issues not Raised in the Initial SBA Size Protest

A common strategy for the awardee’s small business size protest lawyer is to allege that the appeal should be dismissed because the protestor did not raise certain points in the initial SBA size protest.

However, it is settled law, however, that a protester “has standing to appeal any issue addressed in a size determination, even if the protester did not raise the same issues in its underlying protest.” Size Appeals of BA Urban Solutions, LLC, et al., SBA No. SIZ-5521, at n.5 (2013). Also, see information about the Runway Extension Act.

Effect of Affiliation Even if Companies Do not Exceed SBA Size Standards

As a general rule, even if companies violate affiliation rules based upon the identity of interest rules, so long as the two companies do not violate the NAICS size standard rules, the contract will still be awarded. However, companies should not take this chance. 

As you can see, SBA small business size protests based upon family relationships and identity of interest can be very tricky. Whether you are the awardee that is challenged in the SBA size standards protest or the protestor appealing the decision, you can waste thousands of dollars in litigation if you do not understand the rules. Get more information about Filing or intervening SBA size protests.

See How We Can Help With Size Protest Litigation

For help with filing or defending an SBA small business size determination based upon family relationships and identity of interest, call the SBA size protest lawyers at Watson & Associates, LLC. Call 1-866-601-5518.