SBA Affiliation Guidelines Size Protest Common Management Identity of Interest

Common Management and identity of interest are part of affiliation disputes raised in a small business size protest. However, you must be fully aware of the legal issues and how lawyers analyze them. You do not want to lose out in a SBA size appeal by taking on the case yourself and not understanding how does SBA determine affiliation.

The general SBA affiliation rules based upon common management state that  businesses are affiliated when one business controls or has the power to control the other, or a third-party controls or has the power to control both. 13 CFR 121.103(a)(1). Further, SBA affiliation arises where one or more officers, directors, managing members, or partners who control the board of directors and/or management of one concern also control the board of directors or management of one or more other concerns. 13 C.F.R. § 121.103(e).

• You can lose a SBA size protest and become affiliated due to common management if both concerns are controlled by the same person or persons. See Size Appeal of Bob Jones Realty Co., SBA No. SIZ-4059, at 5 (1995).

In an appeal to the SBA Office of Hearings and Appeals, a judge analyzes common management by considering whether the persons alleged of common management control or have the power to control the other company.

For example, SBA OHA has held that where a majority shareholder has the power to call a shareholders meeting and, at that meeting, to remove any and all directors with or without cause; it is the majority shareholder, not the directors, who controls the firm, and any control by the directors is illusory.

• When making a size protest decision on common management, it is not uncommon for family relationships to be strained by business differences.

When assessing how does SBA determine affiliation, small businesses that have shares in other businesses bidding on the same contract must be extremely careful. Size protests based upon common management are dangerous tools use by a protestor to take away millions of your potential company revenues.

Common Management and Identity of Interest Rules

In addition to common management allegations, an SBA size protest based upon identity of interest can also raise serious problems for business owners when two companies are participating in the same government contract.

Identity of Interest laws: the SBA affiliation guidelines provide: “affiliation may arise among two or more persons with an identity of interest. Individuals or firms that have identical or substantially identical business or economic interests (such as family members . . . ) may be treated as one party with such interests aggregated. Where SBA determines that such interests should be aggregated, an individual or firm may rebut that determination with evidence showing that the interests deemed to be one are in fact separate.” See 13 CFR 121.103(f).

Although there are allegations that individuals share an identity of interest based on their family relationships; determining the existence of an identity of interest is only part of the affiliation inquiry. The regulations require that, unless the identity of interest is rebutted, the persons sharing the identity of interest must be treated as “one party” with their interests aggregated. Size protest lawyers must address this issue firsthand or they will lose the protest.  As size protest lawyers, we analyze and decide whether such relationships actually cause affiliation.

In analyzing questions of SBA affiliation under identity of interest, the greatest question is always whether one concern can control the other. “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 control is exercised, so long as the power to control exists.” Your size protest argument should not be only based upon actual control.

Therefore, the affiliation question in an identity of interest case is whether, given the aggregated interests, one business controls another, or a third-party (for instance, the party or parties holding the aggregated interests) can control the concerns in question.

See How We Can Help With Size Protest Litigation

For immediate help in a pending SBA affiliation size protest, call a government contracts attorney at 1-866-601-5518.