National 8(a) Association 2014 Summer Conference Presented by S. Lane Tucker sltucker@stoel

1. Affiliation Issues in Small Business Contracting: Structure Your Proposal and Relationships for Success National 8(a) Association 2014 Summer Conference Presented by S. Lane Tucker sltucker@stoel.com (907) 263-8411 June 17-18, 2014  Anchorage, Alaska

2. Cornerstone of Affiliation Control • General Principles of Affiliation -- Concerns and entities are affiliates of one another 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. 13 CFR 121.103(a) • Totality of the Circumstances -- SBA considers factors such as ownership, management, previous relationships with or ties to another concern, and contractual relationships, in determining whether affiliation exists. 13 CFR 121.103(b)

3. ANC Exception Exceptions to Affiliations for ANCs 121.103(b)(2)(i) 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. 1601 et 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 121.103(b)(2)(ii) Business concerns owned and controlled by Indian Tribes, ANCs, NHOs, CDCs, or wholly-owned entities of Indian Tribes, ANCs, NHOs, or CDCs are not considered to be affiliated with other concerns owned by these entities because of their common ownership or common management. In addition, affiliation will not be found based upon the performance of common administrative services, such as bookkeeping and payroll, so long as adequate payment is provided for those services. Affiliation may be found for other reasons.

4. The Ostensible Subcontractor

5. Ostensible Subcontractor Rule • Under the Ostensible Subcontractor Rule, 13 CFR 121.103 (h)(4), a would-be prime contractor and its subcontractor are treated as joint venturers, and therefore affiliates, for size determination purposes if the subcontractor has too great of a role under the teaming arrangement

6. Prime Unusually Reliant on Subcontractor • More specifically, “an ostensible subcontractor is a subcontractor that performs primary and vital requirements of a contract, or of an order under a multiple award schedule contract, or a subcontractor upon which the prime contractor is unusually reliant. All aspects of the relationship are considered, including, the terms of the proposal (such as contract management, technical responsibilities, and the percentage of subcontracted work), agreements between the prime and subcontractor (such as bonding assistance or the teaming agreement), and whether the subcontractor is the incumbent contractor and is ineligible to submit a proposal because it exceeds the applicable size standard for that solicitation.”

7. What does this mean? This is what SBA looks at: • What are the business and other affiliations between the prime and its subcontractors, including common ownership, management and family relationships? • Which party “chased” the contract?

8. This is what SBA looks at: • What degree of collaboration was there between prime and subcontractor on the bid or proposal preparation? • Which party, if any, possesses the requisite background and experience to carry out contract? • Which party will manage the contract?

9. This is what SBA looks at: • Are there discrete tasks to be performed by each party or is there commingling of personnel and material? • What is the amount of work to be performed by each party (the percentage of work subcontracted)? • Which party performs the vital, more complex and costly contract functions?

10. This is what SBA looks at: • Was the subcontractor an incumbent on the current contract and if so, was it ineligible to submit a proposal because it exceeds the applicable size standard? • What is the prior business relationship among the companies?

11. Best Practices • Work “closely” or “seamlessly” together rather than “team” or “partner.” • Be very specific about what each entity is doing. • Explain that prime is in charge and the chain of command goes through prime personnel (org charts, etc.).

12. GAO Past Performance • The use of sister company, affiliate, predecessor company, and/or key personnel experience for procurement purposes • FAR 15.305(a)(2): • (iii) The evaluation should take into account past performance information regarding predecessor companies, key personnel who have relevant experience, or subcontractors that will perform major or critical aspects of the requirement when such information is relevant to the instant acquisition. • (iv) In the case of an offeror without a record of relevant past performance or for whom information on past performance is not available, the offeror may not be evaluated favorably or unfavorably on past performance.

13. GAO Past Performance • You can use the past performance of predecessor companies, and of key personnel, under the following conditions • Where the firm's proposal demonstrates that resources of the parent or affiliate will affect the performance of the offeror. • The relevant consideration is whether the resources of the parent or affiliated company – its workforce, management, facilities, or other resources – will be provided or relied upon for contract performance, such that the affiliate will have meaningful involvement in contract performance.

14. GAO Past Performance • You can use the past performance of predecessor companies, and of key personnel, under the following conditions (cont.) • Where you can show the follow-on company is closely related to the predecessor company. • Factors (according to GAO) are: the follow-on company has the same program manager, company principals, and very similar service offerings. These are indicia that the two companies are sufficiently related such that the resources of the predecessor company are likely to affect the performance of the follow-on company. GAO – Protest of Staff Tech Inc., B-403035.2; B-403035.3, September 20, 2010

15. SBA Affiliation • Affiliation Among Sister Companies • ANC’s, their holding companies, and companies owned by those holding companies are entitled to broad exceptions from the ordinary SBA affiliation rules, according to a recent SBA Office of Hearings and Appeals size appeal decision applicable to 8(a) companies: Size Appeal of Roundhouse PBN, LLC, SBA No. SIZ-5383 (2012).

16. SBA Affiliation • OHA held that because there was no indication Tepa (the parent holding company) or the sister companies were subcontractors on the procurement.  Indeed, SBA OHA noted that “Tepa itself is a holding company that does not directly perform federal contracts.”  SBA OHA also held that relying on Tepa’s employees and the corporate experience of the sister companies was not a basis for finding affiliation because such reliance is part and parcel of common ownership and management, which is protected from affiliation under 13 CFR § 121.103(b)(2).

17. SBA Affiliation • OHA stated “concerns owned by the same Indian tribe will always share economic interests based on their common management and ownership.”  However, under 13 CFR § 121.103(b)(2), common ownership and management cannot be used to find affiliation between tribal companies.  In addition, SBA OHA held that the “mere fact that companies operate in similar lines of work, or in close proximity to one another, does not give rise to affiliation . . ..”

18. SBA Affiliation • OHA found that Tepa – not Tepa EC – employed all of the employees in question, shifting them between companies as needed.  Thus, the employees in question were never former Tepa EC employees, as required to find affiliation under the rule.

19. QUESTIONS? THANK YOU