1. CIVIL SERVANT/CONTRACTOR PROCUREMENT ROUNDTABLE INFORMATIONAL FORUM “SBA OSTENSIBLE SUBCONTRACTOR RULE” August 8, 2005 Debra L. Johnson Director, Office of Procurement rev. 1 -11/04/05

2. BACKGROUND Normal practice to compete for federal contracts under teaming arrangements. FAR 9.6 recognizes teaming Typically teaming arrangements structured to avoid joint ventures or ostensible subcontractor situations For purposes of SB size status, joint ventures can be deemed to be affiliated “Affiliated” and “ostensible subcontractor” – team members considered as a single entity for size determination purposes Puts at risk ability to qualify as small under avg annual receipts size standards used in service acquisitions

3. BACKGROUND SBA definitions: “Affiliation”-generally arises where one concern is dependent upon another concern for contracts and business to such a degree that its economic viability would be in jeopardy without such contracts/business. “Ostensible subcontractor”-one that performs primary and vital requirements of the contract or is a subcontractor upon which the prime contractor is unusually reliant. 13 C.F.R 121.103(h)(4)(2005) The determination whether an entity is a joint venture is based upon facts of the business operation, regardless of how the business operation may be designated by the parties involved. An arrangement to share profits/losses proportionate to each party’s contribution to the business operation is a significant factor in determining whether the business operation is a joint venture.

4. BACKGROUND 13 C.F.R. 121.103(h)(4)(2005) An ostensible subcontractor which performs or is to perform primary or vital requirements of a contract may have such a controlling role that it must be considered a joint venturer affiliated on the contract with the prime contractor. In determining whether subcontracting rises to the level of affiliation as a joint venture, SBA considers whether the prime contractor has unusual reliance on the subcontractor. Sorting out just what is affiliation and what is an ostensible subcontractor is a complex task. Contracting Officer, SBA Regional Office, SBA Office of Hearing and Appeals.

5. BACKGROUND Factors that the SBA Office of Hearings and Appeals has considered to determine if an ostensible subcontract relationship exists: Seven factor Test: Who will manage contract Which party possesses background & expertise necessary for contract performance Which party pursued the contract The degree of collaboration in preparation & submission of competitive proposal Whether there are discreet tasks to be performed by each of teaming partners, or whether there is instead commingling of personnel and resources The relative amount of work to be performed by each teaming partner Which party will perform the more complex and costly contract functions

6. BACKGROUND These factors are not weighed equally Not one of them is a conclusive test of reliance

7. IMPACT Will evaluate the amount of work to be performed by each party (reference FAR 52.219-14 Limitation on Subcontracting) Evaluate proposal for clearly defined separate roles for proposed prime and subcontractors Will evaluate using SBA’s Seven Factor Test Applies to current and future JSC procurements