1. Affiliation Issues in Small Business Contracting FEBRUARY 3, 2015 ORLANDO, FLORIDA 1 Affiliation Issues in Small Business Contracting: Structure Your Proposal and Relationships for Success NATIONAL 8(a) CONFERENCE Presented by S. Lane Tucker lane.tucker@stoel.com (907) 263-8411 February 3, 2015  Orlando, Florida

2. Affiliation Issues in Small Business Contracting FEBRUARY 3, 2015 ORLANDO, FLORIDA 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. Affiliation Issues in Small Business Contracting FEBRUARY 3, 2015 ORLANDO, FLORIDA 3 The Ostensible Subcontractor

4. Affiliation Issues in Small Business Contracting FEBRUARY 3, 2015 ORLANDO, FLORIDA 4 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

5. Affiliation Issues in Small Business Contracting FEBRUARY 3, 2015 ORLANDO, FLORIDA 5 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.”

6. Affiliation Issues in Small Business Contracting FEBRUARY 3, 2015 ORLANDO, FLORIDA 6 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?

7. Affiliation Issues in Small Business Contracting FEBRUARY 3, 2015 ORLANDO, FLORIDA 7 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?

8. Affiliation Issues in Small Business Contracting FEBRUARY 3, 2015 ORLANDO, FLORIDA 8 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?

9. Affiliation Issues in Small Business Contracting FEBRUARY 3, 2015 ORLANDO, FLORIDA 9 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?

10. Affiliation Issues in Small Business Contracting FEBRUARY 3, 2015 ORLANDO, FLORIDA 10 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.).

11. Affiliation Issues in Small Business Contracting FEBRUARY 3, 2015 ORLANDO, FLORIDA 11 Joint Ventures / Procurement Generally, members to a joint venture are considered affiliated for purposes of the contract to be performed. –A few exceptions at 13 C.F.R. §121.103(h)(3)(i):

12. Affiliation Issues in Small Business Contracting FEBRUARY 3, 2015 ORLANDO, FLORIDA 12 Joint Ventures / Procurement (h)(3) Exception to affiliation for certain joint ventures. (i) A joint venture of two or more business concerns may submit an offer as a small business for a Federal procurement without regard to affiliation under paragraph (h) of this section so long as each concern is small under the size standard corresponding to the NAICS code assigned to the contract, provided: (B) The procurement is other than bundled or consolidated requirement within the meaning of §125.2(d) of this chapter, and:

13. Affiliation Issues in Small Business Contracting FEBRUARY 3, 2015 ORLANDO, FLORIDA 13 Joint Ventures / Procurement (B)(1) For a procurement having a receipts based size standard, the dollar value of the procurement, including options, exceeds half the size standard corresponding to the NAICS code assigned to the contract; This means if the size standard is $35 million and the procurement is worth $17.5 million or more you can JV with other small businesses as long as each member meets the $35m standard.

14. Affiliation Issues in Small Business Contracting FEBRUARY 3, 2015 ORLANDO, FLORIDA 14 Joint Ventures / Procurement OR (B)(2) For a procurement having an employee-based size standard, the dollar value of the procurement, including options, exceeds $10 million. This means if there is an employee based size standard of, for example, 500 employees, and the procurement is worth more than $10m, you can JV with other small businesses meeting the 500 employee size standard

15. Affiliation Issues in Small Business Contracting FEBRUARY 3, 2015 ORLANDO, FLORIDA 15 Joint Ventures / Procurement Another exception: (h)(3)(ii) A joint venture of at least one 8(a) Participant and one or more other business concerns may submit an offer for a competitive 8(a) procurement without regard to affiliation under paragraph (h) of this section so long as the requirements of §124.513(b)(1) of this chapter are met. §124.513(b)(1) provides that one member of the JV has to be an 8(a) that is less than half the size standard

16. Affiliation Issues in Small Business Contracting FEBRUARY 3, 2015 ORLANDO, FLORIDA 16 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.

17. Affiliation Issues in Small Business Contracting FEBRUARY 3, 2015 ORLANDO, FLORIDA 17 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.

18. Affiliation Issues in Small Business Contracting FEBRUARY 3, 2015 ORLANDO, FLORIDA 18 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

19. Affiliation Issues in Small Business Contracting FEBRUARY 3, 2015 ORLANDO, FLORIDA 19 QUESTIONS? THANK YOU S. Lane Tucker lane.tucker@stoel.com (907) 263-8411