PilieroMazza recently delivered a victory for a client before the SBA’s Office of Hearings and Appeals (“OHA”).  OHA reversed the size determination issued by an SBA Area Office which found our client affiliated with a large contractor, its former mentor under the SBA’s 8(a) program.  The Area Office had found the two companies to be affiliated based on an identity of interest between our client’s sole owner and her husband, who was a former employee of the mentor but had not worked for the company for several years.  The case also involved the Area Office’s conclusion that only joint ventures are entitled to the exclusion from affiliation between mentors and protégés, but subcontracts and bonding assistance are not.  The Area Office then combined the familial identity of interest rule with the newly organized concern rule, finding that the 8(a) firm was a newly organized concern of the former mentor because the husband worked for the mentor at the time his wife formed the protégé. 

 

On appeal, OHA reversed the Area Office’s findings on each alleged basis of affiliation.  First, OHA found that the Area Office clearly erred in basing its decision on circumstances outside of the three immediately preceding fiscal years; the Area Office had reached back to dealings as long as seven years ago.  Next, OHA found that the Area Office failed to afford the proper weight to the mentor-protégé agreement, which was in effect for the entire period for determining the 8(a) firm’s size and provides an exemption from affiliation based on joint ventures, subcontracts, and bonding assistance.  OHA found that the former mentor did not provide any assistance to the protégé that went “above and beyond” the type of assistance typically contemplated under such agreements.  Finally, OHA rejected the Area Office’s use of the familial identity of interest rule to create newly organized concern rule affiliation, for OHA found that the wife never worked for the former mentor and the Area Office also failed to analyze whether the protégé could be a newly organized concern several years after it was formed.