Keep an Eye Out for Identity of Interest Affiliation

February 15, 2017

Practice Areas: Litigation & Dispute Resolution and Small Business Programs & Advisory Services

Anyone who does business with a small business government contractor will always want to be aware of any potential bases for affiliation that might arise. However, the so-called “identity of interest” affiliation, as described in 13 C.F.R. § 121.103(f), is a particularly easy type of affiliation for a firm to have and not even realize it. It is important to be aware of the way identity of interest affiliation can be found and how to avoid it. Additionally, it is important to note how it can be discovered by the U.S. Small Business Administration (“SBA”): during a size protest or another issue.

There are three general categories of identity of interest affiliation. First, if you own a company, and your close family member owns a company, those two companies could be found affiliated. Second, if you have common investments in multiple companies, those companies could be found affiliated. Third, if your company depends on one other company for a significant portion of your company’s annual revenue, the companies could be found affiliated.

A recent case before SBA’s Office of Hearings and Appeals (“OHA”) illustrates how affiliation can be found based on identity of interest. In Size Appeal of Gregory Landscape Services, Inc., SBA No. SIZ-5793 (2016), Gregory Landscape Services, Inc. (“GLS”) was awarded a contract set aside for women-owned small businesses (“WOSB”) and its size status was protested. The protest alleged that GLS was being used by a large business, NaturChem, Inc. (“NaturChem”), to bid on WOSB set-aside contracts, and that GLS and NaturChem were affiliated because the majority owner of GLS was married to an employee of NaturChem. The protest also noted that the husband of the majority owner of GLS was related to the owner of NaturChem.

During the size determination, SBA found that GLS was affiliated with NaturChem and several other companies on the basis of identity of interest. Regarding NaturChem, the SBA found that GLS’ owner’s husband’s parents and brother owned NaturChem, and that the husband shared an identity of interest with his parents and brother due to their family relationship. Additionally, it found that GLS’ owner and her husband share an identity of interest, because they are married, so their interests are aggregated and they are treated as one party. Therefore, the SBA found GLS to be affiliated with NaturChem, and other companies owned by GLS’ owner’s husband’s family, on the basis of identity of interest, and as a result of the affiliation, GLS was not found to be a small business.

Interestingly, GLS appealed the size determination to OHA, and OHA granted the appeal. OHA noted that in the context of identity of interest affiliation, the challenged firm may rebut the presumption of affiliation with a family member by demonstrating a “clear line of fracture among the family members.” OHA found that in the size determination of GLS, GLS was not given notice that the SBA was examining the relationship between GLS’ owner’s husband and his family members. Accordingly, OHA held that GLS was not given the opportunity to rebut the presumption that the family members at issue did not have an identity of interest.

This OHA decision is a good example of how identity of interest affiliation can arise. In a size determination, the SBA examines many aspects of a business, including the owners and their relationships with other companies. For GLS, while identity of interest between GLS’ owner and her husband was initially at issue, the ownership interests of the husband’s family later became the focus of SBA. Take heed from this decision, and be aware of what in your business could lead to a finding of affiliation.

To learn more about identity of interest affiliation, join us on February 23, 2017, at 2:00 p.m. ET for a webinar on this topic.  Click here to register for the webinar session.

About the Author: Julia Di Vito practices in the areas of government contracts, litigation, employment, and labor. She may be reached at jdivito@pilieromazza.com,

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