Did you know that Small Businesses represent 99.7% of all U.S. employer firms?  So now you can understand why Congress wants to increase the Government’s contracting goals to Small Businesses from 23% to 25% and also increase fraud penalties for those who abuse the Small Business Set-Aside Programs.

This means that more Federal work will be set-aside for Small Businesses and that you will have to find a way to team with a small business without violating the “Affiliation Rule.”  Under the Affiliation Rule (13 C.F.R. 121.103(a)(6)), entities are affiliates of each other when one controls or has the power to control the other.  It does not matter whether control is exercised, so long as the power to control exists.  SBA considers factors such as ownership, management, previous relationships with or ties to another concern, and contractual relationships in determining whether affiliation exists to make sure the subcontractor is not the “Ostensible Contractor.”  An “Ostensible Contractor” is a subcontractor that performs primary and vital requirements of the contract or a subcontractor that the prime is unusually reliant upon.

 

So how do large and small businesses team with a Small Business Prime and avoid being the “Ostensible Contractor”?  Here are a few tips:  1) In your Teaming Arrangement, make sure you are following FAR 9.6 Contractor Team Arrangement requirements and make reference to this FAR provision; 2) In your teaming document, describe the “primary and vital” requirements of the work and make sure that the Small Business Prime is performing/managing those requirements; 3) Make sure the Small Business Prime has sufficient skill sets and past performance to qualify for the primary and vital requirements of the work; 4) Use the Small Business Prime teaming agreement template and not the large business’ template; and 5) Wherever possible, include the description of the work and not to exceed percentages of work to be performed by each proposed subcontractor to ensure that the Small Business Prime is performing the required percentage of work (which is typically more than 50%, except for certain contract types, e.g. construction).