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Small Business Size and Affiliation Issues: Is Your Small Business Actually Small?

Small Business Size and Affiliation Issues: Is Your Small Business Actually Small?. 2018 National HUBZone Conference. Chantilly, VA October 11, 2018. www.koprince.com www.smallgovcon.com Twitter @ mtschoonover. Matthew Schoonover 785-200-8919 mschoonover@koprince.com. Discussion Summary.

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Small Business Size and Affiliation Issues: Is Your Small Business Actually Small?

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  1. Small Business Size and Affiliation Issues:Is Your Small Business Actually Small? 2018 National HUBZone Conference Chantilly, VA October 11, 2018 www.koprince.com www.smallgovcon.com Twitter @mtschoonover Matthew Schoonover 785-200-8919 mschoonover@koprince.com

  2. Discussion Summary • Why the size of your business matters • How to determine the size of your business • Affiliation: is your small business actually small? www.koprince.com www.smallgovcon.com Twitter @mtschoonover Matthew Schoonover 785-200-8919 mschoonover@koprince.com

  3. But first, a quick plug. www.koprince.com www.smallgovcon.com Twitter @mtschoonover Matthew Schoonover 785-200-8919 mschoonover@koprince.com

  4. Why the size of your business matters www.koprince.com www.smallgovcon.com Twitter @mtschoonover Matthew Schoonover 785-200-8919 mschoonover@koprince.com

  5. Why the size of your business matters • Uncle Sam is the world’s largest purchaser of goods and services • More than $500 billion annually • Spread across all agencies (civilian and defense) www.koprince.com www.smallgovcon.com Twitter @mtschoonover Matthew Schoonover 785-200-8919 mschoonover@koprince.com

  6. Why the size of your business matters • Small Business Act: sets goals for small business participation • 23% of all prime contracts to small businesses • 2017: 23.88% (≈ $106B) • HUBZone goal: 3% • 2017: only 1.65% awarded to HUBZones (≈ $7B) • Federal government has historically failed to meet HUBZone goal • Small business awards • Set-asides/restricted competition • Sole-source awards www.koprince.com www.smallgovcon.com Twitter @mtschoonover Matthew Schoonover 785-200-8919 mschoonover@koprince.com

  7. Is your small business actually small? www.koprince.com www.smallgovcon.com Twitter @mtschoonover Matthew Schoonover 785-200-8919 mschoonover@koprince.com

  8. What is a “small business?” • Size falls under the standard for the NAICS code assigned to the solicitation • NAICS codes are established by Census Bureau for all industries • E.g., NAICS code 541330 (Engineering Services): This industry comprises establishments primarily engaged in applying physical laws and principles of engineering in the design, development, and utilization of machines, materials, instruments, structures, processes, and systems . . . . • Small Business Administration creates size standards for each NAICS • Revenue-based • E.g., NAICS code 541330 carries a $15.0 million size standard • Employee-based www.koprince.com www.smallgovcon.com Twitter @mtschoonover Matthew Schoonover 785-200-8919 mschoonover@koprince.com

  9. Determining the size of your business • Revenue-based size standard • Average annual receipts for the last three completed fiscal years • Annual receipts: total income + cost of goods sold • SBA will look at tax returns; may look at other non-contradictory info • Employee-based size standard • Average number of employees based on number of employees for each of the pay periods for the preceding 12 calendar months • Employees: employed full-time, part-time, and other basis • Volunteers are not employees • Your size plus your affiliates’ size www.koprince.com www.smallgovcon.com Twitter @mtschoonover Matthew Schoonover 785-200-8919 mschoonover@koprince.com

  10. Affiliation: Is your small business actually small? www.koprince.com www.smallgovcon.com Twitter @mtschoonover Matthew Schoonover 785-200-8919 mschoonover@koprince.com

  11. Affiliation: a very dirty word • Affiliation might turn your small business into a large one! • Size is determined by adding the receipts/employees of the concern and all of its affiliates • If found to be other-than-small, your business could lose its contract www.koprince.com www.smallgovcon.com Twitter @mtschoonover Matthew Schoonover 785-200-8919 mschoonover@koprince.com

  12. What is affiliation? • A method by which the SBA will find two companies closely-related, so as to impute the size of one onto the other • One firm controls or has the power (positive or negative) to control the other www.koprince.com www.smallgovcon.com Twitter @mtschoonover Matthew Schoonover 785-200-8919 mschoonover@koprince.com

  13. Causes of affiliation • Common ownership • If owner of one business owns 50%+ of another, automatic affiliation • Major minority owners is presumptive control • Common management • Officers/directors of one company control another • Identity of interest • Shared business interests among family members • Economically dependent (70%+) on another business • Newly-organized concern • Former officers/directors of one company spin-off another, and the new business relies on the other for assistance www.koprince.com www.smallgovcon.com Twitter @mtschoonover Matthew Schoonover 785-200-8919 mschoonover@koprince.com

  14. Affiliation based on joint ventures • Long-standing relationship of JV partners • More than 3 contract awards in 2 years • De facto joint venture: ostensible subcontractor affiliation • Subcontractor is performing “primary and vital requirements” • Prime contractor is “unusually reliant” on subcontractor • Beware the risk factors! www.koprince.com www.smallgovcon.com Twitter @mtschoonover Matthew Schoonover 785-200-8919 mschoonover@koprince.com

  15. Ostensible subcontractor risk factors • Subcontractor is incumbent, but ineligible for prime award • Prime hires subcontractor personnel en masse • Beware hiring subcontractor personnel as project management/supervisors! • Prime relies on subcontractor for experience • Subcontractor performs a significant amount of work (esp. if “primary and vital”) • Subcontractor provides significant facilities, equipment, resources needed to do the work www.koprince.com www.smallgovcon.com Twitter @mtschoonover Matthew Schoonover 785-200-8919 mschoonover@koprince.com

  16. Defending against affiliation • Recognize risks • Admitting your business has a problem is the first step to recovery • Audit size and affiliation issues before size is protested • A size protest might lead to your company losing an award • Address them! • Affiliation isn’t forever • Many presumptions are rebuttable • Clear line of fracture • Mentor/protégé agreement with affiliate www.koprince.com www.smallgovcon.com Twitter @mtschoonover Matthew Schoonover 785-200-8919 mschoonover@koprince.com

  17. Another plug! www.koprince.com www.smallgovcon.com Twitter @mtschoonover Matthew Schoonover 785-200-8919 mschoonover@koprince.com

  18. Questions? Any questions? Thank you! www.koprince.com www.smallgovcon.com Twitter @mtschoonover Matthew Schoonover 785-200-8919 mschoonover@koprince.com

  19. For More Information Matthew Schoonover Partner (785) 200-8919 mschoonover@koprince.com Twitter @mtschoonover Visit SmallGovCon.com to sign up for our free monthly newsletter. www.koprince.com www.smallgovcon.com Twitter @mtschoonover Matthew Schoonover 785-200-8919 mschoonover@koprince.com

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