CIVIL SERVANT/CONTRACTOR PROCUREMENT ROUNDTABLE INFORMATIONAL FORUM “SBA OSTENSIBLE SUBCONTRACTOR RULE”

1. CIVIL SERVANT/CONTRACTOR PROCUREMENT ROUNDTABLE INFORMATIONAL FORUM “SBA OSTENSIBLE SUBCONTRACTOR RULE” August 8, 2005 Debra L. Johnson Director, Office of Procurement rev. 1 -11/04/05

2. BACKGROUND • Normal practice to compete for federal contracts under teaming arrangements. FAR 9.6 recognizes teaming • Typically teaming arrangements structured to avoid joint ventures or ostensible subcontractor situations • For purposes of SB size status, joint ventures can be deemed to be affiliated • “Affiliated” and “ostensible subcontractor” – team members considered as a single entity for size determination purposes • Puts at risk ability to qualify as small under avg annual receipts size standards used in service acquisitions

3. BACKGROUND • SBA definitions: • “Affiliation”-generally arises where one concern is dependent upon another concern for contracts and business to such a degree that its economic viability would be in jeopardy without such contracts/business. • “Ostensible subcontractor”-one that performs primary and vital requirements of the contract or is a subcontractor upon which the prime contractor is unusually reliant. • 13 C.F.R 121.103(h)(4)(2005) • The determination whether an entity is a joint venture is based upon facts of the business operation, regardless of how the business operation may be designated by the parties involved. An arrangement to share profits/losses proportionate to each party’s contribution to the business operation is a significant factor in determining whether the business operation is a joint venture.

4. BACKGROUND • 13 C.F.R. 121.103(h)(4)(2005) • An ostensible subcontractor which performs or is to perform primary or vital requirements of a contract may have such a controlling role that it must be considered a joint venturer affiliated on the contract with the prime contractor. In determining whether subcontracting rises to the level of affiliation as a joint venture, SBA considers whether the prime contractor has unusual reliance on the subcontractor. • Sorting out just what is affiliation and what is an ostensible subcontractor is a complex task. • Contracting Officer, SBA Regional Office, SBA Office of Hearing and Appeals.

5. BACKGROUND • Factors that the SBA Office of Hearings and Appeals has considered to determine if an ostensible subcontract relationship exists: • Seven factor Test: • Who will manage contract • Which party possesses background & expertise necessary for contract performance • Which party pursued the contract • The degree of collaboration in preparation & submission of competitive proposal • Whether there are discreet tasks to be performed by each of teaming partners, or whether there is instead commingling of personnel and resources • The relative amount of work to be performed by each teaming partner • Which party will perform the more complex and costly contract functions

6. BACKGROUND • These factors are not weighed equally • Not one of them is a conclusive test of reliance

7. IMPACT • Will evaluate the amount of work to be performed by each party (reference FAR 52.219-14 Limitation on Subcontracting) • Evaluate proposal for clearly defined separate roles for proposed prime and subcontractors • Will evaluate using SBA’s Seven Factor Test • Applies to current and future JSC procurements