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BUILDING A COMPLIANT TEAM, PART 1 BACK TO BASICS: ELIGIBILITY AND AFFILIATION MARIA L. PANICHELLI, ESQUIRE AUGUST 9, 2017
Women Impacting Public Policy (WIPP) is a nonprofit, membership organization working to increase the economic power and public policy clout of women entrepreneurs by providing essential business skills education, leadership opportunities for business and personal growth, and a seat at the table among policymakers in Washington, D.C. WIPP was founded in 2001 and is recognized as a national, nonpartisan voice for women business owners, advocating on behalf of its coalition of 79 business organizations. WIPP identifies important trends and opportunities and provides a collaborative model for the public and private sectors to advance the economic empowerment of women. www.wipp.org
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BUILDING A COMPLIANT TEAM, PART 1 BACK TO BASICS: ELIGIBILITY AND AFFILIATION MARIA L. PANICHELLI, ESQUIRE AUGUST 9, 2017
MEET THE PRESENTER Maria L. Panichelli Partner Federal Contracting Attorney Cohen Seglias Pallas Greenhall & Furman PC 7
TEAMING AND JOINT VENTURES: Teaming v. Joint Ventures Joint Venturing: Two or more separate companies coming together to compete as a newly formed entity Teaming: A special type of prime/subcontractor relationship Mentor Protégé? A PRIMER 8
Why are eligibility and size/affiliation so important in the teaming/jv/mp context? 9
WHY TEAM? THE QUESTIONS A Small Business Might be Wondering How can I compete with regard to these non-price factors? How do I get into Federal Contracting if I have not done Federal work before? How do I, as a small business, get big (i.e. high dollar, high complexity) contract experience? Meanwhile, Large Businesses are Wondering How do I, as a large business concern, take advantage of the increasing number of small business program setaside contracts? 10
THE ANSWER: TEAMING 11
What is a Small Business? 12
WHAT IS SMALL? SBA Size Standards: Used by SBA to Determine the Size of a Concern Represents the largest size that a business may be to remain classified as small Can Be Based on Annual Gross Receipts or Number of Employees Standards Vary By Industry Based on North American Industrial Classification Codes ( NAICS Codes ) 13
WHAT IS SMALL? North American Industry Classification System ( NAICS ) Codes Procurement/Solicitation Specific Identifies Each Solicitation by Industry 14
WHAT IS SMALL? Back to SBA Size Standards: Once you know the applicable NAICS code, check the corresponding SBA Size Standard on the SBA s Website 15
Small Business Programs: Basic Eligibility Requirements 16
SMALL BUSINESS PROGRAMS: 8(a) What is an 8(a) Business? Small Business 51% unconditionally owned and unconditionally controlled by one or more: Socially disadvantaged AND Economically disadvantaged individuals Who are of good character Citizens of and residing in the United States Who demonstrate potential for success 17
SMALL BUSINESS PROGRAMS: 8(a) Who is Socially Disadvantaged? Rebuttable Presumption of Social Disadvantage: Black Americans Hispanic Americans Native Americans Asian Pacific Americans Subcontinent Asian Americans Members of other groups designated from time to time by SBA An individual must demonstrate that he or she has held himself or herself out, and is currently identified by others, as a member of a designated group The presumption of social disadvantage may be overcome with credible evidence to the contrary 18
SMALL BUSINESS PROGRAMS: 8(a) Who is Socially Disadvantaged? An individual not a member of one of the groups before may establish individual social disadvantage Evidence of individual social disadvantage must include the following elements: One objective distinguishing feature (race, ethnic origin, gender, physical handicap) Personal experiences of substantial and chronic social disadvantage Negative impact on entry into or advancement in the business world because of the disadvantage. (Education, employment and business history) 19
SMALL BUSINESS PROGRAMS: 8(a) Who is Economically Disadvantaged? Economically disadvantaged individuals are socially disadvantaged individuals whose ability to compete in the free enterprise system has been impaired due to diminished capital and credit opportunities as compared to others in the same or similar line of business who are not socially disadvantaged 20
SMALL BUSINESS PROGRAMS: 8(a) Who is Economically Disadvantaged? Net Worth (<$250,000/$750,000) excluding the ownership interest in the 8(a) concern and the equity in the primary personal residence Personal income for the past three years (<$250,000/$350,000 3-year average), rebuttable presumption Fair market value of all assets (<$4mm/$6mm) 21
SMALL BUSINESS PROGRAMS: 8(a) What is Potential for Success? The applicant concern must possess reasonable prospects for success in competing in the private sector if admitted to the 8(a) BD program. To do so, it must be in business in its primary industry classification for at least two full years immediately prior to the date of its 8(a) BD application, unless a waiver for this requirement is granted. 22
SMALL BUSINESS PROGRAMS: 8(a) What is Good Character? Case by Case, totality of circumstances analysis: Criminal conduct Violations of any of SBA's regulations Debarred or suspended Lacks Business Integrity Incarceration Dishonest behavior 23
SMALL BUSINESS PROGRAMS: HUBZone SBCs What is a HUBZone? HUBZone means a historically underutilized business zone, which is an area located within one or more: 1. Qualified census tracts 2. Qualified non-metropolitan counties 3. Lands within the external boundaries of an Indian reservation 4. Qualified base closure area 5. Redesignated area 24
SMALL BUSINESS PROGRAMS: HUBZone SBCs What is a HUBZone SBC? Small Business 51% unconditionally owned and unconditionally controlled by one or more by either: Indian Tribal Governments* (or companies owned thereby) or US Citizens Principal office located in a HUBZone At least 35% of its employees reside in a HUBZone / within any Indian reservation *Different rules for Indian Tribal Governments than other citizens 25
SMALL BUSINESS PROGRAMS: VOSB/SDVOSB Understand the Lingo: Veteran Owned Small Business ( VOSB ) Service-Disabled Veteran Owned Small Business ( SDVOSB ) 26
SMALL BUSINESS PROGRAMS: VOSB/SDVOSB Two Distinct Programs: 1. VA s VOSB/SDVOSB Program (VA Contracts) 2. SBA s SDVOSB Program (All other Agency Contracts) 27
SMALL BUSINESS PROGRAMS: SBA SDVOSB PROGRAM (SDVO SBC) What is a SDVOSB (SDVO SBC)? Small Business 51% unconditionally owned and unconditionally controlled by one or more Service-Disabled Veteran(s) 28
SMALL BUSINESS PROGRAMS: VA VOSB/SDVOSB PROGRAM ( VETBIZ AND VIP) What is a VOSB? Small Business 51% unconditionally owned and unconditionally controlled by one or more Service-Disabled Veteran(s) What is a SDVOSB? Small business 51% unconditionally owned and unconditionally controlled by one or more Service-Disabled Veteran(s) 29
SMALL BUSINESS PROGRAMS: WOSB/EDWOSB What is a WOSB? Small Business 51% unconditionally owned and unconditionally controlled by one or more women What is an EDWOSB? Small business 51% unconditionally owned and unconditionally controlled by one or more Economically Disadvantaged Women *NAICS Codes for Industries where Woman are Historically Under-Represented 30
Small Business Programs: Other Considerations 31
OWNERSHIP AND CONTROL For each program, the key is: Unconditional Ownership Unconditional Control 32
OWNERSHIP Common Ownership Issues: Are there any problematic corporate governance provisions? Transfer Restrictions Rights of First Refusal Guidance from the VA cases? Transfer upon Incapacity Transfer upon Bankruptcy (Any Involuntary Divestment) 33
CONTROL Common Control Issues: Remember: Two Components 1. Long-Term Decision Making 2. Day-to-Day Management and Administration of Business Operations Watch out for negative control issues 34
CONTROL Common Control Issues: Are there any problematic corporate governance provisions? Super Majority/Quorum Provisions Positions of Authority Given to Others Definitions/Number of Managers or Members Sharing is Not a Positive 35
CONTROL Other Control Issues: Remote Control Full time Job(s)? Economic Control, Financial Reliance, Duress* *Control considerations are often closely related to affiliation analysis 36
Affiliation: Why does it matter and how does it happen? 37
Why Does Affiliation Matter? What impact does it have on a company s size? 38
GENERAL PRINCIPLES OF AFFILIATION General Principles of Affiliation Concerns and entities are affiliates of each other when one controls or has the power to control the other, or a third party/parties controls or has the power to control both (It does not matter whether control is exercised, so long as the power to control exists) Control may be affirmative or negative (Negative control includes, but is not limited to, instances where a minority shareholder has the ability, under the concern's charter, by-laws, or shareholder's agreement, to prevent a quorum or otherwise block action by the board of directors or shareholders) Affiliation may be found where an individual, concern, or entity exercises control indirectly through a third party 39
GENERAL PRINCIPLES OF AFFILIATION General Principles of Affiliation SBA considers factors such as ownership, management, previous relationships with or ties to another concern, and contractual relationships, in determining whether affiliation exists In determining whether affiliation exists, SBA will consider the totality of the circumstances, and may find affiliation even though no single factor is sufficient to constitute affiliation 40
GENERAL PRINCIPLES OF AFFILIATION General Principles of Affiliation In effect, affiliation occurs where one business is too closely related to, or intertwined with, another business on a large scale or comprehensive basis 41
COMMON AFFILIATION ISSUES Common Affiliation Issues: Ostensible Subcontractor: % of Work Requirements Control on site General affiliation: Shared Space, Employees, Resources, Equipment Past Employee Relationship Familial Relationship Frequent Subcontracting Financial Reliance/Control 42
Affiliation: in Teaming and Joint Venture Relationships 43
TEAMING AND AFFILIATION Common Affiliation Issues: 1. Individual Contract/Ostensible Subcontractor % of Work Requirements Control on site Other indicia of non-control 44
TEAMING AND AFFILIATION Common Affiliation Issues: 2. General affiliation: Shared Space Shared Employees Past Employee Relationship Familial Relationship Frequent Subcontracting Financial Reliance Guarantor on LOC? Bonding? 45
JOINT VENTURES AND AFFILIATION Concerns submitting offers on a particular procurement or property sale as joint ventures are affiliated with each other with regard to the performance of that contract 46
JOINT VENTURES AND AFFILIATION A joint venture generally may not be awarded more than three contracts over a two year period, starting from the date of the award of the first contract, without the partners to the joint venture being deemed affiliated for all purposes However: An individual joint venture may be awarded more than three contracts without the SBA finding general affiliation between the joint venture partners where the joint venture has received two or fewer contracts as of the date it submitted one or more additional offers which thereafter result in one or more additional contract awards 47
JOINT VENTURES AND AFFILIATION The same two (or more) entities may create additional joint ventures, and each new joint venture entity may be awarded up to three contracts At some point, however, such a longstanding interrelationship or contractual dependence between the same joint venture partners will lead to a finding of general affiliation between and among them 48
JOINT VENTURES AND AFFILIATION: EXCEPTIONS TO AFFILIATION FOR CERTAIN JVS A joint venture of two or more business concerns may submit an offer as a small business for a Federal procurement, subcontract or sale so long as each concern is small under the size standard corresponding to the NAICS code assigned to the contract. Two firms approved by SBA to be a mentor and protégé under 125.9 or 124.520 may joint venture as a small business for any Federal government prime contract or subcontract, provided the protégé qualifies as small for the procurement at issue. 49
QUESTIONS? 50
CONTACT INFORMATION Maria L. Panichelli Partner Cohen Seglias Pallas Greenhall & Furman PC 215.564.1700 mpanichelli@cohenseglias.com @MariaPanichelli www.linkedin.com/in/mariapanich elli 51
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CONTACT INFORMATION Maria L. Panichelli Partner Cohen Seglias Pallas Greenhall & Furman PC 215.564.1700 mpanichelli@cohenseglias.com @MariaPanichelli www.linkedin.com/in/mariapanich elli 54