How does SBA determine affiliation?
Summary
Section 121.103, "How does SBA determine affiliation?", from 13 CFR Ch. I (1–1–25 Edition). Paragraph (a)(1) states that concerns and entities are affiliates of each other when one controls or has the power to control the other, or a third party or parties controls or has the power to control both, and that it does not matter whether control is exercised so long as the power to control exists. Paragraph (a)(2) says SBA considers factors such as ownership, management, previous relationships with or ties to another concern, and contractual relationships. Paragraph (a)(3) says control may be affirmative or negative and gives the example of a minority shareholder able to block action by the board of directors or shareholders.
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“How does SBA determine affiliation?”
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§ 121.103 13 CFR Ch. I (1–1–25 Edition)
firms by size. It also considers techno- standard is filed, unless it appears OHA
logical changes, competition from will dismiss the petition for reconsider-
other industries, growth trends, histor- ation, SBA will publish a document in
ical activity within an industry, the FEDERAL REGISTER announcing the
unique factors occurring in the indus- size standard or standards that have
try which may distinguish small firms been challenged, the FEDERAL REG-
from other firms, and the objectives of ISTER citation of the final rule, the as-
its programs and the impact on those signed OHA docket number, and the
programs of different size standard lev- date of the close of record. The docu-
els. ment will further state that interested
(b) As part of its review of a size parties may contact OHA to intervene
standard, SBA will investigate if any in the dispute pursuant to § 134.906 of
concern at or below a particular stand- this chapter.
ard would be dominant in the industry. (g) Where OHA grants a petition for
SBA will take into consideration mar- reconsideration of a size standard that
ket share of a concern and other appro- had been revised or modified, OHA will
priate factors which may allow a con- remand the case to SBA’s Office of Size
cern to exercise a major controlling in- Standards for further action in accord-
fluence on a national basis in which a ance with § 134.916(a) of this chapter.
number of business concerns are en-
gaged. Size standards seek to ensure [61 FR 3286, Jan. 31, 1996, as amended at 67
FR 3045, Jan. 23, 2002; 82 FR 25506, June 2,
that a concern that meets a specific 2017]
size standard is not dominant in its
field of operation. § 121.103 How does SBA determine af-
(c) As part of its review of size stand- filiation?
ards, SBA’s Office of Size Standards
will examine the impact of inflation on (a) General Principles of Affiliation. (1)
monetary-based size standards (e.g., re- Concerns and entities are affiliates of
ceipts, net income, assets) at least once each other when one controls or has
every five years and submit a report to the power to control the other, or a
the Administrator or designee. If SBA third party or parties controls or has
finds that inflation has significantly the power to control both. It does not
eroded the value of the monetary-based matter whether control is exercised, so
size standards, it will issue a proposed long as the power to control exists.
rule to increase size standards. (2) SBA considers factors such as
(d) Please address any requests to ownership, management, previous rela-
change existing size standards or estab- tionships with or ties to another con-
lish new ones for emerging industries cern, and contractual relationships, in
to the Division Chief, Office of Size determining whether affiliation exists.
Standards, Small Business Administra- (3) Control may be affirmative or
tion, 409 3rd Street, SW., Washington, negative. Negative control includes,
DC 20416. but is not limited to, instances where a
(e) When SBA publishes a final rule minority shareholder has the ability,
in the FEDERAL REGISTER revising, under the concern’s charter, by-laws,
modifying, or establishing a size stand- or shareholder’s agreement, to prevent
ard, SBA will include in the final rule, a quorum or otherwise block action by
an instruction that interested persons the board of directors or shareholders.
may file a petition for reconsideration (4) Affiliation may be found where an
of a revised, modified, or established individual, concern, or entity exercises
size standard at SBA’s Office of Hear- control indirectly through a third
ings and Appeals (OHA) within 30 cal- party.
endar days after publication of the (5) In determining whether affiliation
final rule in accordance with 15 U.S.C. exists, SBA will consider the totality
632(a)(9) and part 134, subpart I of this of the circumstances, and may find af-
chapter. The instruction will provide filiation even though no single factor is
the mailing address, facsimile number, sufficient to constitute affiliation.
and email address of OHA. (6) In determining the concern’s size,
(f) Within 14 calendar days after a pe- SBA counts the receipts, employees, or
tition for reconsideration of a size other measure of size of the concern
380
Small Business Administration § 121.103
whose size is at issue and all of its do- to contract performance or manage-
mestic and foreign affiliates, regardless ment and can be reasonably pooled or
of whether the affiliates are organized otherwise performed by a holding com-
for profit. pany, parent entity, or sister business
(7) For SBA’s Small Business Innova- concern without interfering with the
tion Research (SBIR) and Small Busi- control of the subject firm.
ness Technology Transfer (STTR) pro- (B) Contract administration services
grams, the bases for affiliation are set include both services that could be con-
forth in § 121.702. sidered ‘‘common administrative serv-
(8) For applicants in SBA’s Business ices’’ under the exception to affiliation
Loan, Disaster Loan, and Surety Bond and those that could not.
Guarantee Programs, the size stand- (1) Contract administration services
ards and bases for affiliation are set that encompass actual and direct day-
forth in § 121.301. to-day oversight and control of the per-
(b) Exceptions to affiliation coverage. formance of a contract/project are not
(1) Business concerns owned in whole shared common administrative serv-
or substantial part either by invest- ices, and would include tasks or func-
ment companies licensed, or by devel- tions such as negotiating directly with
opment companies qualifying, under the government agency regarding pro-
the Small Business Investment Act of posal terms, contract terms, scope and
1958, as amended, or by investment modifications, project scheduling, hir-
companies to which a Reinvestor SBIC ing and firing of employees, and overall
(within the meaning of 13 CFR responsibility for the day-to-day and
107.720(a)(2)) has provided a meaningful overall project and contract comple-
percentage of Equity Capital are not tion.
considered affiliates of such invest- (2) Contract administration services
ment companies or development com- that are administrative in nature may
panies. constitute administrative services that
(2)(i) Business concerns owned and can be shared, and would fall within
controlled by Indian Tribes, Alaska Na- the exception to affiliation. These ad-
tive Corporations (ANCs) organized ministrative services include tasks
pursuant to the Alaska Native Claims such as record retention not related to
Settlement Act (43 U.S.C. 1601 et seq.), a specific contract (e.g., employee time
Native Hawaiian Organizations (NHOs), and attendance records), maintenance
Community Development Corporations of databases for awarded contracts,
(CDCs) authorized by 42 U.S.C. 9805, or monitoring for regulatory compliance,
wholly-owned entities of Indian Tribes, template development, and assisting
ANCs, NHOs, or CDCs are not consid- accounting with invoice preparation as
ered affiliates of such entities. needed.
(ii) Business concerns owned and con- (C) Business development may in-
trolled by Indian Tribes, ANCs, NHOs, clude both services that could be con-
CDCs, or wholly-owned entities of In- sidered ‘‘common administrative serv-
dian Tribes, ANCs, NHOs, or CDCs, are ices’’ under the exception to affiliation
not considered to be affiliated with and those that could not. Efforts at the
other concerns owned by these entities holding company or parent level to
because of their common ownership or identify possible procurement opportu-
common management. In addition, af- nities for specific subsidiary companies
filiation will not be found based upon may properly be considered ‘‘common
the performance of common adminis- administrative services’’ under the ex-
trative services so long as adequate ception to affiliation. However, at
payment is provided for those services. some point the opportunity identified
Affiliation may be found for other rea- by the holding company’s or parent en-
sons. tity’s business development efforts be-
(A) Common administrative services comes concrete enough to assign to a
which are subject to the exception to subsidiary and at that point the sub-
affiliation include, bookkeeping, pay- sidiary must be involved in the busi-
roll, recruiting, other human resource ness development efforts for such op-
support, cleaning services, and other portunity. At the proposal or bid prep-
duties which are otherwise unrelated aration stage of business development,
381
§ 121.103 13 CFR Ch. I (1–1–25 Edition)
the appropriate subsidiary company for (iv) Charitable trusts, foundations,
the opportunity has been identified and endowments, or similar organizations
a representative of that company must exempt from Federal income taxation
be involved in preparing an appropriate under section 501(c) of the Internal
offer. This does not mean to imply that Revenue Code of 1986, as amended (26
one or more representatives of a hold- U.S.C. 501(c));
ing company or parent entity cannot (v) Investment companies registered
also be involved in preparing an offer. under the Investment Company Act of
They may be involved in assisting with 1940, as amended (1940 Act) (15 U.S.C.
preparing the generic part of an offer, 80a-1, et seq.); and
but the specific subsidiary that intends (vi) Entities determined by SBA to be
to ultimately perform the contract Traditional Investment Companies
must control the technical and con- under 13 CFR 107.150(b)(2) and private
tract specific portions of preparing an funds exempt from registration under
offer. In addition, once award is made, section 3(c)(1) or 3(c)(7) of the 1940 Act.
employee assignments and the logistics (6) A firm that has an SBA-approved
for contract performance must be con- mentor-protégé agreement authorized
trolled by the specific subsidiary com- under § 125.9 of this chapter is not af-
pany and should not be performed at a filiated with its mentor or protégé firm
holding company or parent entity solely because the protégé firm re-
level. ceives assistance from the mentor
(3) Business concerns which are part under the agreement. Similarly, a
of an SBA approved pool of concerns protégé firm is not affiliated with its
for a joint program of research and de- mentor solely because the protégé firm
velopment or for defense production as receives assistance from the mentor
authorized by the Small Business Act under a federal mentor-protégé pro-
are not affiliates of one another be- gram where an exception to affiliation
cause of the pool. is specifically authorized by statute or
by SBA under the procedures set forth
(4) Business concerns which lease em-
in § 121.903. Affiliation may be found in
ployees from concerns primarily en-
either case for other reasons as set
gaged in leasing employees to other
forth in this section.
businesses or which enter into a co-em-
(7) The member shareholders of a
ployer arrangement with a Profes-
small agricultural cooperative, as de-
sional Employer Organization (PEO)
fined in the Agricultural Marketing
are not affiliated with the leasing com-
Act (12 U.S.C. 1141j), are not considered
pany or PEO solely on the basis of a
affiliated with the cooperative by vir-
leasing agreement.
tue of their membership in the cooper-
(5) For financial, management or ative.
technical assistance under the Small (8) These exceptions to affiliation
Business Investment Act of 1958, as and any others set forth in § 121.702
amended, (an applicant is not affiliated apply for purposes of SBA’s SBIR and
with the investors listed in paragraphs STTR programs.
(b)(5) (i) through (vi) of this section. (9) In the case of a solicitation for a
(i) Venture capital operating compa- bundled contract or a Multiple Award
nies, as defined in the U.S. Department Contract with a value in excess of the
of Labor regulations found at 29 CFR agency’s substantial bundling thresh-
2510.3–101(d); old, a small business contractor may
(ii) Employee benefit or pension enter into a Small Business Teaming
plans established and maintained by Arrangement with one or more small
the Federal government or any state, business subcontractors and submit an
or their political subdivisions, or any offer as a small business without re-
agency or instrumentality thereof, for gard to affiliation, so long as each
the benefit of employees; team member is small for the size
(iii) Employee benefit or pension standard assigned to the contract or
plans within the meaning of the Em- subcontract. The agency shall evaluate
ployee Retirement Income Security the offer in the same manner as other
Act of 1974, as amended (29 U.S.C. 1001, offers with due consideration of the ca-
et seq.); pabilities of the subcontractors.
382
Small Business Administration § 121.103
(10)(i) The relationship of a faith- separate sheet that it is entitled to the
based organization to another organi- exemption. That sheet may be identi-
zation is not considered an affiliation fied as addendum A, and no further
with the other organization under this listing of the other organization or de-
subpart if the relationship is based on scription of the relationship to that or-
a religious teaching or belief or other- ganization is required. See appendix A
wise constitutes a part of the exercise to this part for a sample ‘‘Addendum
of religion. In addition, the eligibility A’’, but the format need not be used as
criteria set forth in 15 U.S.C. long as the substance is the same.
636(a)(36)(D) are satisfied for any faith- (c) Affiliation based on stock owner-
based organization having not more ship. (1) A person (including any indi-
than 500 employees (including individ- vidual, concern or other entity) that
uals employed on a full-time, part- owns, or has the power to control, 50
time, or other basis) that pays Federal percent or more of a concern’s voting
payroll taxes using its own Internal stock, or a block of voting stock which
Revenue Service Employer Identifica- is large compared to other outstanding
tion Number (EIN) or that would sup- blocks of voting stock, controls or has
port a deduction under the second sen- the power to control the concern.
tence of 26 U.S.C. 512(b)(12) if the orga- (2) If two or more persons (including
nization generated unrelated business any individual, concern or other enti-
taxable income. For purposes of this ty) each owns, controls, or has the
paragraph (b)(10), the term ‘‘faith- power to control less than 50 percent of
based organization’’ includes, but is a concern’s voting stock, and such mi-
not limited to, any organization associ- nority holdings are equal or approxi-
ated with a church or convention or as- mately equal in size, and the aggregate
sociation of churches within the mean- of these minority holdings is large as
ing of 26 U.S.C. 414(e)(3)(D). The term compared with any other stock hold-
‘‘organization’’ has the meaning given
ing, SBA presumes that each such per-
in 26 U.S.C. 414(m)(6)(A). The terms
son controls or has the power to con-
‘‘church’’ and ‘‘convention or associa-
trol the concern whose size is at issue.
tion of churches’’ have the same mean-
This presumption may be rebutted by a
ing that they have in 26 U.S.C. 414.
showing that such control or power to
(ii) No specific process or filing is
control does not in fact exist.
necessary to claim the benefit of the
exemption in paragraph (b)(10)(i) of (3) If a concern’s voting stock is
this section. In applying for a loan widely held and no single block of
under the Paycheck Protection Pro- stock is large as compared with all
gram (PPP), a faith-based organization other stock holdings, the concern’s
may make all necessary certifications Board of Directors and CEO or Presi-
with respect to common ownership or dent will be deemed to have the power
management or other eligibility cri- to control the concern in the absence
teria based upon affiliation, if the or- of evidence to the contrary.
ganization would be an eligible bor- (d) Affiliation arising under stock op-
rower but for application of SBA affili- tions, convertible securities, and agree-
ation rules and if the organization falls ments to merge. (1) In determining size,
within the terms of the exemption de- SBA considers stock options, convert-
scribed in paragraph (b)(10)(i) of this ible securities, and agreements to
section. If a faith-based organization merge (including agreements in prin-
indicates any relationship that may ciple) to have a present effect on the
pertain to affiliation, such as owner- power to control a concern. SBA treats
ship of, ownership by, or common man- such options, convertible securities,
agement with any other organization, and agreements as though the rights
on or in connection with a loan appli- granted have been exercised.
cation, and if the faith-based organiza- (2) Agreements to open or continue
tion applying for a loan falls within the negotiations towards the possibility of
terms of the exemption described in a merger or a sale of stock at some
paragraph (b)(10)(i) of this section with later date are not considered ‘‘agree-
respect to that relationship, the faith- ments in principle’’ and are thus not
based organization may indicate on a given present effect.
383
§ 121.103 13 CFR Ch. I (1–1–25 Edition)
(3) Options, convertible securities, (2) SBA may presume an identity of
and agreements that are subject to interest based upon economic depend-
conditions precedent which are incapa- ence if the concern in question derived
ble of fulfillment, speculative, conjec- 70% or more of its receipts from an-
tural, or unenforceable under state or other concern over the previous three
Federal law, or where the probability fiscal years.
of the transaction (or exercise of the (i) This presumption may be rebutted
rights) occurring is shown to be ex- by a showing that despite the contrac-
tremely remote, are not given present tual relations with another concern,
effect. the concern at issue is not solely de-
(4) An individual, concern or other pendent on that other concern, such as
entity that controls one or more other where the concern has been in business
concerns cannot use options, convert- for a short amount of time and has
ible securities, or agreements to appear only been able to secure a limited num-
to terminate such control before actu- ber of contracts or where the contrac-
ally doing so. SBA will not give present tual relations do not restrict the con-
effect to individuals’, concerns’ or cern in question from selling the same
other entities’ ability to divest all or type of products or services to another
part of their ownership interest in
purchaser.
order to avoid a finding of affiliation.
(ii) A business concern owned and
(e) Affiliation based on common man-
agement. Affiliation arises where one or controlled by an Indian Tribe, ANC,
more officers, directors, managing NHO, CDC, or by a wholly-owned entity
members, or partners who control the of an Indian Tribe, ANC, NHO, or CDC,
board of directors and/or management is not considered to be affiliated with
of one concern also control the board of another concern owned by that entity
directors or management of one or based solely on the contractual rela-
more other concerns. tions between the two concerns.
(f) Affiliation based on identity of inter- Example 1 to paragraph (f). Firm A has been
est. Affiliation may arise among two or in business for 9 months and has two con-
more persons with an identity of inter- tracts. Contract 1 is with Firm B and is val-
est. Individuals or firms that have ued at $900,000 and Contract 2 is with Firm C
identical or substantially identical and is valued at $200,000. Thus, Firm B ac-
business or economic interests (such as counts for over 70% of Firm A’s receipts. Ab-
sent other connections between A and B, the
family members, individuals or firms
presumption of affiliation between A and B
with common investments, or firms is rebutted because A is a new firm.
that are economically dependent Example 2 to paragraph (f). Firm A has been
through contractual or other relation- in business for five years and has approxi-
ships) may be treated as one party with mately 200 contracts. Of those contracts, 195
such interests aggregated. Where SBA are with Firm B. The value of Firm A’s con-
determines that such interests should tracts with Firm B is greater than 70% of its
be aggregated, an individual or firm revenue over the previous three years. Un-
may rebut that determination with less Firm A can show that its contractual re-
evidence showing that the interests lations with Firm B do not restrict it from
selling the same type of products or services
deemed to be one are in fact separate. to another purchaser, SBA would most likely
(1) Firms owned or controlled by find the two firms affiliated.
married couples, parties to a civil
union, parents, children, and siblings (g) Affiliation based on the newly orga-
are presumed to be affiliated with each nized concern rule. Except as provided
other if they conduct business with in § 124.109(c)(4)(iii), affiliation may
each other, such as subcontracts or arise where former or current officers,
joint ventures or share or provide directors, principal stockholders, man-
loans, resources, equipment, locations aging members, or key employees of
or employees with one another. This one concern organize a new concern in
presumption may be overcome by the same or related industry or field of
showing a clear line of fracture be- operation, and serve as the new con-
tween the concerns. Other types of fa- cern’s officers, directors, principal
milial relationships are not grounds for stockholders, managing members, or
affiliation on family relationships. key employees, and the one concern is
384
Small Business Administration § 121.103
furnishing or will furnish the new con- tual dependence between the same
cern with contracts, financial or tech- joint venture partners may lead to a
nical assistance, indemnification on finding of general affiliation between
bid or performance bonds, and/or other and among them. SBA may also deter-
facilities, whether for a fee or other- mine that the relationship between a
wise. A concern may rebut such an af- prime contractor and its subcontractor
filiation determination by dem- is a joint venture pursuant to para-
onstrating a clear line of fracture be- graph (h)(3) of this section. For pur-
tween the two concerns. A ‘‘key em- poses of this paragraph (h), contract re-
ployee’’ is an employee who, because of fers to prime contracts, novations of
his/her position in the concern, has a prime contracts, and any subcontract
critical influence in or substantive in which the joint venture is treated as
control over the operations or manage- a similarly situated entity as the term
ment of the concern. is defined in part 125 of this chapter.
(h) Affiliation based on joint ventures. Example 1 to paragraph (h) introductory text.
A joint venture is an association of in- Joint Venture AB receives a contract on
dividuals and/or concerns with inter- April 2, year 1. Joint Venture AB may re-
ests in any degree or proportion in- ceive additional contracts through April 2,
tending to engage in and carry out year 3. On June 6, year 2, Joint Venture AB
business ventures for joint profit over a submits an offer for Solicitation 1. On July
two-year period, for which purpose 13, year 2, Joint Venture AB submits an offer
they combine their efforts, property, for Solicitation 2. On May 27, year 3, Joint
Venture AB is found to be the apparent suc-
money, skill, or knowledge, but not on
cessful offeror for Solicitation 1. On July 22,
a continuing or permanent basis for year 3, Joint Venture AB is found to be the
conducting business generally. This apparent successful offeror for Solicitation 2.
means that a specific joint venture Even though the award of the two contracts
generally may not be awarded con- emanating from Solicitations 1 and 2 would
tracts beyond a two-year period, start- occur after April 2, year 3, Joint Venture AB
ing from the date of the award of the may receive those awards without causing
first contract, without the partners to general affiliation between its joint venture
partners because the offers occurred prior to
the joint venture being deemed affili-
the expiration of the two-year period.
ated for the joint venture. However, a Example 2 to paragraph (h) introductory text.
joint venture may be issued an order Joint Venture XY receives a contract on Au-
under a previously awarded contract gust 10, year 1. It may receive two additional
beyond the two-year period. Once a contracts through August 10, year 3. On
joint venture receives a contract, it March 19, year 3, XY receives its fifth con-
may submit additional offers for a pe- tract. It receives no other contract awards
riod of two years from the date of that through August 10, year 3 and has submitted
no additional offers prior to August 10, year
first award. An individual joint venture
3. Because two years have passed since the
may be awarded one or more contracts date of the first contract award, after Au-
after that two-year period as long as it gust 10, year 3, XY cannot receive an addi-
submitted an offer prior to the end of tional contract award. The individual parties
that two-year period. SBA will find to XY must form a new joint venture if they
joint venture partners to be affiliated, want to seek and be awarded additional con-
and thus will aggregate their receipts tracts as a joint venture.
and/or employees in determining the Example 3 to paragraph (h) introductory text.
Joint Venture XY receives a contract on De-
size of the joint venture for all small
cember 15, year 1. On May 22, year 3 XY sub-
business programs, where the joint mits an offer for Solicitation S. On Decem-
venture submits an offer after two ber 8, year 3, XY submits a novation package
years from the date of the first award. for contracting officer approval for Contract
The same two (or more) entities may C. In January, year 4 XY is found to be the
create additional joint ventures, and apparent successful offeror for Solicitation S
each new joint venture may submit of- and the relevant contracting officer seeks to
fers for a period of two years from the novate Contract C to XY. Because both the
offer for Solicitation S and the novation
date of the first contract to the joint
package for Contract C were submitted prior
venture without the partners to the to December 15 year 3, both contract award
joint venture being deemed affiliates. relating to Solicitation S and novation of
At some point, however, such a long- Contract C may occur without a finding of
standing inter-relationship or contrac- general affiliation.
385
§ 121.103 13 CFR Ch. I (1–1–25 Edition)
(1) Form of joint venture. A joint ven- small business for any Federal govern-
ture: must be in writing; must do busi- ment prime contract or subcontract,
ness under its own name and be identi- provided the protégé qualifies as small
fied as a joint venture in the System for the size standard corresponding to
for Award Management (SAM) for the the NAICS code assigned to the pro-
award of a prime contract or agree- curement, and the joint venture meets
ment; and may be in the form of a for- the requirements of § 124.513 (c) and (d),
mal or informal partnership or exist as § 125.8(b) and (c), § 128.402(c) and (d),
a separate limited liability company or § 126.616(c) and (d), or § 127.506(c) and (d)
other separate legal entity. of this chapter, as appropriate. Except
(i) If a joint venture exists as a for- for sole source 8(a) awards, the joint
mal separate legal entity, it cannot be venture must meet the requirements of
populated with individuals intended to § 124.513(c) and (d), § 125.8(b) and (c),
perform contracts awarded to the joint § 125.18(b)(2) and (3), § 126.616(c) and (d),
venture for any contract or agreement or § 127.506(c) and (d) of this chapter, as
which is set aside or reserved for small appropriate, as of the date of the final
business, unless all parties to the joint proposal revision for negotiated acqui-
venture are similarly situated as that sitions and final bid for sealed bidding.
term is defined in part 125 of this chap- For a sole source 8(a) award, the joint
ter (i.e., the joint venture may have its venture must demonstrate that it
own separate employees to perform ad- meets the requirements of § 124.513(c)
ministrative functions, including one and (d) prior to the award of the con-
or more Facility Security Officer(s),
tract.
but may not have its own separate em-
(3) Ostensible subcontractors. A con-
ployees to perform contracts awarded
tractor and its ostensible subcon-
to the joint venture).
(ii) A populated joint venture that is tractor are treated as joint venturers
not comprised entirely of similarly sit- for size determination purposes. An os-
uated entities will be ineligible for any tensible subcontractor is a subcon-
contract or agreement which is set tractor that is not a similarly situated
aside or reserved for small business. entity, as that term is defined in § 125.1
(iii) In determining the size of a pop- of this chapter, and performs primary
ulated joint venture (whether one in- and vital requirements of a contract,
volving similarly situated entities or or of an order, or is a subcontractor
not), SBA will aggregate the revenues upon which the prime contractor is un-
or employees of all partners to the usually reliant. As long as each con-
joint venture. cern is small under the size standard
(2) Size of joint ventures. (i) A joint corresponding to the NAICS code as-
venture of two or more business con- signed to the contract (or the prime
cerns may submit an offer as a small contractor is small if the subcon-
business for a Federal procurement, tractor is the SBA-approved mentor to
subcontract or sale so long as each con- the prime contractor), the arrange-
cern is small under the size standard ment will qualify as a small business.
corresponding to the NAICS code as- (i) All aspects of the relationship be-
signed to the contract. For a competi- tween the prime and subcontractor are
tive 8(a) procurement, a joint venture considered, including, but not limited
between an 8(a) Participant and one or to, the terms of the proposal (such as
more other small business concerns (in- contract management, transfer of the
cluding two firms approved by SBA to subcontractor’s incumbent managers,
be a mentor and protégé under § 125.9 of technical responsibilities, and the per-
this chapter) must also meet the re- centage of subcontracted work), agree-
quirements of § 124.513(c) and (d) of this ments between the prime and subcon-
chapter as of the date of the final pro- tractor (such as bonding assistance or
posal revision for negotiated acquisi- the teaming agreement), whether the
tions and final bid for sealed bidding in subcontractor is the incumbent con-
order to be eligible for award. tractor and is ineligible to submit a
(ii) Two firms approved by SBA to be proposal because it exceeds the appli-
a mentor and protégé under § 125.9 of cable size standard for that solicita-
this chapter may joint venture as a tion, and whether the prime contractor
386
Small Business Administration § 121.103
relies solely on the subcontractor’s ex- venture (where work is performed by
perience because it lacks any relevant the joint venture entity itself and not
experience of its own. No one factor is by the individual joint venture part-
determinative. ners) the appropriate share is the same
(ii) A prime contractor may use the percentage as the joint venture part-
experience and past performance of a ner’s percentage ownership share in the
subcontractor to enhance or strength- joint venture. For the calculation of
en its offer, including that of an incum- employees, the appropriate share is the
bent contractor. It is only where that same percentage of employees as the
subcontractor will perform primary joint venture partner’s percentage
and vital requirements of a contract or ownership share in the joint venture,
order, or the prime contractor is un- after first subtracting any joint ven-
usually reliant on the subcontractor, ture employee already accounted for in
that SBA will find the subcontractor to one of the partner’s employee counts.
be an ostensible subcontractor. (5) Facility security clearances. A joint
(iii) In the case of a contract or order venture may be awarded a contract re-
set-aside or reserved for small business quiring a facility security clearance
for services, specialty trade construc- where either the joint venture itself or
tion or supplies, SBA will find that a the individual partner(s) to the joint
small business prime contractor is per- venture that will perform the nec-
forming the primary and vital require- essary security work has (have) a facil-
ments of the contract or order, and is ity security clearance.
not unduly reliant on one or more sub- (i) Where a facility security clear-
contractors that are not small busi- ance is required to perform primary
nesses, where the prime contractor can and vital requirements of a contract,
demonstrate that it, together with any the lead small business partner to the
subcontractors that qualify as small joint venture must possess the required
businesses, will meet the limitations facility security clearance.
on subcontracting provisions set forth (ii) Where the security portion of the
in § 125.6 of this chapter. contract requiring a facility security
(iv) In a general construction con- clearance is ancillary to the principal
tract, the primary and vital require- purpose of the procurement, the part-
ments of the contract are the manage- ner to the joint venture that will per-
ment, supervision and oversight of the form that work must possess the re-
project, including coordinating the quired facility security clearance.
work of various subcontractors, not (i) Affiliation based on franchise and li-
the actual construction work per- cense agreements. The restraints im-
formed. posed on a franchisee or licensee by its
(4) Receipts/employees attributable to franchise or license agreement relating
joint venture partners. For size purposes, to standardized quality, advertising,
a concern must include in its receipts accounting format and other similar
its proportionate share of joint venture provisions, generally will not be con-
receipts. Proportionate receipts do not sidered in determining whether the
include proceeds from transactions be- franchisor or licensor is affiliated with
tween the concern and its joint ven- the franchisee or licensee provided the
tures (e.g., subcontracts from a joint franchisee or licensee has the right to
venture entity to joint venture part- profit from its efforts and bears the
ners) already accounted for in the con- risk of loss commensurate with owner-
cern’s tax return. In determining the ship. Affiliation may arise, however,
number of employees, a concern must through other means, such as common
include in its total number of employ- ownership, common management or ex-
ees its proportionate share of individ- cessive restrictions upon the sale of the
uals employed by the joint venture. franchise interest.
For the calculation of receipts, the ap- [61 FR 3286, Jan. 31, 1996]
propriate proportionate share is the EDITORIAL NOTE: For FEDERAL REGISTER ci-
same percentage of receipts or employ- tations affecting § 121.103, see the List of CFR
ees as the joint venture partner’s per- Sections Affected, which appears in the
centage share of the work performed by Finding Aids section of the printed volume
the joint venture. For a populated joint and at www.govinfo.gov.
387
§ 121.104 13 CFR Ch. I (1–1–25 Edition)
EFFECTIVE DATE NOTE: Amendments to SBA will calculate the concern’s an-
§ 121.103 were published at 89 FR 102485, Dec. nual receipts for that year using any
17, 2024, effective Jan. 16, 2025. other available information, such as
§ 121.104 How does SBA calculate an- the concern’s regular books of account,
nual receipts? audited financial statements, or infor-
mation contained in an affidavit by a
(a) Receipts means all revenue in person with personal knowledge of the
whatever form received or accrued facts.
from whatever source, including from (b) Completed fiscal year means a tax-
the sales of products or services, inter- able year including any short year.
est, dividends, rents, royalties, fees, or
‘‘Taxable year’’ and ‘‘short year’’ have
commissions, reduced by returns and
the meanings attributed to them by
allowances. Generally, receipts are
the IRS.
considered ‘‘total income’’ (or in the
(c) Period of measurement. (1) Except
case of a sole proprietorship ‘‘gross in-
for the Business Loan, Disaster Loan,
come’’) plus ‘‘cost of goods sold’’ as
Surety Bond Guarantee, and Small
these terms are defined and reported on
Business Investment Company (SBIC)
Internal Revenue Service (IRS) tax re-
Programs, annual receipts of a concern
turn forms (such as Form 1120 for cor-
that has been in business for 5 or more
porations; Form 1120S for S corpora-
tions; Form 1120, Form 1065 or Form completed fiscal years means the total
1040 for LLCs; Form 1065 for partner- receipts of the concern over its most
ships; Form 1040, Schedule F for farms; recently completed 5 fiscal years di-
Form 1040, Schedule C for other sole vided by 5.
proprietorships). Receipts do not in- (2) Except for the Business Loan, Dis-
clude net capital gains or losses; taxes aster Loan Programs, Surety Bond
collected for and remitted to a taxing Guarantee, and SBIC Programs, annual
authority if included in gross or total receipts of a concern which has been in
income, such as sales or other taxes business for less than 5 complete fiscal
collected from customers and exclud- years means the total receipts for the
ing taxes levied on the concern or its period the concern has been in business
employees; proceeds from transactions divided by the number of weeks in busi-
between a concern and its domestic or ness, multiplied by 52.
foreign affiliates; and amounts col- (3) Except for the Business Loan, Dis-
lected for another by a travel agent, aster Loan, Surety Bond Guarantee,
real estate agent, advertising agent, and SBIC Programs, where a concern
conference management service pro- has been in business 5 or more com-
vider, freight forwarder or customs plete fiscal years but has a short year
broker. For size determination pur- as one of the years within its period of
poses, the only exclusions from re- measurement, annual receipts means
ceipts are those specifically provided the total receipts for the short year
for in this paragraph. All other items, and the 4 full fiscal years divided by
such as subcontractor costs, reimburse- the total number of weeks in the short
ments for purchases a contractor year and the 4 full fiscal years, multi-
makes at a customer’s request, invest- plied by 52.
ment income, and employee-based (4) For the Business Loan, Disaster
costs such as payroll taxes, may not be Loan, Surety Bond Guarantee, and
excluded from receipts. SBIC Programs, a concern that has
(1) The Federal income tax return been in business for three or more com-
and any amendments filed with the pleted fiscal years may elect to cal-
IRS on or before the date of self-certifi- culate annual receipts using either the
cation must be used to determine the total receipts of the concern over its
size status of a concern. SBA will not most recently completed 5 fiscal years
use tax returns or amendments filed divided by 5, or the total receipts of the
with the IRS after the initiation of a concern over its most recently com-
size determination. pleted 3 fiscal years divided by 3. An-
(2) When a concern has not filed a nual receipts of a concern which has
Federal income tax return with the been in business for less than three
IRS for a fiscal year which must be in- complete fiscal years means the total
cluded in the period of measurement, receipts for the period the concern has
388
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