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Government Contracts: Be Sure the Government Contract Teammates Make the Cut

The “teaming” of businesses to achieve certain advantages for bidding on government contracts has picked up especially in the area of set-asides under the 2010 Small Business Jobs and Credit Act, encouraging the award of government work to legally defined small businesses. When a large business teams up with a small business to qualify for the bid requirements of certain government work, the parties must be vigilant to ensure the continued separation and independence of their respective entities, lest the government deem them “affiliated,” thereby jeopardizing the small business qualification and possibly resulting in other penalties.

The federal Small Business Administration (SBA) applies this affiliation analysis generally to qualified small businesses teaming with larger ones as joint ventures to bid on government work. Under the regulations, the SBA may also determine that small and large companies teaming as prime and subcontractor may be deemed joint ventures that are affiliated and therefore disqualified. In deciding whether the teammates are affiliated, the SBA looks at the big picture, but with particular attention to:

(i)             common ownership or management;

(ii)           identical business interests, such as family members, common investments or other economically dependent contractual relationships;

(iii)          past dealings between the parties, possibly including previous teaming relationships;

(iv)          extensive reliance by the small business on the large business; and

(v)           the existence of other joint ventures between them.

Each of these factors involves the larger business dominating the small business in some way, thereby rendering the small business as a mere “front” for the large business to win the government contract, and defeating the purpose of the set-aside for small business.

A finding of affiliation of the members of a teaming agreement bidding for government business can lead to a further determination of false certification under the federal False Claims Act. This is because companies submitting proposals for small-business set-aside work are deemed to have certified that one of them is a qualified small business. If this deemed certification proves untrue on account of a finding of affiliation between the parties to the team bidder, the penalties may be severe, including treble damages for the government’s “presumed loss” of the value of the contract, default, and suspension and debarment from government work.

For more information please contact Jay Merwin at 410-583-2400 or merwin@bowie-jensen.com.

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