In its final rule published on May 31, 2016, the SBA modified the regulations relating to affiliation based on an “identity of interest” pursuant to 13 C.F.R. § 121.103(f). Specifically, the SBA provided clearer guidelines regarding identity of interest affiliation due to familial relationships and economic dependence.

The final rule limits the presumption of affiliation based on familial relationships to firms that conduct business with each other and are owned or controlled by married couples, parties to a civil union, parents, children and siblings. This presumption may be rebutted by showing a clear line of fracture between the firms. It is notable that the rule suggests that affiliation is presumed only if the firms conduct business with each other. This appears to allow family members who own firms to escape the presumption of affiliation so long as the companies are not engaged in any business transactions with each other.

Additionally, the final rule presumes an identity of interest affiliation based on economic dependence if the firm in question “derived 70% or more of its receipts from another concern over the previous three fiscal years.” Under the old rule, there was no such fixed percentage, however, the 70% figure was regularly used by SBA’s Office of Hearings and Appeals in its decisions. The presumption may be overcome by a showing that the firm in question is not solely dependent upon another firm. The final rule suggests that this presumption may be rebutted by, for example, a showing that a concern has only been in business for a short period of time, and therefore has only been able to secure a limited number of contracts.

The final rule has provided much needed clarity to the identity of interest basis of affiliation. It will be interesting to see how the SBA Office of Hearings and Appeals interprets and applies this rule going forward.