No Company is an Island – Part 1: Subcontractor Affiliation

by Williams Mullen

Williams Mullen

Government Contractors often determine that going it alone is not the best business decision.  Whether a small business trying to break into a new industry or a large business seeking niche expertise to support a particular opportunity, every contractor can use help from time to time.  However, choosing the correct teaming methodology can be a challenge. Indeed, each teaming opportunity must be analyzed individually to determine the relationship that makes the most sense for the teaming partners to accomplish their goal—developing a solution that will win business and provide value to the ultimate customer.

The FAR appreciates the value that teaming arrangements can bring to both the companies teaming and the Government.  Specifically, FAR 9.602 states that teaming arrangements may be desirable to “complement [the teaming companies’] unique capabilities” and “offer the Government the best combination of performance, cost, and delivery for the system or product being acquired.”  With that in mind, the FAR envisions two main forms of teaming arrangement:  the typical prime-subcontractor relationship and the joint venture. FAR 9.601. 

There are myriad potential factors that may affect the choice of the proper teaming arrangement, but some of the most common questions to ask to help sort out the issue are:

  • What skills does each party bring to the team, and what are their envisioned roles?
  • What is it about the combination that differentiates the team from the competition and makes the whole greater than the sum of its parts?
  • What are the teammates chasing—a particular opportunity or a longer-term strategy?
  • How should the various risks (performance or financial) be allocated amongst the teammates?

Ultimately, all of the above questions point to the single overarching goal of developing a strategy that maximizes the potential to receive work and places the team in the best possible position to be successful in performing that work.

This is the first in a series of blog posts entitled “No Company is an Island,” which will delve into the various issues that arise in teaming arrangements.  The first issue to be addressed arises often in teaming arrangements that are designed to pursue and perform contracts set-aside for entities that qualify for one or more of the Small Business Administration’s (SBA’s) various socio-economic programs.  That issue is affiliation.   

How are entities determined to be affiliated?

For small businesses that use teammates to perform set-aside contracts, affiliation can be lurking quietly around every corner waiting to steal an awarded contract.  To qualify as a “small business” to receive a small business set-aside contract or participate in the SBA’s various socio-economic programs, the business must qualify as small for the North American Industry Classification System (NAICS) code assigned to the procurement.  The NAICS code sets either a revenue-based or employee-based threshold that the business must be under to qualify for the award. For instance, NAICS code 541512 is the code for Computer Systems Design Services and has a $27.5 million revenue size standard. 

In determining a business’s size, the SBA aggregates the annual revenues or number of employees of the business and all of its affiliates and compares it to the size standard applicable to the relevant NAICS code.  As a result, a contractor that would otherwise be considered a small business for a particular procurement could be found affiliated with its teaming partner and, thus, other than small based on its relationship with that teammate.  Affiliation’s ability to sneak up on contractors undetected is based, in part, on the various and sometimes unclear routes that can lead to two or more entities being considered affiliated.  It is important to take the potential for affiliation into account when determining the appropriate teaming approach.

The general rule for affiliation is fairly straightforward.  Concerns are affiliates of each other when one controls or has the power to control the other or a third party controls or has the power to control both. 13 C.F.R. 121.103.  The reason the SBA analyzes affiliation is also fairly straightforward.  The SBA’s support of small businesses through its contracting programs would be undermined if large businesses could receive the benefits of set-aside contracts indirectly by simply asserting control over the small businesses that receive them.  In other words, the affiliation concept is intended to ensure that the recipients of set-aside awards are truly small businesses. 

There are certain instances where affiliation is easy to detect. For instance, if entities have common majority ownership and/or common controlling management, determining whether they are affiliated should be easy.  Further, these issues are less germane to this blog post because, if entities have the same majority ownership and controlling management, they are likely to be considered affiliated regardless of the teaming approach they might take.    

However, after certain bright-line rules for ownership and management, the existence of affiliation between entities can become murky.  Specifically, in determining affiliation, “SBA will consider the totality of the circumstances, and may find affiliation even though no single factor is sufficient to constitute affiliation.” 13 C.F.R. 121.103(a)(5).  Although prior SBA findings provide some guidance, this is not far from a “we know it when we see it” standard and requires an extremely fact-intensive analysis.  Common minority ownership, common current or former employees, common back-office support, common facilities, loans between entities and familial ties are some of the factors that can contribute to a finding of affiliation.  More important to this blog post, a teaming arrangement can also create or contribute to a finding of affiliation.

Can a simple prime-subcontractor relationship create affiliation?

Most companies do not consider the potential for affiliation when entering into a simple subcontract. Indeed, the typical subcontract to perform specified services under a government contract will not, by itself, result in the prime and subcontractor being characterized as affiliates.  However, there are instances where a single subcontract can result in a finding of affiliation for the purposes of that specific procurement.  Specifically, one method the SBA uses to consider affiliation is the “ostensible subcontractor rule.” 13 C.F.R. 121.103(h)(4).  SBA will find that a subcontract violates the ostensible subcontractor rule and that the entities are affiliated when the prime contractor is:  (1) “unusually reliant” upon the subcontractor or (2) the subcontractor will perform the “primary and vital requirements of a contract.”  With regard to “unusual reliance,” SBA has cited “four key factors” in evaluating whether it exists:  “(1) the proposed subcontractor is the incumbent contractor and is ineligible to compete for the procurement; (2) the prime contractor plans to hire the large majority of its workforce from the subcontractor; (3) the prime contractor's proposed management previously served with the subcontractor on the incumbent contract; and (4) the prime contractor lacks relevant experience and must rely upon its more experienced subcontractor to win the contract.” Charitar Realty, No. SIZ-5806, Jan. 25, 2017.  As these factors demonstrate, determining whether a prime contractor is unusually reliant on its subcontractor and in violation of the ostensible subcontractor rule requires an exhaustive evaluation of the teaming partners’ approach to performing the work in their proposal and the actual teaming arrangements.  As the SBA has stated, “An ostensible subcontractor analysis is extremely fact-specific and is undertaken on the basis of the solicitation and the proposal at issue.” Brown & Pipkins LLC, No. SIZ-5621, Dec. 8, 2014.

An equally exhaustive analysis is performed in considering whether the subcontractor will perform the primary and vital functions of the contract.  Specifically, one must analyze the solicitation to determine the primary and vital functions of the work, as well as the proposed approach and work allocation between the teammates, to determine which entity will perform those primary and vital functions. 

Moreover, in addition to resulting in a finding of affiliation under a particular procurement, subcontracts can be a consideration in finding general affiliation between a prime and a subcontractor. For instance, subcontract relationships are factors in the aforementioned “totality of the circumstances” test.  Although a single subcontract may not create affiliation, when compiled with a series of other ties between companies, the subcontract can contribute to the ultimate finding of affiliation. 

Finally, a subcontractor’s financial interest can be so tied to subcontract(s) with a particular prime that the SBA may find the subcontractor is economically dependent on that prime.  In such a circumstance, the prime may assert control over that subcontractor, and the entities will be considered affiliates. 13 C.F.R. 121.103(f).  This rule can create a factual scenario that may appear at odds with the SBA’s ultimate goals. For instance, assume a small business’s first several contracts as it becomes a going concern are subcontracts with the same large business prime contractor, amounting to $1 million annually.  The small business then receives its first prime federal contract, which is a small business set-aside assigned a NAICS code with a $27.5 million size standard and valued at $100,000.  Although the small businesses’ annual revenues may fit comfortably under the $27.5 million size standard, the small business and the large business could be considered affiliated and the small business not eligible for the set-aside award, based on an assertion that the small business is economically dependent on the large business.  One would hope that the SBA would understand that the set-aside award is the first step in the small business’s independence and not block the small business from receiving the award, but the SBA must weigh that potential against the concern that a large business may be wheedling its way into a set-aside contract.  Again, a review of the facts associated with the two businesses’ relationship would likely guide the analysis.

The above scenario shows just how closely a contractor must monitor its relationships to avoid affiliation and how fact-specific an analysis of affiliation tends to be.  What start as innocent teaming arrangements may evolve and grow, and a contractor must remain vigilant to ensure that it does not fall prey to a colorable argument that it is affiliated with a teammate either for a specific procurement or generally. 

Needless to say, subcontracts are not the only teaming arrangement with complex affiliation issues.  Next time on “No Contractor is an Island,” we will address affiliation and joint ventures. 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Williams Mullen | Attorney Advertising

Written by:

Williams Mullen

Williams Mullen on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at:

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit
  • New Relic - For more information on New Relic cookies, please visit
  • Google Analytics - For more information on Google Analytics cookies, visit To opt-out of being tracked by Google Analytics across all websites visit This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at:

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.