The Small Business Administration (“SBA”) recently issued guidance on entity-owned exceptions to affiliation of Alaska Native Corporations (“ANCs”).  These exceptions, which also apply to Indian Tribes, Native Hawaiian Organizations and Community Development Corporations, generally provide that an entity’s size is determined without consideration of any affiliation the entity may have with a parent tribe, tribal government, or any other business entity owned by the tribe.  However, both within the 8(a) BD program and outside of it, there are exceptions to this rule that contractors should be aware of.  The SBA’s April 23, 2013 guidance addresses some of these exceptions and also provides guidance on the rule’s application.

Within the 8(a) BD program, affiliation will not be found between the entity and the tribe or the entity and other tribe-owned business concerns unless the SBA determines that an unfair competitive advantage within the industry category exists.  The SBA’s guidance specifically clarified the meaning of the terms “unfair competitive advantage” and “within an industry category.”  Addressing the second term, the SBA stated that “within an industry category” meant within a specific NAICS code.  With regard to the first term, the SBA stated that an “unfair competitive advantage” could be found where the other tribe owned entities were (a) dominant (b) within the specific NAICS code, (c) in the national market, and (d) relative to other small businesses.  With these clarifications, the SBA communicated to contractors that it is irrelevant if other owned entities are dominant in a local market and, similarly, it is irrelevant if other owned entities are competitive but not dominant in the national market or are dominant but under a separate NAICS code.  The practical message is that 8(a) entities concerned about affiliation with other entities owned by a parent ANC should assess the dominance of the other tribe owned entities on a national scale relative to other small businesses in the specific NAICS code for which the 8(a) operates.  As long as the other entity-owned concerns are not nationally dominant relative to other small businesses for the specific NAICS code, the 8(a) should be free from affiliation concerns.

Outside of the 8(a) BD program, the SBA’s guidance stated that business concerns controlled by an ANC are not affiliated with the ANC but may be affiliated with other business concerns owned by the ANC if certain services, other than common administrative services, are shared among the owned entities.  While the SBA’s guidance did not set forth all circumstances in which affiliation could be found, it did provide some examples.  The specific examples highlighted in the guidance include recruitment, human resources support, and cleaning services – all of which would be “common administrative services” and, therefore, not be cause for affiliation, versus contract administration, business development, and equipment maintenance – all of which fall outside the SBA’s interpretation of common administrative services and could lead to a finding of affiliation.  The most detail the SBA provided in defining “common administrative services” was that the term referred to services unrelated to contract performance or management that could be performed without exercising control of the business concern.  Given this imprecise and open-ended definition, entities owned by ANCs should be wary of sharing services with other ANC owned entities unless the shared services are specifically those identified to date by the SBA as common administrative services:  bookkeeping, payroll, human resources, and cleaning services.  With the recent trend of imposing stricter regulations on ANCs, it is likely that the SBA will further develop this standard over the coming months and years.