Remember: SBA 8(a) Certifications Are Usually Limited to One Per Family
May 20, 2013
By: Eric Whytsell
The recent case of Allcon, LLC, SBA No. BDPE-486 (April 30, 2013), underscores the importance of not getting too involved in the business of family members who own an 8(a) company if you hope to achieve 8(a) certification yourself. The case involved an appeal by Ms. Ana Lopez of an SBA determination that her construction company, Allcon, LLC, did not meet the entry requirements of the 8(a) BD Program. The decision ultimately boiled down to the question of whether SBA had properly decided that Allcon’s dealings with Arteaga Construction, Inc, (a former 8(a) BD Program participant owned by Petitioner’s brother) precluded its certification.
SBA originally asserted three grounds for its determination: (i) Allcon’s contractual relationship with Arteaga Construction; (ii) the supposed ability of Ms. Lopez’s father, a non-disadvantaged person, to exert control over Allcon based on “critical funding” he had provided; and (iii) a finding that Allcon had failed to show that it could perform successfully in the 8(a) BD Program.
By the time SBA’s Office of Hearings and Appeals (OHA) issued its decision, SBA had dropped its second and third assertions. Only one issue remained: whether an ongoing contractual relationship existed between Allcon and Arteaga Construction. This question lies at the heart of the relevant regulation.
The relevant subsection states:
Ownership of another Participant in the same or similar line of business: (1) An individual may not use his or her disadvantaged status to qualify a concern if that individual has an immediate family member who is using or has used his or her disadvantaged status to qualify another concern for the 8(a) BD Program. The [fact-finder] may waive this prohibition if the two concerns have no connections, either in the form of ownership, control or contractual relationships, and provided the individual seeking to qualify the second concern has management and technical experience in the industry. Where the concern seeking a waiver is in the same or similar line of business as the current or former 8(a) concern, there is a presumption against granting the waiver. The applicant must provide clear and compelling evidence that no connection exists between the two firms.
13 C.F.R. § 124.105(g)(1).
Here, it did not take OHA long to find that Allcon had failed to show the requisite clear and compelling evidence that the general prohibition should be waived. SBA based its determination that a contractual relationship existed between Allcon and Arteaga on the fact that the two companies owed each other money. Allcon contended that SBA had improperly assumed that those debts had not already been paid. OHA rejected this argument, finding SBA’s conclusion reasonable and noting that the listing of the debts on the two companies’ Accounts Receivable and Accounts Payable reports “strongly suggest[s] that the debts had not been paid or received.” OHA also found SBA’s assumption that the debts related to the companies’ contractual dealings to be supported by evidence in the record – including Allcon’s admission that the companies had contracted to one another in the past – particularly given Petitioner’s failure to offer an alternative explanation.
Bottom line: If you want to obtain 8(a) certification from SBA, you need to keep your business separate and apart from those of any family members who own a current or former 8(a) company – and take steps to ensure you can establish your independence with clear and compelling evidence.
Eric Whytsell is the attorney responsible for the content of this article.