The Concept of Control under 13 CFR § 121.103

SBA affiliation rules prevent large businesses from creating shell companies to win small business set-aside contracts. Under 13 CFR § 121.103, affiliation exists when one firm controls or has the power to control another, or when a third party controls both [1]. It does not require absolute ownership; the power to control is sufficient.

Common triggers for SBA affiliation include:

  • Stock Ownership: Owning 50% or more of another firm's voting stock.
  • Common Management: Sharing officers, directors, or key managing partners.
  • Identity of Interest: Close family members running separate businesses in the same sector.
  • Ostensible Subcontracting: A subcontractor performing the primary and vital requirements of a contract [2].

When affiliation is established, the SBA aggregates the five-year average revenues of all affiliates to determine if the firm exceeds the size standard [1].