Government contractors looking to identify and mitigate indications of affiliation sometimes need look no further than their own family tree.

The Small Business Administration (SBA) assumes that two businesses owned and controlled by members of the same family are affiliated based on that family relationship alone.  It is up to the family members to rebut the presumption.

The SBA’s Office of Hearings and Appeals (OHA) reaffirmed this “Familial Identity of Interest” standard in spades in a recent decision.  OHA found two businesses affiliated based on the ownership and control of two brothers.  To be clear, the brothers did not co-own the businesses – each brother owned and controlled his own business.

The OHA decision is significant because it reaffirms the presumption of affiliation in such cases.  The businesses argued that they should not be considered affiliated because there is no evidence that either brother could control the other’s business.  OHA rejected this argument as immaterial.  There is no need for a finding of affirmative control when it comes to family relationships – the relationship alone is sufficient to create a presumption of identical interests.

So how do family members rebut the presumption of affiliation?

There are two generally recognized ways.  The first is to show that the family members are estranged.  Family members that are not in contact with each other are not presumed to share identical interests.  Obviously, this is a subjective question that will require at least some actual evidence to support the claim.

The second way to rebut the familial identity of interest is to show that there is no – or at least very little – involvement between the family businesses.  In the case under review here, the brothers shared some fairly significant overlap in their businesses, including ownership interests, contracts/subcontracts, and a common NAICS code.  OHA concluded that these shared interests went beyond the minimal contacts allowed in earlier decisions.

The bottom line:  Government contractors with close family members that own a business – particularly a business in the same general field on industry – need to proceed with caution.  The best practice is to conduct zero business between the two entities and document affirmative efforts to wall off any actual or perceived shared interest.  Even a small amount of interaction can start to tip the scale towards a finding of affiliation.