Being a Not for Profit Company Does Not Avoid Affiliation for Size Purposes

Size protests stemming from corporate affiliation between subsidiaries, sister companies, and owners are common. Less common are size protests stemming from affiliation with a non-profit. That was the situation in a recent Small Business Administration (“SBA”) size appeal. ZLynx Enterprises (“ZLynx”) won a contract for grounds maintenance services with a $7.5 million annual receipts size standard. The award was protested due to ZLynx’s alleged affiliation with Relief Enterprise, Inc. (“RE”) and RET, two large non-profits. The area office found affiliation based on identity of interest and affiliation based on common management.

Under SBA’s size regulations, affiliation based on identity of interest may arise when individuals (such as family members) or firms have substantially identical business/economic interests. When such a relationship arises, the individuals/firms may be treated as one party with their interests aggregated. Affiliation based on common management arises when “one or more officers, directors, managing members, or partners who control the board of directors and/or management of one concern also control the board of directors or management of one or more other concerns.”

Here, the SBA affirmed the area office’s size determination. Clarence Williams is ZLynx’s President, 51% owner, Chairman, and one of the two members of the Board of Directors. Calvin Williams, Clarence Williams’ son, is a 49% owner, Vice Chair, and the other member of the two-member Board of Directors.

The Williamses also are RE’s only two officers and key employees. They both receive compensation from RE, work over 50 hours per week at RE, and serve on the Board of Directors at RE and RET. The Area Office further noted ZLynx’s address is the same as RE’s headquarters address. Clarence Williams is listed as RE’s CEO and “a hands-on owner/operator” who “oversees day-to-day operations.” Calvin Williams as identified as RE’s COO. He maintains the non-profit’s books and oversees “all company policies/procedures,” along with a list of other items.

For these reasons, the SBA concluded that Clarence and Calvin Williams should be viewed as one party with their interests aggregated, and as such, “have critical influence and substantive control over all three entities as officers, employees, and Board members.” The SBA noted that a “finding of affiliation through common management does not require that the person exercising common management have total control of a concern, just critical influence or the ability to exercise substantive control over the concern's operations.”