In procurements set aside for small businesses, the Small Business Administration (SBA) regulations require that the average annual revenue or the number of employees of affiliated firms be added to determine whether a concern meets the applicable size standard. Per 13 C.F.R. § 121.103(e), affiliation based on common management arises where one or more officers, directors, managing members, or partners who control the board of directors or management of one concern also control the board of directors or management of one or more other concerns. While a finding of total control is not necessary for the SBA to find affiliation between firms with common management, the relevant officer(s), director(s), managing member(s), or partner(s) must exercise critical influence or possess the ability to exercise substantive control over operations. Control may be direct or negative, with negative control defined as the ability of a minority interest owner, under the concern’s governing documents, to prevent a quorum or otherwise block actions by its board of directors or shareholders. Notably, minority shareholders will not be deemed to have the ability to exercise negative control in situations where a majority shareholder has the power to call a shareholders’ meeting and, at that meeting, remove any and all directors, with or without cause. In such cases, the SBA will not find common management affiliation through the minority shareholders, even when they occupy key executive positions.

The Differing Site Conditions clause at Federal Acquisition Regulation (FAR) 52.236-2 is typically included in construction contracts to discourage contractors from inflating their proposed prices on account of unexpected physical conditions that may not arise. There are two types of differing site conditions claims contemplated under the clause. In a type I claim, the conditions encountered by the contractor differ materially from those indicated in the contract. On the other hand, in a type II claim, the conditions are different from those ordinarily encountered. To qualify as a type II differing site condition, the conditions must be such that they cannot be predicted by the contractor’s review of the contract documents, site inspections, and its general experience, if any, as a contractor in the region. Proving a type II differing site condition is typically more difficult than proving a type I condition, as it involves a heavier burden of proof because there is no clear point of reference in the contract documents as to the known and usual conditions on site. To prove a type II condition, the contractor must first establish the known and usual conditions at the site. Next, the contractor must show that the actual physical conditions it encountered were different from the known and usual conditions. Finally, the contractor must demonstrate that the different conditions increased the cost of performance.

Contractors participating in negotiated procurements have a responsibility to submit a well-written, complete proposal with sufficiently detailed information that clearly meets solicitation requirements and permits meaningful review by the agency. The obligation to submit a well-written proposal includes providing accurate information in the specific format outlined in the solicitation. Despite these obligations, offerors may make errors in their submissions. Under Federal Acquisition Regulation (FAR) 15.306, agencies may give offerors the opportunity to resolve minor or clerical errors in their proposals or clarify certain aspects if an award is to be made without conducting discussions. In this regard, clarifications are limited exchanges between the procuring agency and offerors that may occur when an award is to be made without discussions. Scenarios where the agency may seek clarifications include, but are not limited to when the pricing submission contains obvious clerical errors, the relevance of an offeror’s past performance information is not immediately clear, and the contracting officer (CO) comes across adverse past performance information to which the offeror has not had a previous opportunity to respond. However, contractors should be mindful that it is firmly within the agency’s discretion to engage in clarifications. An award may remain proper even if the agency chooses not to request clarification from an offeror whose proposal contains an error that could have been resolved by a clarification request.

Under its statutory authority, the Small Business Administration (SBA) establishes size standards by type of economic activity, or industry, under the North American Industry Classification System (NAICS). For contracts set aside for small businesses, offerors must not exceed the size standard, measured by number of employees or average annual revenue, for the primary NAICS code specified in the solicitation. For a business concern with affiliates, SBA regulations require that the annual average receipts for the past five complete fiscal years or the number of employees of the affiliates be added to those of the concern when calculating size for self-certification to participate in small business set-asides. Businesses are considered affiliates when one concern controls, or has the power to control, the other, or when a person or concern controls, or has the power to control, both. Concerns may exercise direct or negative control over one another. When an owner with a minority interest has the power to block ordinary actions essential to business operations, that owner is said to have negative control. Negative control mandates a finding of affiliation for purposes of size determination under SBA regulations. It does not matter whether control is actually exercised, as the ability to control is sufficient for affiliation purposes.