Small businesses often execute joint venture agreements without clearly understanding the applicable rules and joint venture advantages and disadvantages. To make matters worse, the Small Business Administration (SBA) recently modified the joint regulations. The goal is to decrease the possibility of affiliation challenges. However, there are other caveats and landmines that companies call fall prey to. A person rarely buys on the first visit to your website. Utilize smart, proven
Apply best practices; seeing whether you have the right joint venture partner, and understanding the strict limitations on subcontracting rules can save your company from being in the news and headlines for violations. By doing the basic things and getting the right advice, you can significant increase your company revenues.
Challenged joint venture companies have a 40% failure rate! WHY IS THIS?
When your joint venture relationship is challenged in a bid protest, case decisions show that many companies fail the legal test, and end us losing the contract:
Not understanding the legal difference between a teaming agreement and joint venture arrangement: FAR 9.6 allows for various relationships but the SBA regulations provide detailed requirements. Confusion on both can lead to disastrous results.
Not understanding affiliation rules: Although the SBA has implanted a new set of JV rules, companies and those that are non-8(a) certified still find out that they did not have required JV contents or did not follow the limitation in subcontracting rules.
Failure to weigh the pros and cons of joint ventures: A joint venture arrangement is not suited for all government contracts. Depending on the specific procurement, there could be advantages. However, you have to also look at the possibilities after contract performance. Sometimes, the disadvantages of joint ventures can outweigh the advantages. Getting the proper professional advance can save your company hundreds of thousands in the end.
Joint Venture Definition
An SBA joint venture (JV) in federal government contracting is a strategic alliance between two or more business entities seeking to engage in a specific government project. The governing regulations apply to small business relationships.
It is very important to understand that a company can be small under one NAICS code but still large for another.
New regulations: Given the new SBA rules, there are some familiar advantages. Nevertheless, companies should still be aware of astonishing disadvantages of forming the JV strategic alliance. Making sure that your JV contracts comply with the SBA regulations are essential. Learning how to navigate joint venture advantages and disadvantages can be a tremendous incentive to maximize company revenues.
Heavy SBA scrutiny: In federal contracting, companies that fall under SBA small business programs are subject to great scrutiny and regulations. Exposure usually surfaces when there is a size protest. However, when formed correctly, contractors can experience great success and can even increase business revenues. Companies deciding to engage in a joint venture agreement should consider the advantages and disadvantages before moving forward.
Joint Venture Advantages
- SBA joint ventures can receive the “exception to affiliation” for mentor-protégé joint ventures.
- Companies may or may not form a third entity.
- Separate banking requirements can avoid commingling of regular business revenues.
- Under the new rules, similarly situated businesses can escape affiliation.
- Joint ventures can now qualify as small for any government procurement so long as each JV partner qualifies individually as a small business applicable size standards.
- Companies can still maintain their separate corporate entities while pursuing government contracts.
Disadvantages of Joint Ventures and JV Agreements
- The SBA has the authority to review the terms of the joint venture arrangement for government procurements conducted outside of the 8(a) BD program. See Size Appeal of Drace Anderson Joint Venture, SBA No. SIZ-5531 (2014).)
- Under the new rules, the SBA has changed the requirements by allowing similarly situated businesses to become exempt from joint venture affiliation. The actual problem becomes whether the companies can meet the “similarly situated” definition.
- Joint ventures for companies not in the 8(a) Program must still comply with 13 CFR 124.513(c)(6) and (7).
- The joint venture must keep separate accounting records.
- Failure to follow the SBA joint venture regulations can create an affiliation between the two companies and the JV can lose the contract.
- The SBA must approve even the slightest change to the joint venture agreement for 8(a) companies.
New SBA joint venture regulations can be tricky: When deciding to enter a JV relationship, always take a hard look at the new rules. Businesses should determine how the new rules will impact current and future joint venture relationships. Although statutorily allowed, considering the details and legal twists to the rules can play an important part on your business development strategies and how you go about getting government contracts.
Affiliation still possible: Although the new SBA joint venture regulations reduce the chances of the SBA finding affiliation, failure to follow the expressed statutory requirements can still lead to a finding of affiliation. For example, a mere diversion from the regulations can lead to affiliation. Also, if there is a violation of the limitation on subcontracting rules, the JV can end up losing the contract.
Is your joint venture contract compliant? Given the new regulations, small businesses must make sure that the avoid the mistake of copying old SBA joint venture templates from online. There are too many pros and cons of joint ventures to make this frequent mistake. The best way to assess your contents is to have a legal professional to do a line by line comparison of your JV contents.