Small businesses continue to use joint ventures as a strategic alliance to get larger government contracts. There are various advantages and disadvantages of forming venture relationships. There are also specific rules that govern these alliances. Yet small businesses continue to lose larger contracts due to increasing amounts of small business size protests.
For example, developing small business joint ventures as a strategic alliance previously meant that your partner’s annual revenues are automatically merged with your company revenues. See new affiliation rules. Unless you fall under the Mentor Protégé exception, the merger of revenues can be disastrous. If the revenues exceed the NAICS standards (assuming that the standard is measured by revenues) you can actually lose the contract.
- Develop internal controls for developing strategic alliances with joint ventures’
- Understand that failure to have these policies in place does not exclude your company from liability in procurement fraud cases.
Strategic Alliance Pitfalls
When you develop a strategic alliance with other small businesses, make sure that you research the partner’s background, performance record, and any litigation that may be on-going. There are several GAO protests where the Agency failed to consider ongoing litigation from fraud. The awardee lost a multi-million dollar contract as a result. Strategic alliances can become a problem when members of the small business joint venture do not understand their roles and legal obligations under SBA regulations.
- State law does not regulate joint ventures under federal regulations.
- Avoid letting corporate lawyers draft what might be a joint venture agreement under state law.
Joint Ventures and Limitations
As you develop strategic alliances with a joint venture agreement, keep in mind that there a limitations on the amount of contracts you can have in two years. These rules are very deadly for small businesses that are not familiar with SBA regulations. Learn more about government programs to help small businesses.
When companies form joint ventures as part of a strategic alliance to gain more government contracts, there are certain exceptions to the automatic SBA affiliation rules. In addition, there must only be one partner in control.
- Always learn about your legal and ethical obligations when forming a strategic alliance with a joint venture partner.
For additional questions or help forming a small business joint venture strategic alliance, call our government small business lawyers at 1-866-601-5518.