Failing to Comply With SBA Joint Venture Definition and Affiliation Rules Can Cost You the Contract.
The SBA definition of joint venture means two or more businesses joining forces for a profit. The effort is generally targeted to a specific project in federal contracting.
In government contracting, the Small Business Administration (SBA) is the governing body of the regulation of joint ventures and whether or not business relationships meet the legal definition of a joint venture agreement.
There are several nuances associated with the SBA’s joint venture agreements meaning. As small business government contractors, you must get it right because you may find your company subject to a challenge in a small business size protest.
The SBA definition of joint venture impacts the small business size rules under 13 CFR 121.103(h). According to the SBA, a joint venture is an entity with limited duration.
New Three in Two Rule – Abolished
Under the current joint venture agreement definition, you can submit more than the original three bidding offers over a two-year period. The rules now allow a specific joint venture to be awarded unlimited government contracts over a two-year period. If the joint venture goes over the three years then any contracts to the joint venture will create affiliation
Under the new SBA rules, the JV partners to a joint venture agreement could form a second joint venture and be awarded three more contracts, and a third joint venture to be awarded three more. There are differing opinions as to whether the definitions and applications of the SBA affiliation rules create unnecessary confusion for companies.
Under the JV meaning and definition, the SBA will decide whether the three contract awards in two years requirement has been met. Generally, the time is counted as of the date you submit a written self-certification that you are a small business as part of your initial government proposal offer including price. Also see information about avoiding joint venture mistakes.
Under the definition of a joint venture, you can also choose to, or not to, form a separate entity. In either case, to become regulated under the joint venture rules, you must have a written agreement between the partners.
Affiliation under the Joint Venture Rules: The general rule is that firms submitting offers on a particular procurement as joint venturers are affiliates with regard to that contract, and they will be resources and revenues can be aggregated for the purpose of determining size for that procurement. However, SBA small business size standard regulations recognize several exceptions to the general rule.
For example, approved mentor/protégé and joint venturer can be exempt from affiliation. Nevertheless, there are situations where longstanding relationships under an 8(a) joint venture agreement can still lead to affiliation. Given the complex issues governing the joint ventures definition, companies should seek the legal advice of their attorney to make sure they avoid costly legal problems. See information about Small Business SBA Size Protest Requirements. and HUBZone Employee tips.
Joint Venture Affiliation
The SBA looks at a joint venture entity as being is an association of individuals and/or concerns with interests in any degree or proportion consorting to engage in and carry out no more than three specific or limited-purpose business ventures for joint profit over a two year period (referred to as the three-in-two rule), for which purpose they combine their efforts, property, money, skill, or knowledge, but not on a continuing or permanent basis for conducting business generally. See also https://www.law.cornell.edu/cfr/text/13/121.103. If you form a joint venture for government contracts, the rules prohibit your company from being awarded more than three contracts over a two year period. The measuring point is date of the award of the first contract. If the JV enters a third contract within the period, then the companies will be affiliated by virtue of the third contract. See also information where SBA OHA Affiliation Decision Defeats Contractor Argument that Subcontractor Was Similarly Situated.
Can You Create a Second Joint Venture?
The joint venture rules allow you to create additional joint ventures. Each subsequent venture entity will start the three-in-two rule all over again. However, companies should be careful because the SBA could very well find general affiliation due to the unusually-long-standing relationship. This is where help from an experienced joint venture attorney could be of value.
Tips for 8a Joint Venture Agreements
If you are an 8 (a) Company, Make Sure Your JV Agreement is SBA Approved. Sometimes companies make the costly mistake of submitting proposals that represent companies as being a Joint Venture without SBA approval. However, for SBA 8(a) joint ventures, is mandatory that you get SBA approval of your joint venture agreement or Mentor/Protégé Agreement approved before you submit government bids.
- There is no requirement to have a populated joint venture.
- Compliance With SBA Rules for UnPopulated JV and Populated Joint Ventures
- Get information about affiliation based on the totality of the circumstances
- Your joint venture must perform at least 40 % of the work
This very issue was decided by the SBA Office of Hearing and Appeals in Size Appeal of Lukos-VATC JV, LLC, SBA No. SIZ-5532 (2014). The Court found that the SBA Area Office correctly concluded that joint venture firms were affiliated because the mentor/protégé agreement was not approved until two days after JV submitted offer on procurement in question. See Signs of Being Under Investigation (Federal)
SBA normally does not approve teaming agreements. 8(a) companies must still advise the SBA of any teaming relationships. This complies with the Participation Agreement signed to get 8(a) certification
There is at least one case where the Office of Hearings and Appeals provided the SBA with teeth to terminate you from the 8(a) program for not letting them be aware of the teaming agreement. Find out more about submitting your Joint Venture Proposal for Federal Government Contracts.
Specific Things SBA Looks When Setting up a Joint Venture
For companies that simply create their own JV agreement, government agencies and courts will look to see if your contract meets the legal joint ventures definition. Here are some things you want to consider.
- What benefit are you getting from becoming a joint venture partner?
- What rights are you giving up either as a managing partner or otherwise?
- Are you complying with the statutory regulations?
- Who is getting what share of profits?
- Did you submit the JV agreement before you received approval from the SBA?
- Do you have an approved SBA mentor protege agreement in place?
Within the joint venture, there is always a managing partner who is in ultimate control of the project. Read important information about hiring incumbent government contractor personnel and the advantages and disadvantages of JV agreements.
Tips for success when trying to meet the SBA joint venture definition. You should always keep in mind that unless you have a viable statutory exception, as joint venturers, by definition, automatically affiliates the parties if they do not comply with the respective regulations.
Getting the proper legal advice always helps. Have your subcontract terms reviewed for legal sufficiency by a joint venture agreement attorney.
For help meeting the SBA definition of joint venture and complying with SBA affiliation rules, call our lawyers at 1-866-601-5518. Free Initial Consultation.