Contractual Joint Venture Agreement and SBA Approval

Are you complying with Federal Joint Venture Regulations?  

Many companies lose out on lucrative SBA joint venture contracts because they fail to meet the expressed terms of the solicitation requirements and policy of joint agreement relationships. Government Requests for Proposal are sometimes set aside for 8(a) BD program participants. An important aspect that potential bidders must look out for is the specific language that “If the procurement is to be awarded through the 8(a) BD program, SBA must approve the 8(a) joint venture pursuant to 13 CFR 124.513 and 13 CFR § 125.8

Even if your small business is waiting for your mentor-protégé approval, your small business joint venture partnership agreement still has to meet the requirements of 13 CFR 124.513 and must be approved in accordance with the SBA joint venture rules. For example, contractual joint venture agreement regulations state that:

For example, contractual joint venture agreement regulations state that:

• SBA must approve the small business joint venture structure and JV agreement prior to the award of an 8(a) contract.
• Where an 8 a joint venture partnership contract has been established and approved by SBA for one 8(a) contract, a second or third 8(a) contract may be awarded to that joint venture provided an addendum to the contract agreement, setting forth the performance requirements on that second or third contract, is provided to and approved by SBA prior to contract award.
• After approving the structure and JV agreement in connection with the first contract, SBA will review only the addendum relating to the performance of work on successive contracts.
• SBA must approve the addendums prior to the award of any successive 8(a) contract to the joint venture business.

GET A COMPLIANT JOINT VENTURE AGREEMENT AND AVOID LIABILITY

How Do Joint Venture Agreement Rules Impact the Outcome of Affiliation and Size Protests

The answer to this question can potentially save you thousands of dollars in SBA size protest cases. Under SBA Small Business Joint Venture rules, the parties to a joint venture contract are generally presumed affiliated for the performance of the awarded contract for which they have submitted an officer absent certain exceptions. See 13 CFR 121.103(h)(2).3 for exemptions to the affiliation rules. See also SBA 8a Mentor Protege Joint Venture Rules 13 CFR 124.513 & 13 CFR 121.103.

How Does the 3-in-2 Rule Impact JV Relationships (new changes)

When litigation starts the SBA does look at the 3- in-2 rule. The SBA joint venture regulation setting out the 3-in-2 rule provides, in pertinent part:
A joint venture can now carry out no than three specific or limited-purpose business ventures for joint profit over a two-year period, for which purpose they combine their efforts, property, money, skill, or knowledge. However, after the two years is up no more contracts can apply. The parties may then have to consider forming a new joint venture. However, when there appears to be a continuing or permanent basis for conducting business generally, there may be some consequences.

• A specific joint venture entity generally can now be awarded more than three contracts over a two-year period
• The starting date is from the date of the award of the first contract.
• Once a joint venture entity receives one contract, SBA will determine compliance with awards in two years rule for future
  awards as of the date of the initial offer including price.

Small Business Joint Venture Definition

SBA small business rules define a joint venture as: “an association of individuals and/or concerns with an interest 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 for which purpose they combine their efforts, property, money, skill, or knowledge, but not a continuing permanent basis for conducting business generally.” See 13 CFR 121.103(h).

When assessing a small business size protest where there is a contractual joint venture agreement involved. The SBA’s definition is not the final analysis. Attorneys would also have to look beyond at the specific facts and whether there are any underlying statutes that also drive the solicitation in question. See Size Appeal of Olgoonik Diversified Services, LLC, SBA No. SIZ-5825 (2017) where the Diplomatic Security Act was a major factor in question.

Forming an 8a Joint Venture – Solicitation Language Rules

• Get SBA approval first
• Do not guess at what the solicitation says – courts will enforce the specific RFP language
• If in doubt submit a question to the contracting officer
• Seek help from the 8(a) BD specialist before bid submission.

Given the language of the solicitation, it is important to submit your joint venture contract as early as possible in the bidding process. Unless facts dictate that the formal notice of award was not made before SBA approval, you cannot use the SBA’s delay to suggest that you should be awarded the contract. Get a copy of your SBA JV agreement checklist here.

Clearly, there is an argument to be made that if the SBA is aware that you are bidding on a project, and its role is to help small businesses succeed, then it should accelerate the approval of the joint venture proposal.

• Until that issue is resolved, appeal courts apply this rigid rule.

New 8a Joint Venture Rules: Per the Federal Register, the following changes apply to small businesses entering 8(a) Joint Ventures in 2021. The SBA says that:

A Participant may enter into a small business joint venture agreement with one or more other small business concerns, whether or not 8(a) Participants, for the purpose of performing one or more specific 8(a) contracts. There is a misconception that an 8(a) company must only joint venture with another 8(a) small business. That is simply not true. The 8(a) company, however, must make sure that the SBA approves and is aware of every step of the way. Failure to meet this often-missed requirement may cause the 8(a) company to be terminated at least for the failure of complying with the firm’s participation agreement.

SBA Approval of the Joint Venture Agreement

The SBA has frequently stated that when the 8(a)  small business participant brings very little to the table and to the JV relationship in terms of resources and expertise other than its 8(a) status, it will not approve the JV agreement to receive an 8(a) sole source government contract award. Instead, the SBA  will find the JV to be ineligible for a competitive 8(a) award if it is determined to be the apparent successful offeror. This can be the very basis of attacking the relationship during a size protest because if the SBA then investigates and agrees with the protestor, then the business venture will be voided and the two companies could become affiliated if they do not meet other requirements.

Amendments to Contractual Joint Venture Agreement 

The new rule emphasizes. that when SBA has approved a company for a sole-source 8(a) contract, all amendments to the agreement must also be approved by SBA. 

Certification of compliance with JV regulations: Prior to the performance of any 8(a) contract by a joint venture, the 8(a) BD Participant to the JV must submit a written certification to the contracting officer and SBA, signed by an authorized official of each partner to the JV, stating as follows:

1. The parties have entered into a contractual joint venture agreement that fully complies with paragraph (c) of this section; and
2. The parties will perform the contract in compliance with the JV agreement and with the performance of work requirements set forth in paragraph (d) of this section.
3. For a sole source 8(a) contract, the parties have obtained SBA’s approval of the JV agreement and any addendum to that agreement and there have been no modifications to the agreement that SBA has not approved.

The lesson here is that when 8(a) companies enter an SBA-approved JV, the above certification sets up the possibility of criminal liability and false representation to the government if the parties later make changes to the agreement that the SBA did not approve. This can be grounds for a government contracts investigation.

SBA Joint Venture Past Performance Evaluation When Bidding

The SBA has determined that with regard to a firm’s (JV or Individual) capabilities, past performance, and experience, the agency evaluating the joint venture must consider work done and qualifications held individually by each partner to the JV as well as any work done by the venture itself previously. In addition,  the procuring agency may not require as 8(a) Participants to individually meet the same evaluation or responsibility criteria as that required of other offerors generally. The partners to the JV in the aggregate must demonstrate the past performance, experience, business systems, and certifications necessary to perform the contract. 

• This rule seems to curtail any subjective thinking by the procuring agency while setting specific guidelines in place.
• This rule will more than likely trigger additional bid protests for improper evaluations by the agency.

Contract execution and award requirements. Where an 8(a) award will be made to a JV, the procuring activity will execute an 8(a) contract in the name of the joint venture entity or the 8(a) Participant, but in either case will identify the award as one to an 8(a) joint venture or an 8(a) mentor-protege joint venture, as appropriate.

GET A COMPLIANT JOINT VENTURE AGREEMENT AND AVOID LIABILITY

For help or questions about SBA joint venture agreement rules for small businesses, call our small business lawyers at 1-866-601-5518. FREE INITIAL CONSULTATION.