Is your company a qualified joint venture (JV) under SBA regulations? Understand the rules and get your company better positioned when bidding on federal government contracts. Now you have to plan to not have populated JV.
The legal definition of a joint venture JV for purposes of a federal government contract is an arrangement where two or more companies enter into a JV relationship and partnership agreement for the sole purpose of bidding on and performing a government contract.
Under the SBA definition, the joint venture constitutes a separate business entity in the eyes of the government. In fact, when bidding on federal government contracts, it is the JV entity that is the actual bidder and not either of the venturing businesses.
SBA JV Meaning and Requirements: Under SBA requirements, all government contractors must have an executed agreement in place. For 8(a) certified companies, it is essential that the SBA approves the JV structure and the JV contract. To be qualified, the joint venture agreement must contain all statutory requirements to include obligations and performance assignments.
SBA Joint Venture Definition & JV Meaning of Affiliation Under New Rules
Previous SBA rules automatically presume the partnering as small businesses to be affiliated. However, the new SBA JV rules reduce the implication of affiliation . 13 CFR 124 and FAR 9.6 are the fundamental laws that govern SBA JV arrangements.
Under the the JV guidelines and SBA application process, a small business of two or more businesses can submit an offer as a small business for a federal procurement, subcontract or sale so long as each concern is small under the small business size standards corresponding to the NAICS code assigned to the contract. See more information about affiliation under new rules.
No Populated Joint Venture Structure
What Does Populated Mean? Having a populated joint venture structure means that companies could staff the JV with employees. The new SBA rules have changed allowance for different types of JVs and extinguished allowance for populated JV strategies.
- The SBA suggests that if the JV partners form a formal separate legal entity, then the new entity cannot be populated.
- Forming an entity that is unpopulated joint venture would allow the small business in a mentor-protege arrangement to actually gain past performance and experience.
Formal or informal JV structure
SBA government contracts regulations allow business venture arrangements to be either formal or informal. The intent of the new regulations, 13 CFR 121.103, is to make sure that whether the JV relationship is formal or informal, there must be an executed JV contract.
Without a written JV agreement, companies would be considered non-compliant and therefore subject to affiliation rules.
- There is no federal requirement to form a new legal business entity.
State law consequences?
The new SBA (JV definition) regulations suggest that the SBA believes that “..state law would recognize an “informal” JV company structure with a written partnership agreement setting forth the responsibilities of the JV partners as some sort of partnership.”
However, it is solely the responsibility of each small business entering into a qualified JV relationship to follow the respective state laws. When considering the joint venture advantages and disadvantages under SBA guidelines, and although no formal entity is required, each business venture partner should seriously consider what type of business entity it must form (if it chooses to form a new business entity).
The SBA’s page was fortunate enough to answer the below questions.
Does a HUBZone Joint Venture (JV company structure) need to be certified as such?
Since it is unlikely that it would meet the ownership and control requirement, the HUBZone regulations do not provide for approvals of HUBZone Joint Venture agreements. Business venture companies are generally owned by one or more business concerns and therefore are not directly owned 51% by individuals who are United States citizens as required by 13 FR 126.200(b)(1).
There is one exception to this general rule. By statute, a HUBZone small business can be:
- an ANC owned and controlled by Natives (determined pursuant to section 29(e)(1) of the ANCSA); or
- a direct or indirect subsidiary corporation, joint venture, or partnership of an ANC qualifying pursuant to section 29(e)(1) of ANCSA, if that subsidiary, joint venture, or partnership is owned and controlled by Natives (determined pursuant to section 29(e)(2)) of the ANCSA).
One of the firms in the HUBZone joint venture is not currently certified. Can you submit bids on HUBZone set-asides?
Following the Joint Venture definition under SBA rules, a HUBZone certified firm may enter into a joint venture agreement with one or more other small businesses, or with an approved mentor authorized by 13 CFR 125.9 (or, if also an 8(a) BD Participant, with an approved mentor authorized by 13 CFR 124. The JV company itself need not be certified as a qualified HUBZone small business.
If all firms in the JV model are HUBZone certified at the time of award in a Multiple Award contract, but in year 2, one of the companies of the JV is no longer considered HUBZone, how would that affect the option years?
It will be considered a HUBZone Joint Venture for each order issued against the contract unless a contracting officer requests a new HUBZone certification in connection with a specific order. Where a concern is later decertified, the procuring agency may exercise options and still count the award as an award to a HUBZone SBC. Exceptions apply. See 13 CFR 126.601(h) for details. See information about HUBZone joint venture requirements.
The SBA’s comments mentioned the possibility of forming a limited liability company. However, the comment still suggests that companies make the appropriate decision. Essentially, what the SBA is saying is to get legal advice on the matter.
For help drafting compliant joint venture agreements for federal government contracts, meeting the SBA Joint Venture definition under the new rules that eliminate the need for a populated JVs, call Watson & Associates’ JV lawyers at 1-866-601-5518 .