Joint Venture Definition for Small Businesses

Under federal procurement rules, the small business joint venture definition in government contracting means “an association of individuals and/or concerns with interests in any degree or proportion by way of contract, express or implied, 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 on a continuing or permanent basis.”

• Meeting the SBA small business definition for joint ventures also means that the business entity cannot submit more than three offers over a two-year period, starting from the submission date of the first offer.
• A joint venture may or may not be in the form of a separate legal entity.
• The small business joint venture is viewed as an entity in determining power to control its management.
• SBA may also find that the relationship between a prime contractor and its subcontractor is a joint venture and that affiliation between the two exists.

Various Legal Interpretations of the Small Joint Venture Definition & Rules

• The Joint Venture definition affects the small business size rules under 13 CFR 121.103(h) and 13 CFR 125.8. 
• The rules allow a different joint venture to be awarded three contracts over a two-year period.
• Under the new SBA rules, the joint venture partners to a joint venture could form a second joint venture and be awarded three other contracts, and a third joint venture could be awarded three more.
• According to the SBA, a joint venture is an entity with a limited duration.

GET A COMPLIANT JOINT VENTURE AGREEMENT AND AVOID LIABILITY

Some small businesses now play it safe by forming joint ventures with different companies to avoid scrutiny. There is an argument to be made that long-standing relationships or contractual dependence on specific companies can lead to a finding of general affiliation, even in the 8(a) mentor/protégé joint venture context.

Under the joint venture rules, the SBA will determine whether the three contract awards in two years requirement has been met. Time is counted as the date you submit a written self-certification that you are a small business as part of your initial government proposal offer including price.

Forming Small Business Joint Venture Entities

Under the SBA small business joint venture definition, contractors must also understand when a joint venture may or may not be a separate legal entity. To become regulated under the SBA small business joint venture rules, you must have a written joint venture agreement between the partners.

Forming Populated vs. Unpopulated Joint Ventures: Under the new joint venture rules, the SBA has moved away from the formation of populated joint ventures. By contrast, two companies forming an unpopulated joint venture can share employees.

Joint Venture Agreement — Meeting SBA Regulations and Affiliation Rules: To define a joint venture under the SBA’s joint venture rules, two firms that form a small business joint venture to perform a contract will be considered affiliates for purposes of that contract unless they meet the new requirements under. 13 CFR 1125.8; see also Size Appeal of Safety and Ecology Corp., SBA No. SIZ-5177, at 26 (2010) (“A finding of affiliation based upon § 121.103(h) is usually contract-specific.”). Read additional information about strategic alliances with joint ventures.

The general rule for compliance with joint venture agreement regulations is that firms submitting offers on a particular procurement as joint venturers are affiliated with regard to that contract, and they will be aggregated for determining the size for that procurement.

Under SBA joint venture regulations and SBA mentor protege new rules, the SBA’s definition requires more experienced contractors to guide smaller companies through the performance stages. For example, proteges can get help from an approved mentor where traditionally they could not.  By illustration, if your company is approved under Mentor Protege Program under 13 CFR 124.520, then you can be immune from attack in a small business size protest. 

Protege Definition: Under SBA regulations, meeting the protégé definition requires a few internal determinations. Small businesses certified as 8(a) companies should always put their business development specialist on notice of the pending relationship. To become a protégé under the SBA 8a BD Program:

• You must be an active participant in the 8(a) Program.
• The firm must meet at least one of the following three conditions:
  • Be within the 8a BD developmental stage, OR
  • Have never received an 8(a) contract, OR
  • Be less than half the size of the small business size standard corresponding to its primary NAICS code.
• The 8(a) firm must
  • Be in good standing with SBA Program requirements, AND
  • Be current with all SBA 8a reporting requirements.
• Protégés may generally have only one mentor at a time.
  • However, SBA can approve a second mentor after review of the request.

• SBA will not approve a mentor-protégé agreement where the proposed protégé has less than six months remaining in its program term.

Make Sure That Your 8(a) Joint Venture Agreement is SBA Approved: Sometimes companies make the costly mistake of submitting proposals that represent companies as being a Joint Venture.

• For SBA 8(a) joint ventures, you want to make sure that the JV agreement or Mentor Protege Agreement is approved before submitting your bid. 
• Getting legal advice from an experienced attorney can save your contract.

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 ruled that the SBA Area Office correctly concluded that Joint Venture firms were affiliated because the mentor- protege agreement was not approved until two days after the joint venture submitted an offer on the procurement in question. Find out about joint venture agreement advantages and disadvantages.

GET A COMPLIANT JOINT VENTURE AGREEMENT AND AVOID LIABILITY

For additional questions or help with What is Small Business Joint Venture, call our government contract lawyers at 1-866-601-5518.