Small businesses considering submitting a joint venture proposal for federal government contracts must be aware of certain legal landmines when bidding.
The most important aspect of using a JV business relationship is to avoid affiliation while making sure that the joint venture agreement meets statutory requirements. Small businesses that are 8(a) certified must be particularly careful when deciding how to write a joint venture proposal for a new government bid.
When companies are not protected under the exception to affiliation rules, they should be well aware of the complex issues that can arise when submitting a joint venture proposal for federal government contracts.
Note: The SBA has issued new rules that minimize the possibility of affiliation in joint venture agreement proposals. As of June 30, 2016, for a small business joint venture to qualify as small for any government procurement, all JV partners must qualify individually as small under the size standard corresponding to the NAICS code assigned in the solicitation.
Another important point when learning how to write a joint venture proposal for a new federal government contract is that under 13 CFR 121.103(h)(4) government contractors may avoid affiliation under the Ostensible Subcontractor Rule if they venture with another business that is a similarly situated subcontractor as defined in 13 CFR 125.1. These are important considerations where JV partners can avoid costly mistakes so long as the correctly apply the rules to the various types of joint ventures.
SDVOSB Joint Venture Agreement Proposals
Similar to the Joint Venture agreements in the 8(a) Program, companies engaging in an SDVOSB joint venture must also follow strict rules when submitting government bids. Under 13 CFR 125.6 (a)(3) and (b)(3) joint ventures that represent themselves as a SDVOSB joint venture, a legal partnership agreement, must comply with the applicable limitations on subcontracting rule, as set forth in 13 CFR 125.6. Companies should be especially mindful when submitting a joint venture contract for construction.
Joint venture contracts for 8(a) companies must be approved by the SBA
8(a) Companies trying to meet the requirements for bidding on government contracts should look at the solicitation to see when the JV agreement must be approved. Most of the RFP requirements suggest approval from the SBA before bid submission. This could pose an immediate problem.
- Small businesses are not automatically affiliated when they submit their proposal for government contracts with partners that are similarly situated.
However, the facts of each case determine whether the JV proposal and JV relationship are valid. If JV agreement also falls under a valid exception to the affiliation, companies can still keep the contract. See more information about similarly situated small businesses.
Contents of the joint venture agreement must meet regulatory requirements. Government contractors must be careful of statutory joint venture requirements when they make “creative” JV agreements. If challenged in a size protest, companies can lose the contract because of the contents of the agreement. See information about 13 CFR 124.513.
When are Joint Venture Contracts / JV Proposals Allowed Under the 8(a) Program?
Whether or not you are in the SBA 8(a) Program you can submit a JV proposal for federal government contracts. For 8(a) certified companies, the SBA MUST approve the joint venture agreement agreement. Without SBA approval, the business could violate the terms of the 8a Participation Agreement.
For non-8(a) small businesses, they must still meet the requirements of the 13 CFR 124 to form a legal partnership agreement.
Companies may also bid on joint venture contracts when one company lacks the necessary capacity to perform the contract on its own, and the agreement is fair and equitable and will be of substantial benefit to the 8(a) or small business contractor.
- 8(a) companies must show that they bring more than their name and status to the table.
- Resources and expertise should be a considered.
- The SBA will disapprove an 8a joint venture contract if the 8(a) company brings nothing to the table.
- Joint venture accounting must be clearly set up.
Be Aware of Joint Venture Proposals and JV Percentage of Work
Looking at the requirements for bidding on government contracts, and when there is an 8(a) contract involved, whether there is a mentor protégé agreement or not, joint venture regulations suggest that the JV must perform certain percentages of work.
If you intend to form and submit a joint venture contract agreement in your proposal for federal government contracts or call our government contract attorneys for helpful guidance and direction.