Joint Ventures Agreement and Contents 13 CFR 124.510

Contents of a joint venture agreement are statutorily set for small businesses and 8(a)certified companies. If you are a small business in the SBA 8a certification program and thinking about entering a joint venture agreement with another company, there are a few things that you want to consider.

Not only are the contents of the agreement important but you should also do your due diligence on the other company. You are entering into a business relationship with the government. See information about 13 CFR 124.513.

Federal government contracts have serious consequences for non-performance or violation of the law. The following information sets forth the contents of a Joint Venture Agreement.

Contents of a Joint Venture Agreement

Every joint venture agreement to perform an 8(a) contract, including those between mentors and proteges authorized by 13 CFR 124.520, must contain a provision:

(1) Setting forth the purpose of the joint venture;

(2) Designating an 8(a) Participant as the managing venturer of the joint venture. In an unpopulated joint venture or a joint venture populated only with administrative personnel, the joint venture must designate an employee of the 8(a) managing venturer as the project manager responsible for performance of the contract. In a joint venture populated with individuals intended to perform any contracts awarded to the joint venture, the joint venture must otherwise demonstrate that performance of the contract is controlled by the 8(a) managing venturer;

(3) Stating that with respect to a separate legal entity joint venture the 8(a) Participant(s) must own at least 51% of the joint venture entity;

(4) Stating that the 8(a) Participant(s) must receive profits from the joint venture commensurate with the work performed by the 8(a) Participant(s), or in the case of a populated separate legal entity joint venture commensurate with their ownership interests in the joint venture;

(5) Providing for the establishment and administration of a special bank account in the name of the joint venture. This account must require the signature of all parties to the joint venture or designees for withdrawal purposes. All payments due to the joint venture for performance on an 8(a) contract will be deposited in the special account; all expenses incurred under the contract will be paid from the account as well;

(6) Itemizing all major equipment, facilities, and other resources to be furnished by each party to the joint venture, with a detailed schedule of cost or value of each;

(7) Specifying the responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract performance, including ways that the parties to the joint venture will ensure that the joint venture and the 8(a) partner(s) to the joint venture will meet the performance of work requirements set forth in paragraph (d) of this section.

(8) Obligating all parties to the joint venture to ensure the performance of the 8(a) contract and to complete performance despite the withdrawal of any member;

(9) Designating that accounting and other administrative records relating to the joint venture be kept in the office of the 8(a) Participant managing venturer, unless approval to keep them elsewhere is granted by the District Director or his/her designee upon written request;

(10) Requiring the final original records be retained by the 8(a) Participant managing venturer upon completion of the 8(a) contract performed by the joint venture;

(11) Stating that quarterly financial statements showing cumulative contract receipts and expenditures (including salaries of the joint venture’s principals) must be submitted to SBA no later than 45 days after each operating quarter of the joint venture; and

(12) Stating that a project-end profit and loss statement, including a statement of final profit distribution, must be submitted to SBA no later than 90 days after completion of the contract.

Joint Venture Performance and Percentage of Work 13 CFR 124.510

(1) For any 8(a) contract, including those between mentors and protégés authorized by § 124.520, the joint venture must perform the applicable percentage of work required by 13 CFR 124.510. For an unpopulated joint venture or a joint venture populated only with one or more administrative personnel, the 8(a) partner(s) to the joint venture must perform at least 40% of the work performed by the joint venture.

The work performed by 8(a) partners to a joint venture must be more than administrative or ministerial functions so that they gain substantive experience. For a joint venture populated with individuals intended to perform contracts awarded to the joint venture, each 8(a) Participant to the joint venture must demonstrate what it will gain from the performance of the contract and how such performance will assist in its business development.

(2)

(i) In an unpopulated joint venture, where both the 8(a) and non-8(a) partners are technically subcontractors, the amount of work done by the partners will be aggregated and the work done by the 8(a) partner(s) must be at least 40% of the total done by all partners. In determining the amount of work done by a non-8(a) partner, all work done by the non-8(a) partner and any of its affiliates at any subcontracting tier will be counted.

(ii) In a populated joint venture, a non-8(a) joint venture partner, or any of its affiliates, may not act as a subcontractor to the joint venture awardee, or to any other subcontractor of the joint venture, unless the AA/BD determines that other potential subcontractors are not available, or the joint venture is populated only with administrative personnel.

(A) If a non-8(a) joint venture partner seeks to do more work, the additional work must generally be done through the joint venture, which would require the 8(a) partner(s) to the joint venture to also do additional work to meet the 40% requirement set forth in paragraph (d)(1) of this section.

(B) If a joint venture is populated only with administrative personnel, the joint venture may subcontract performance to a non-8(a) joint venture partner provided it also subcontracts work to the 8(a) partner(s) in an amount sufficient to meet the 40% requirement. The amount of work done by the partners will be aggregated and the work done by the 8(a) partner(s) must be at least 40% of the total done by all partners. In determining the amount of work done by a non-8(a) partner, all work done by the non-8(a) partner and any of its affiliates at any subcontracting tier will be counted.

See SBA Joint Venture Rules and Approval and Tips on How to Submit Joint Venture Procurement Proposals

(e) Prior approval by SBA.

(1) SBA must approve a joint venture agreement prior to the award of an 8(a) contract on behalf of the joint venture.

(2) Where a joint venture 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 joint venture agreement, setting forth the performance requirements on that second or third contract, is provided to and approved by SBA prior to contract award.

(i) After approving the structure of the joint venture in connection with the first contract, SBA will review only the addendums relating to performance of work on successive contracts.

(ii) SBA must approve the addendums prior to the award of any successive 8(a) contract to the joint venture.

(f) Contract execution. Where SBA has approved a joint venture, the procuring activity will execute an 8(a) contract in the name of the joint venture entity.

(g) Amendments to joint venture agreement. All amendments to the joint venture agreement must be approved by SBA.

(h) Inspection of records. SBA may inspect the records of the joint venture without notice at any time deemed necessary.

(i) Performance of work reports. An 8(a) Participant to a joint venture must describe how it is meeting or has met the applicable performance of work requirements for each 8(a) contract it performs as a joint venture.

(1) As part of its annual review, the 8(a) Participant(s) to the joint venture must explain for each 8(a) contract performed during the year how the performance of work requirements are being met for the contract.

(2) At the completion of every 8(a) contract awarded to a joint venture, the 8(a) Participant(s) to the joint venture must submit a report to the local SBA district office explaining how the performance of work requirements were met for the contract.

Joint Venture Subcontracting Rules

Per  13 CFR 125.8 and 13 CFR 125.9  the following rules apply to federal contract joint ventures:

Limitations on Subcontracting

• As the joint venture prime of either a full or partial set-aside contract, the small business concern must agree to the following limitations on subcontractor for the respective contract types:
  • Pay no more than 50% of the amount paid by the government to non-similarly situated firms for service contracts.
  • Pay no more than 50% of the amount paid by the government to non-similarly situated firms for supplies or products contracts.
  • Pay no more than 85% of the amount paid by the government to non-similarly situated firms for construction contracts.
  • Pay no more than 75% of the amount paid by the government to non-similarly situated firms for special trade contracts.

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