SBA 8(a) Joint Venture Agreements
By: Theodore Watson, Esq
As a rule of thumb, 8(a) companies must get approval of a joint venture agreement from the SBA before contract award. However, the SBA Office of Hearings and Appeal reversed an SBA decision merely on a technicality (since the contract was not awarded, and the SBA had already approved the JV agreement, it was estopped from later denying the JV relationship). The ultimate message is that also JV relationships with 8(a) firms are generally approved, the 8(a) firm should make sure that it documents to the SBA what it is actually brining to the project. You will not be approved if the SBA thinks that the firm does not have anything to bring to the table besides its 8(a) status. This situation arises when a firm is trying to acquire a contract that is outside of its business plan or primary focus.
With that said, the SBA’s analysis could be questionable simply because procurement rules allow for neutral ratings with zero past performance. Since the two companies acting in concert as one prime, it would seem that the contracting office can consider the past performance of the other company. Although this was not brought up in this appeal, this could be argued as an unreasonable decision.
Be extra careful when you choose projects to go after. Given our day-to-day practice, and the pressure of government oversight, the SBA is finding reasons to terminate 8(a) participants. The name of the case in which the SBA was reversed is SBA No. SIZ-5315 (Jan. 24, 2012) (overturns Area Office’s size determination because 8(a) firm’s joint venture agreement was approved prior to award of 8(a) contract and Area Office lacks authority to review mentor-protege agreements in context of 8(a) procurements).
Generally, two firms that form a joint venture to perform a contract will be considered affiliates for purposes of that contract. 13 C.F.R. § 121.103(h); 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.”); Size Appeal of Med. and Occupational Servs. Alliance,SBA No. SIZ-4989, at 4 (2008) (“The general rule is that firms submitting offers on a particular procurement as joint venturers are affiliates with regard to that contract, and they will be aggregated for the purpose of determining size for that procurement.”). However, the regulations recognize several exceptions to the general rule. One such exception is afforded to joint ventures formed by 8(a) BD program mentor and protégé firms.
Based upon OHA case precedent and the updated joint venture regulations, the court found that the Area Office has no authority to review the substance of an 8(a) mentor-protégé joint venture agreement in connection with a size protest. Whether an 8(a) mentor-protégé joint venture agreement complies with § 124.513 and whether the agreement should be approved are matters solely within the discretion of the Office of Business Development. The Area Office cannot review those determinations. Therefore, the size determination at issue is based upon a clear error of law because the Area Office should not have examined Appellant’s compliance with § 124.513. For additional information about 8a certification contact Watson & Associates, LLC at 1-866-601-5518.
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