Joint Venture Agreements
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Drafting a Joint Venture Agreement for a federal government contract requires awareness of the landmines that await small businesses seeking to acquire more lucrative contracts. Disputes related to affiliation and violation for the Ostensible Subcontractor Rule are present. Having an experienced government contract law attorney to guide your development of joint venture relationships and educating you on how to stay out of legal trouble is worth considering.
What is a Joint Venture Agreement?
The definition of a joint venture agreement is a strategic alliance between two or more companies. The companies involved in a government contract joint venture share the revenues and expenses as well as the control of their new enterprise.
A Joint Venture Agreement is used when two or more parties join forces to create a joint company or to collaborate on a specific project. This contract specifies each party’s percentage of ownership and the financial contribution demanded from each. The parties’ roles, responsibilities and relationship to the newly formed venture are also clearly established in this contract. In general, all parties agree to equally share profit, loss and control. Financial details relating to company bank accounts and accounting methods are also specified in a Joint Venture Agreement. Download Your Free Joint Venture Checklist.
How Many Contracts Are Allowed ?
A Joint Venture can now have three contracts over two-year period. In addition, partners to a joint venture can create another partnership and be awarded three more contracts.
Don’t Copy Templates: Instead of simply copying a Joint Venture Agreement Template from the Internet, you want to understand your specific rights and obligations. Although the Small Business Administration primarily approves 8(a) Joint Venture agreements, it also cannot give you legal advice. Therefore, to avoid adverse penalties for unlawful actions, our government contract law attorneys can help you to avoid legal headaches.
Are You Exempt from Affiliation?
As a general rule, without an approved Mentor Protégé agreement, businesses that execute a joint venture agreement are automatically affiliated. Thus, small businesses can run the risk of violating the size standards. This is why having an experienced government contracts and small business lawyer can save millions in company revenues. Other exceptions include:
- Business concerns owned and controlled by Indian Tribes, Alaska Native Corporations (ANCs) organized pursuant to the Alaska Native Claims Settlement Act (43 U.S.C. 1601 et seq. ), Native Hawaiian Organizations (NHOs), Community Development Corporations (CDCs) authorized by 42 U.S.C. 9805, or wholly-owned entities of Indian Tribes, ANCs, NHOs, or CDCs are not considered affiliates of such entities
- Business concerns owned in whole or substantial part by investment companies licensed, or development companies qualifying, under the Small Business Investment Act of 1958, as amended, are not considered affiliates of such investment companies or development companies.
- Business concerns which are part of an SBA approved pool of concerns for a joint program of research and development or for defense production as authorized by the Small Business Act are not affiliates of one another because of the pool.
- Business concerns which lease employees from concerns primarily engaged in leasing employees to other businesses or which enter into a co-employer arrangement with a Professional Employer Organization (PEO) are not affiliated with the leasing company or PEO solely on the basis of a leasing agreement.
New JV Rules May Impact Your 8(a) Business
8(a) Joint Ventures - The new rules require that the 8(a) firm must perform 40 percent of the work of each 8(a) joint venture contract that is awarded, including those awarded under a Mentor/Protégé agreement, to ensure that these companies are able to “build capacity.” In other words, the SBA has discarded the vague “significant portion” test in favor of a requirement for a protégé to perform 40 percent of the work performed under the joint venture agreement. Importantly, businesses that operate under an approved SBA mentor protégé agreement are exempt from affiliation rules.
Ensure Your 8(a) Company Meet SBA Requirements
If you are contemplating entering into an SBA 8(a) joint venture, ensure that you meet the following basic perquisites:
- If approved by SBA, a Participant may enter into a joint venture agreement with one or more other small business concerns, whether or not 8(a) Participants, for the purpose of performing one or more specific 8(a) contracts.
- A joint venture agreement is permissible only where an 8(a) concern 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) concern. However, where SBA concludes that an 8(a) concern brings very little to the joint venture relationship in terms of resources and expertise other than its 8(a) status, SBA will not approve the joint venture arrangement.
- Is your small business in a situation where the SBA has already approved more than three joint venture contracts? Our lawyers can help.
- The SBA must approve all 8(a) Joint Venture arrangements. Never enter into a relationship and then notify the SBA later. You may be subject to termination from the 8(a) Program. If the procurement is to be awarded through the 8(a) BD program, SBA must approve the joint venture pursuant to §124.513. If the procurement is to be awarded other than through the 8(a) BD program (e.g., small business set aside, HUBZone set aside), SBA need not approve the joint venture prior to award, but if the size status of the joint venture is protested, the provisions of §§ 124.513(c) and (d) will apply. This means that the joint venture must meet the requirements of §§ 124.513(c) and (d) in order to receive the exception to affiliation authorized by this paragraph. In either case, after contract performance is complete, the 8(a) partner to the joint venture must submit a report to its servicing SBA district office explaining how the applicable performance of work requirements were met for the contract.
Contact our government contract attorneys in Washington, DC or Colorado Office at 1-866-601-5518 or 202-827-9750.
Hire Experienced Government Contract Small Business Lawyers
The government contract law attorneys at Watson & Associates, LLC frequently help companies across the United States to adequately draft, review and protect their rights when utilizing a joint venture agreement.
Successful outcomes: With our law offices are located in Washington, D.C. and Colorado, we are well-equipped to help you resolve the common disputes that can arise. We have also successfully challenged the SBA’s adverse rulings on joint ventures. See sample case.
- Drafting and review of teaming and joint venture contracts
- Legal advice as to roles and responsibilities
- Facilitation of disagreements between contractors
- Representing and defending size appeal and bid protests alleging affiliation
- Statutory compliance and regulatory matters
- SBA 8(a) Program services and guidance
Contact a Government Contracts Joint Venture Attorney
For immediate help and guidance with a joint venture agreement, contact an attorney at Watson & Associates toll free at 202-827-9750 or 1-866-601-5518.