SBA May Eliminate 8(a) Joint Venture Approvals

The SBA is considering eliminating the requirement that contractors obtain the SBA’s prior approval to joint venture for 8(a) contracts.

There’s no doubt that eliminating the approval requirement would reduce burdens and expenses for 8(a) companies and their joint venture partners–but it could also lead to an uptick in sustained protests against 8(a) joint ventures.

Under current regulations, “SBA must approve a joint venture agreement prior to the award of an 8(a) contract on behalf of the joint venture.”  Additionally, after the joint venture is approved in connection with the first 8(a) contract, “SBA must approve addendums prior to the award of any successive 8(a) contract to the joint venture.”

The approval requirements are widely misunderstood.  Some contractors believe that an 8(a) company must always receive the SBA’s prior approval to pursue a contract as a joint venture, even when the joint venture will pursue non-8(a) work.  That’s not the case–only 8(a) contracts require the SBA’s prior approval.  Other contractors believe that once the SBA approves a joint venture to bid on one 8(a) contract, the joint venture is “8(a) certified” and doesn’t need any future SBA approvals.  Again, that’s wrong, and failing to get SBA’s approval of an addendum can cost the joint venture a contract.

Misunderstandings aren’t the only problem with the approval process.  It also can take a heck of a lot of work to get an 8(a) joint venture approved.  Not only does the SBA require a joint venture agreement fully complying with 13 C.F.R. 124.513, but SBA District Offices also tend to require a great deal of supporting documentation, such as resumes, work share breakdowns, staffing plans, and so on.  Some District Offices insist on “mandatory” joint venture agreement provisions that are nowhere to be found in the regulations; others demand that limited liability company joint ventures produce LLC operating agreements–again, not a regulatory requirement. Needless to say, for small, disadvantaged businesses, meeting these requirements can be onerous, time consuming and costly.

Well, these problems may one day be a thing of the past.  In a Federal Register publication issued last week, the SBA said that it is considering “possibly eliminating SBA’s role in approving joint venture agreements for 8(a) competitive contracts.”  The SBA says that this change may make it “easier for small business concerns to understand and comply with” the 8(a) Program requirements.

There’s little doubt that eliminating the prior approval requirement would be a good thing from the standpoint of cost and burden.  But there may be a downside.  If SBA adopts this change, I think you’ll see more protests sustained against 8(a) joint ventures.

As annoying as the prior approval requirement might be, it also serves an important purpose–the SBA validates, before award, that the joint venture agreement meets all the mandatory requirements under 13 C.F.R. 124.513.  If not, the SBA District Office typically sends the joint venture agreement back to the 8(a) company for edits.  In other words, if the joint venture agreement isn’t perfect, it’s usually okay; the joint venturers will likely get a second bite at the apple.

If the prior approval requirement is eliminated, the first and only time the SBA will review an 8(a) joint venture agreement is after an award is announced and a protest filed.  This is how it already works for joint ventures competing for small business, HUBZone, WOSB, and non-VA SDVOSB contracts.

At that point, if the joint venture agreement isn’t perfect, there are no do-overs.  The protest is sustained, and the contract goes to the next in line.  That’s the downside of the absence of prior approval–the stakes are much higher if and when the joint venture agreement is reviewed by the SBA.

There are some mighty tremendous resources out there to help 8(a) companies and others form compliant joint ventures.  But not everyone will avail themselves of those resources or get the joint venture agreement exactly right.  And once competitors realize that the SBA isn’t reviewing joint venture agreements up front, they may be more inclined to file protests of awards to 8(a) joint ventures, guessing that the joint venture is more likely to have missed something than would be the case had the SBA given its prior seal of approval.

Would eliminating prior approval be a good thing?  On balance, I think so.  The amount of time and effort needed to obtain prior approval just isn’t necessary in a program supporting disadvantaged small businesses.  However, if the SBA does eliminate the prior approval requirement, 8(a) companies will need to understand that the obligation now rests with them to get the joint venture agreement exactly right the first time.

It’s important to note that the SBA hasn’t made or even officially proposed this change.  It’s just under consideration and may never occur.  We’ll see what happens, but for now, the prior approval process continues.