SBA OHA: Joint Venture Agreement Must Explain Venturers’ Responsibilities

Joint venture agreements continue to be a hot topic among small business federal contractors. For good reason: if the agreement is properly prepared, a joint venture allows two companies (including, in the case of an approved mentor and protégé, a large business) to augment their capabilities and jointly bid on a federal project.

But to avail themselves of this benefit, the venturers must first prepare a joint venture agreement that complies with the SBA’s requirements. Sometimes, this task can be quite tricky. And as a recent decision of the SBA’s Office of Hearings and Appeals shows, the failure to have a compliant joint venture agreement can cost the joint venture an award.

The OHA’s recent decision discussed in this post—Veterans Contracting, Inc., SBA No. CVE-107 (Apr. 10, 2019)—was a protest challenging the VA’s verification of an SDVOSB joint venture. As a reminder, the federal government has historically had two SDVOSB preference programs: one at the VA (through the Center for Verification and Evaluation (or “CVE”)) for VA-specific set-aside projects; and the second through the SBA, for non-VA SDVOSB set-aside projects. Until October 2018, these programs had different sets of regulations, which caused confusion for SDVOSB contractors. But now, these programs both follow the SBA’s regulations.

One key difference, however, remains: though CVE must verify an SDVOSB or SDVOSB joint venture, there is no verification requirement by the SBA. And through the recent regulatory overhaul, the OHA will consider protests challenging CVE’s approval of an SDVOSB or SDVOSB joint venture.

That’s what OHA was called to do in Veterans Contracting. There, an SDVOSB joint venture called CR Nationwide, LLC—Trumble Construction, Inc. JV1 (“CRNTC”) was awarded a construction contract at the Lewis Stokes VA Medical Center in Cleveland. Veterans Contracting—a disappointed offeror—promptly protested CRNTC’s SDVOSB status, alleging that the firm shared too many resources with non-SDVOSBs.

To resolve the protest, the OHA looked at CRNTC’s Joint Venture Agreement. Although the SDVOSB joint venture regulations require, among other things, that the agreement “set forth the purpose of the joint venture,” “itemize all major equipment, facilities, and other resources to be furnished by each party to the joint venture, with a detailed cost or value of each, where practical;” and “specify the responsibilities of the parties with regard to the negotiation of the contract, source of labor, and contract performance,” 13 C.F.R. § 125.18(b)(2) (cleaned up), CRNTC’s Joint Venture Agreement did none of these things.

According to the OHA, the Agreement did not even contain a discussion of the instant procurement. The Agreement then included a vague pledge to later submit to the “contracting authority a jointly executed statement” that discusses the contract-specific items in more detail. Neither did the Agreement demonstrate how CRNTC would meet the performance of work requirement applicable to all joint ventures.

Based on these failures, the OHA had little trouble finding CRNTC’s Joint Venture Agreement to be non-compliant. Doing so, it relied on a previous decision—ASIRTek Fed. Servs., LLC, SBA No. VET-269 (2018)—that found a joint venture agreement to be non-compliant for similar reasons. And because the VA requires an SDVOSB joint venture to be verified at the time of bid and award, the OHA did not credit CRNTC’s attempt to cure the Agreement’s deficiencies in response to the eligibility protest.

Based on the deficiencies in CRNTC’s Joint Venture Agreement, the OHA found it to be ineligible under the procurement.

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As mentioned at the outset of this post, preparing a compliant joint venture agreement can be tricky. In Veterans Contracting, the OHA continues to make clear that a non-compliant joint venture agreement will render the joint venture ineligible to perform the work.

If you have questions about joint venture agreements, please give me a call.