SBA Corrects Profit-Splitting Flaw In New Joint Venture Regulations

The SBA has corrected a flaw in the profit-splitting provisions of its new joint venture regulations.

Under the corrected regulations, which became effective on December 27, all of the SBA’s joint venture regulations–those for small businesses, SDVOSBs, HUBZones, 8(a)s, and WOSBs–will require that each joint venturer receive profits commensurate with the work it performs.  The SBA’s revisions clear up an inconsistency between the 8(a) joint venture regulations and the regulations for the SBA’s other set-aside programs, and eliminates a potential disincentive for joint venturers to avail themselves of the protections of a formal legal entity such as a limited liability company.

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SBA Revises 8(a) JV Regulation–But Confusion Remains

Stating that populated joint ventures have now been eliminated, the SBA has revised its 8(a) joint venture regulations to reflect that change.

In a technical correction published today in the Federal Register, the SBA flatly states that an earlier major rulemaking eliminated populated joint venture, and tweaks the profit-sharing piece of its 8(a) joint venture regulation to remove an outdated reference to populated joint ventures.  But even following this technical correction, there are three important points of potential confusion that remain (at least in my mind) regarding the SBA’s new joint venture regulations.

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Missing Mentor-Protege Reauthorization Sinks 8(a) JV’s Bid

An 8(a) joint venture was unable to show that its mentor-protege agreement had been renewed by the SBA for a particular year–and the missing reauthorization caused the joint venture to be ineligible for a small business set-aside contract.

In a recent decision, the SBA’s Office of Hearings and Appeals held that an 8(a) joint venture could not avail itself of the mentor-protege exemption from affiliation when there was no evidence to show that the SBA had renewed the mentor-protege relationship for the year in which the joint venture’s proposal was submitted.

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8(a) Mentor-Protege JV Didn’t Qualify For SDVOSB Set-Aside, Says SBA OHA

An 8(a) mentor-protege joint venture didn’t qualify for an SDVOSB set-aside because the mentor firm was not a small business.

In a recent decision, the SBA Office of Hearings and Appeals held that a SDVOSB-specific regulation requires all members of an SDVOSB joint venture to be small–notwithstanding language in the SBA’s size regulations and 8(a) Program regulations specifying that an SBA-approved mentor-protege joint venture may bid, as a small business, on any government contractor or subcontract, provided that the protege is small.

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8(a) Program: Utah SBA Imposes Tough New Restrictions on JVs & MPAs

The SBA’s Utah District Office has imposed tough new restrictions on the approval of 8(a) mentor-protege agreements and joint ventures.

The Utah SBA obviously hopes that these restrictions will lead to more successful 8(a) mentor-protege and joint venture relationships–but I worry that these District-specific restrictions may backfire, and put Utah 8(a)s at a significant competitive disadvantage against 8(a)s serviced by other SBA District Offices.

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GAO: SBA’s Five-Day 8(a) Eligibility Deadline Applies To JVs

Before an agency can award an 8(a) contract, the prospective awardee must first be deemed eligible for award under the 8(a) business development program criteria by the Small Business Administration. The SBA has a tight deadline to make this determination—a mere five days.

But what happens when the SBA’s eligibility evaluation is more complicated than a determination of whether the awardee meets the program’s basic eligibility requirements? The GAO recently addressed this issue in FedServ-RBS JV, LLC, B-411790 (Oct. 26, 2015), where the GAO held that the applicable regulations do not require the agency to stay its proposed award beyond five days pending the SBA’s approval of an 8(a) joint venture agreement. Continue reading