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.
SDVOSB joint venture agreements will be required to look quite different after August 24, 2016. That’s when a new SBA regulation takes effect–and the new regulation overhauls (and expands upon) the required provisions for SDVOSB joint venture agreements.
The changes made by this proposed rule will affect joint ventures’ eligibility for SDVOSB contracts. It will be imperative that SDVOSBs understand that their old “template” JV agreements will be non-compliant after August 24, and that SDVOSBs and their joint venture partners carefully ensure that their subsequent joint venture agreements comply with all of the new requirements.
Populated joint ventures (or at least most populated JVs) will no longer be permitted in the SBA’s small business programs, under a new regulation set to take effect on August 24, 2016.
The SBA’s major new rule, officially issued today in the Federal Register, will be best known for implementing the long-awaited small business mentor-protege program. But the rule also makes many other important changes to the SBA’s small business programs, including the elimination of populated joint ventures.