Joint ventures pursuing a contract under any of the SBA’s socioeconomic programs (Woman-Owned Small Business Program, Service-Disabled Veteran-Owned Small Business Program, 8(a) Program, and HUBZone) all have requirements beyond the general requirements that a non-joint venture prime contractor must meet to be eligible for those types of set-asides. The joint venture must be considered small, which may take into account the size of both venturers, and the joint venture agreement itself must contain specific information. But what happens when the regulatory text isn’t exactly clear on how those two requirements fit together? And how are unsuccessful offerors, contracting officers, and the SBA itself supposed to challenge the status of those joint ventures if the regulatory text doesn’t explicitly provide for the means to do so? Read our analysis of the decision in Chenega Base and Logistics Services, LLC to find out!
In August 2024, the Army awarded DPG Services JV LLP a contract for facilities support services. The joint venture consisted of an 8(a) Program participant and a small business.
Size Protest
Following award, Chenega Base and Logistics Services (Chenega) protested the size of DPG. In September 2024, the SBA Area Office found that DPG was a small business for procurement. Notably, the joint venturers were found to be affiliated because the joint venture was awarded its first contract more than two years prior to proposal submission. The joint venture’s first award was in February 2019, and it submitted its final offer including price for the procurement at issue, in July 2023. This meant that the joint venture far exceeded the time limit allowed under the two-year rule at 13 C.F.R. § 121.103(h). This states, “a specific joint venture generally may not be awarded contracts beyond a two-year period, starting from the date of the award of the first contract, without the partners to the joint venture being deemed affiliated for the joint venture.”
Regardless, the Area Office determined joint venture was eligible for award because the joint venture was still considered small even with the venturers sizes being combined due to their affiliation.
Appeal
Appellant, in October 2024, appealed to SBA’s Office of Hearings and Appeals (OHA). Appellant acknowledged that the venturers individually appeared to be small, but contended that together, and including their respective affiliates, they exceeded the procurement’s size standard. Additionally, Appellant argued that the joint venture could not be compliant with 13 C.F.R. § 124.513(c) and (d).
13 C.F.R. § 124.513(c) requires every joint venture agreement for an 8(a) set-aside to describe all major equipment, facilities, and other resources to be contributed by each member of the joint venture. Further, the joint venture agreement must identify the respective responsibilities of the members as to negotiation of the contract, source of labor, and contract performance, which Appellant asserted the joint venture agreement lacked. 13 C.F.R. § 124.513(d) requires the 8(a) partner to an 8(a) joint venture to perform at least 40% of the work performed by the joint venture and that it must bring some value to the joint venture agreement.
Appellant claimed that the Area Office erred by not considering whether the joint venture met the requirements in 13 C.F.R. § 124.513(c) and (d), pointing out that 13 C.F.R. § 121.103(h)(2)(i) states:
For a competitive 8(a) procurement, a joint venture between an 8(a) Participant and one or more other small business concerns (including two firms approved by SBA to be a mentor and protégé under § 125.9 of this chapter) must also meet the requirements of § 124.513(c) and (d) of this chapter as of the date of the final proposal revision for negotiated acquisitions and final bid for sealed bidding in order to be eligible for award.
This requirement applies to “any 8(a) contract” and “[e]very [JVA] to perform an 8(a) contract.” Therefore, the Appellant argued that even if the joint venture is small for the procurement per 13 C.F.R.§ 125.8, it didn’t meet the requirements of 13 C.F.R. § 124.513, which applies to 8(a) joint venture requirements, including the addendum requirements that require a joint venture to “create an addendum to the joint venture agreement setting forth the performance requirements for each additional award.” And the Area Office erred in not evaluating the joint venture agreement to determine whether it met those requirements.
OHA’s Decision
OHA agreed with the Appellant that the Area Office improperly ignored applicable SBA joint venture rules that applied because the procurement was set-aside entirely for 8(a) Program participants. 13 C.F.R. § 121.103(h)(2)(i) states that a joint venture “must also meet the requirements of § 124.513(c) and (d) of this chapter as of the date of the final proposal revision for negotiated acquisitions … in order to be eligible for award.” Accordingly, OHA pointed out that size is not the only consideration and that the Area Office should have looked at whether the joint venture agreement met the requirements of 13 C.F.R. § 124.513(c) and (d).
But there was still the issue of how a disappointed offeror, Contracting Officer, or the SBA may raise such a concern. As noted in the decision, agencies were previously required to evaluate offerors’ joint venture agreements prior to award to ensure the joint venture agreement meets the 8(a) Program joint venture requirements. But when that requirement was removed, there was no existing way to protest whether an 8(a) joint venture met the joint venture requirements in 13 C.F.R. § 124.513. The Federal Register commentary that accompanied the rulemaking of 13 C.F.R. § 121.103(h)(2)(i) noted that, even though SBA removed the requirement that SBA review 8(a) joint venture agreements prior to award, SBA did not intend to allow 8(a) joint ventures that did not meet the requirements in 13 C.F.R. § 124.513 to be awarded competitive 8(a) set-asides. SBA intended the size protest process to work to ensure compliance with formal 8(a) joint venture agreement requirements.
In practice, the size protest process did not work as intended in situations where the joint venture is between an 8(a) Program participant and another small business. Such a joint venture would still be considered small under 13 C.F.R. § 125.8, which states that any joint venture between two small venturers will be considered small for the procurement. But the joint venture agreement may not meet the 8(a) joint venture rules in 13 C.F.R. § 124.513, such as the 8(a) venturer being the Managing Venturer. Thus, OHA held that the only path to protesting an 8(a) joint venture’s status, thereby ensuring the 8(a) joint venture meets the 8(a) joint venture requirements in 13 C.F.R. § 124.513, is through the size protest process.
Here, OHA remanded the case back to the Area Office to review the joint venture agreement in accordance with 13 C.F.R. § 124.513, concluding that it is not only the responsibility of an 8(a) joint venture to be considered small, but to also meet the joint venture requirements for any 8(a) competitive procurement. Thus, there is a method to question the joint venture compliance of an 8(a) joint venture. Please reach out to our firm should you seek to do so.
If you have questions, please email us. If you need legal assistance, call us at 785-200-8919.
Looking for the latest government contracting legal news? Sign up here for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook.