Most federal contractors are well-aware of the potential benefits of using one of the FAR-prescribed teaming options to perform government contracts. But one question we get a lot from small business federal contractors is how to most effectively utilize those teaming options (i.e., how to maximize team participation) on larger government contracts within the bounds and limitations of the law. And luckily, we’ve got a formula for that.
By way of brief background, FAR 9.601 gives federal contractors two options for teaming up to perform government contracts. Specifically, it says:
Contractor team arrangement, as used in this subpart, means an arrangement in which- (1) Two or more companies form a partnership or joint venture to act as a potential prime contractor; or (2) A potential prime contractor agrees with one or more other companies to have them act as its subcontractors under a specified Government contract or acquisition program.
In many circumstances, federal contractors will carefully select just one of these two teaming options to bid and (if successful) perform government contracts. Because these two teaming options are subject to vastly different sets of laws and performance limitations, there are lots of considerations to take into account when deciding which team structure will best suit the needs of the parties and the government client.
I wrote an extensive three-part blog on the subject a few years ago that is still highly relevant today (Part 1, Part 2, and Part 3). The subject of Part 1–most contractors’ main concern and arguably the most important consideration in picking your team–is workshare. So, please pause here and give Part 1 a quick read for a detailed explanation of the specific workshare rules and limitations applicable to the two different types of teams allowed by the FAR. Because for purposes of this GovCon FAQ blog, we are going to keep it really simple.
In a nutshell, FAR 9.601(a) teams (joint ventures) are subject to SBA’s performance of work requirements applicable to the type of joint venture (i.e., small business joint venture rules, 8(a) joint venture rules, etc.). And FAR 9.601(b) teams (prime-subcontractor teams) are subject to SBA’s and the FAR’s limitations on subcontracting–which are now essentially identical.
But contractors don’t have to chose one or the other teaming structure (provided they are willing to abide by both sets of rule and applicable limitations). They can actually benefit substantially by utilizing a combination of the two on each contract. And you guessed it, this is precisely how a small business federal contractor can maximize contract performance participation of its chosen team members.
For one, they can diversify the capabilities, resources, personnel, and past performance experience of the contract’s performance team by simply having more team members and different types of team members. Parts 2 and 3 of the “Picking Your Teams” blogs linked above describe some of the different relationship and past performance/experience considerations for each type of team (as do some of our other blogs you can find here and here). Some solicitations even have different requirements and/or criteria for evaluating joint ventures versus prime-subcontractor teams, which can also motivate contractors to utilize one teaming structure with certain teammates and another for others on a given contract.
But perhaps the most common reason for utilizing both types of teaming structures for a single government contract–and the subject of this GovCon FAQ–is to maximize the actual percentage of contract work (i.e., amount of total contract dollars) that can legally go to the eligible small business’s teammates.
Sure, the eligible small business prime contractor can (generally) have as many subcontractors as it wants. But the same limitation on subcontracting applies whether there is one or 100 subcontractors. To demonstrate, one non-similarly situated subcontractor can legally perform 50% of a services contract; but 50% is also what 100 non-similarly situated subcontractors can legally collectively perform on that same services contract. And the same analysis applies to joint ventures. Except for mentor-protege joint ventures, a joint venture can ideally include as many venturers as it wants. But the qualifying venturer(s) is required to perform at least 40% of the work performed by the joint venture nonetheless. So, whether there is one or 100 non-qualifying venturers, they cannot individually or collectively perform more than 60% of the work performed by the joint venture.
So, utilizing both of the FAR’s teaming options simultaneously is the best way to maximize teammate participation in light of these limitations.
To demonstrate this, let’s say we have a Service-Disabled Veteran Owned Small Business (SDVOSB) set-aside services contract valued at $1,000,000.00. Let’s also say we have a very small SDVOSB company called “Link Government Services, Inc.” interested in bidding this contract. But Link is concerned with the size and complexity of the contract’s scope, as well as its own ability to perform 50% of the contract work as the prime–or even 40% of the contract work as a managing venturer.
As such, Link is hoping to utilize the services of two additional government contractors, which we will call “Zelda Associates, LLC” (a large business) and “Beedle Federal, Inc.” (a small business under the contract’s size standard but a non-SDVOSB).
Under these facts, Link can perform the least amount of work under the contract if it: (1) first forms an SDVOSB compliant joint venture with Beedle (which per SBA rules, is allowed without a mentor protege agreement because both Link and Beedle are small for the contract), which we will call “Hyrule JV”; and (2) then contracts with Zelda through the Hyrule JV (via a compliant teaming agreement and subsequent subcontract) to form a prime-subcontractor relationship for performance of the contract, wherein the SDVOSB Hyrule JV acts as the prime and Zelda as the subcontractor.
Now, of course Link will need to ensure all other applicable SBA and FAR requirements are met (including those for joint venture agreements, subcontract agreements and FAR flow-downs, etc.). But as long as they are, through this arrangement, Link can actually legally perform as little as 20% of the total SDVOSB contract–despite being the only eligible SDVOSB on the entire team.
Specifically, performance via this structure to maximize each teammate’s participation can be broken down as follows:
- The Hyrule JV will need to perform at least 50% of the contract work (as the JV is the prime contractor itself)–meaning at least $500,000.00 of the total contract value will have to stay with the joint venture itself;
- The Hyrule JV (as the prime contractor) can then subcontract out the other 50% of the contract work to the large business subcontractor, Zelda (or any subcontractor for that matter)–meaning Zelda can collect a maximum of $500,000.00 of the total contract value;
- Of the 50% of the contract work performed by the joint venture itself, Link must perform at least 40% of the work of the joint venture, and Beedle can perform up to 60% of the work of the joint venture–meaning Link will perform 20% of the total contract, and Beedle will perform 30% of the total contract;
- Beedle will collect its maximum $300,000.00 of the total contract value; and
- Link will need to collect at least $200,000.00 of the total contract value.
As you can see, this method provides a teaming structure wherein the qualifying managing venturer of the qualifying prime contractor joint venture can minimize its own performance of work requirements while maximizing the role of its chosen teammates in performing federal set-aside contracts.
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