A few months back, we discussed a case at SBA’s Office of Hearings and Appeals that took a closer look at the actions that a Non-Managing Venturer in a small business joint venture is permitted to have negative control over—that is, those actions which the Non-Managing Venturer’s disapproval can block from happening. It also addressed what happens when a joint venture agreement does not include all of the provisions that the SBA rules require for a mentor-protégé joint venture agreement under the SBA’s Mentor-Protégé Program to avoid affiliation. Following that decision, the matter was brought to the Court of Federal Claims. Below, we discuss Multimedia Environmental Compliance Group JV v. United States, 178 Fed. Cl. 129 (2025) which covers the COFC’s review of the OHA decision.
That case reaffirmed that just having required control language in a JV isn’t enough, other provisions in the JVA cannot give inordinate control to the Non-Managing Venturer.
First, there are four relevant parties to get familiar with here, as each plays an important part in this decision:
- Nicklaus Engineering, Inc. (NEI, Protege, and Managing Venturer);
- Wood Environment and Infrastructure Solutions, Inc. (WEIS, Mentor, and Non-Managing Venturer);
- Multimedia Environmental Compliance Group, JV (Multimedia, which is a joint venture between NEI and WEIS); and
- Acacia7 (Protester).
Prior Litigation
As mentioned above, this case has gone through the gamut winding through various tribunals. I’m going to give a very brief overview of what has happened to get the case to this point. You can find more information about it in our previous blog covering the case. But, as a quick overview, the case started at one of SBA’s various Area Offices, which concluded in September 2024 that the JVA in question complied with the joint venture requirements of 13 C.F.R. § 125.8(b)(2)(ii) and the joint venture was small under the size standard for the award despite NEI having multiple other joint ventures as well.
Acacia7 appealed the Area Office’s size decision at OHA. The appeal was initially only based on Acacia7’s belief that the Area Office ignored information that demonstrated that NEI participated in at least twelve different joint ventures and that it was affiliated with at least one other entity. It wasn’t until Acacia7 filed a supplemental appeal at OHA that the JVA’s contents were reviewed as part of the appeal, and with that, OHA reversed the Area Office’s size determination in January 2025. But it wasn’t because of NEI’s multiple joint ventures. No, it was because of the contents of the MECG JV JVA. Specifically, OHA found that there were two issues present in the JVA:
- The JVA gave a non-defaulting party the choice to complete performance when the other party defaults instead of requiring the non-defaulting party to do so pursuant to 13 C.F.R. § 125.8(b)(2)(viii); and
- The JVA did not designate a small business as the Managing Venturer of the joint venture nor did it designate a named employee of the small business Managing Venturer as the manager with ultimate responsibility for performance of the contract (the ““Responsible Manager”) as required by 13 C.F.R. § 125.8(b)(2)(ii).
Following the first round at OHA, Multimedia filed its own protest at COFC. But when the government filed a motion for a voluntary remand to OHA to reconsider its prior decision, the COFC granted the motion and the case when back to OHA. In this second round at OHA, it upheld its prior decision that the JVA failed to establish the correct relationship between the Responsible Manager (an employee of the Managing Venturer) and the Program Manager (an employee of the non-managing venturer). In short, the Managing Venturer did not have the required control over the joint venture that is required by 13 C.F.R. § 125.8.
Court of Federal Claims Decision
After OHA’s second decision was issued in May 2025, Multimedia still believed that the issue was not settled, and, following the proper procedural process, Multimedia and Acacia7 submitted additional briefing at COFC to argue whether the May 2025 decision was proper.
Standard of Review
In reviewing an OHA decision, the COFC examines if the plaintiff has shown that, given all the disputed and undisputed facts in the administrative record, the decision was not in accordance with the law. The court must set aside an agency’s procurement decision if it lacked a rational basis or if the procedure involved a regulatory violation. A rational procurement decision is one in which the contacting agency provides a coherent and reasonable explanation of its exercise of discretion. Federal contractors must bear in mind that, confusingly, the COFC isn’t looking at whether it agrees with OHA’s final decision, rather it is looking at whether OHA reviewed the Area Office’s determination correctly.
The Issues
Multimedia raised multiple challenges to the OHA’s decision, all of which the COFC refused. The substantive challenges were:
- OHA’s decision is contrary to the plain language of 13 C.F.R. §125.8(b)(2)(ii); and
- OHA’s decision is arbitrary and capricious because it does not provide a sufficiently reasoned explanation and fails to address the relevant evidence.
Analysis
First, Multimedia argued that OHA’s decision that the JVA did not comply with 13 C.F.R. §125.8(b)(2)(ii) was contrary to the plain language of the regulation. Multimedia claimed that because its JVA contained the language that identified a small business as the Managing Venturer with the ultimate responsibility for performance of the contract, that it satisfied the requirements of 13 C.F.R. § 125.8( b)(2)(ii).
Multimedia asserted that even though “the plain language of 13 C.F.R. § 125.8(b)(2)(ii) provides that the managing venturer must be responsible for controlling the day-to-day management and administration of contractual performance of the joint venture” there is “no requirement that such control must be ‘independent.’” But the COFC found that Multimedia’s rationale allowed for negative control over the decisions of the joint venture by the Non-Managing Venturer via the Executive Committee, on which each party had one vote, and all decisions made by the Executive Committee required a unanimous vote. This allowed the Non-Managing Venturer to have the same level of oversight and decision-making as the Managing Venturer. Additionally, the JVA created the position of Program Manager, which was also given “equal authority to manage the contract” as the Responsible Manager, again cutting off the Managing Venturer’s right to manage decisions of the joint venture. This also left the joint venture with no way to resolve disputes between the parties, which could lead to an impasse in the event that the Responsible Manager and Program Manager disagree. Therefore, OHA properly concluded that the non-Managing Venturer failed to give up control to the Managing Venturer, in accordance with 13 C.F.R. § 125.8(b)(2)(ii).
Second, Multimedia claims that OHA failed to consider all relevant evidence with respect to the sufficiency of the JVA, and that OHA did not read the JVA as a whole. Multimedia claimed that had OHA read the agreement as a whole, it would have concluded that there were no issues with the Managing Venturer’s control of the joint venture. The three issues that Multimedia addressed here were:
- That the Responsible Manager and Program Manager are on equal footing and have apparently equal authority;
- That it provides [the] Responsible Manager’s role will be defined by the Executive Committee, rather than be the manager in charge of contract administration;
- That it creates the potential for conflict between NEI and WEIS, rather than leave NEI in control.
Ultimately, the COFC found that OHA considered all relevant evidence provided by Multimedia, and that it provided a rational basis for its conclusion.
For the first issue, Multimedia asserted that the JVA “confirms that the Responsible Manager and Program Manager are not equal.” Multimedia points to a part of the JVA that identified NEI as the Managing Venturer and identified a Responsible Manager, as required by 13 C.F.R. § 125.8(b)(2). However, the JVA gave significant control of contract performance to the non-Managing Venturer. As OHA had found, the JVA contained language that put the Responsible Manager on equal footing with the non-Managing Venturers “Program Manager,” which clearly violates small business joint venture rules.
Next, Multimedia claimed that the JVA’s Executive Committee did not interfere with the Managing Venturer’s or Responsible Manager’s control of the day-to-day management or administration of contract performance. OHA concluded that the Executive Committee would define the Responsible Manager’s role based on provisions in the JVA that established the Executive Committee would “delegate[e] responsibility for execution of the contract and shall have such specific powers as the Executive Committee may, from time-to-time delegate.” The JVA also stated that “the Executive Committee is responsible for delegating specific powers to the Responsible Manager and the Program Manager.” And, the JVA gave the non-Managing Venturer negative control because “Executive Committees shall be unanimous and shall be made with each party having one vote.”
Finally, Multimedia argued that OHA incorrectly that if there was an ambiguity in the JVA that leads to conflict between the Responsible Manager and Project Manager, that the Responsible Manager could not resolve the issue without going to the Executive Committee. And, if an issue was presented to the Executive Committee, the non-Managing Venturer would still have veto power due to the requirement that all decisions of the Executive Committee be unanimous. Although Multimedia pointed to the provision that states the Responsible Manager “has ultimate responsibility as between the Program Manager and herself, meaning she has the ability to assert authority to control [Multimedia’s] day-to-day operations,” and claims that language gives the Responsible Manager the ultimate authority to control the non-Managing Venturer’s day-to-day operations, the COFC sided with OHA that the JVA creates great opportunity for conflict between the parties that could lead to impermissible control of the joint venture.
In the end, the COFC held that Multimedia failed to demonstrate that OHA’s findings were arbitrary or capricious and that OHA’s decision had a rational basis for each of its findings and was supported by the record evidence.
So, what is the lesson to be learned from this very long and winding protest process? Even if a joint venture agreement has the required language included in it, the other language in the joint venture agreement matters as well. Here, the JVA included the required language of 13 C.F.R. § 125.8(b)(2), but other provisions in the JVA created an impermissible balance of power, giving the non-Managing Venturer negative control over day-to-day decisions of the joint venture. This case is another reminder to be very careful with JV language, something we work on frequently with our clients.
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