Something we get asked about a lot with regards to joint ventures is the two-year rule (not to be confused with the “Rule of Two,” which concerns contract set-asides). We have explored this rule in the past on a few occasions, however, it has been a little while since the last such post and it’s been a perennial issue for contractors that we talk to. As such, it would be helpful to have a refresher on this rule, which may help clear up some of those questions.
The Basics
The rule in question comes from 13 C.F.R. § 121.103(h), and it states as follows:
[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. However, a joint venture may be issued an order under a previously awarded contract beyond the two-year period. Once a joint venture receives a contract, it may submit additional offers for a period of two years from the date of that first award. An individual joint venture may be awarded one or more contracts after that two-year period as long as it submitted an offer prior to the end of that two-year period. SBA will find joint venture partners to be affiliated, and thus will aggregate their receipts and/or employees in determining the size of the joint venture for all small business programs, where the joint venture submits an offer after two years from the date of the first award.
To put this into simpler terms, basically, when you make a joint venture that falls under the affiliation exception, there is a clock. This clock, however, does not start when the joint venture is made. Rather, it starts the moment the joint venture receives its first contract. When the joint venture gets that first contract, the joint venture then has two years to bid on procurements until the affiliation exception expires. The joint venture can still get awards once that clock expires, but it cannot bid on any further procurements without the joint venture partners being found affiliated for those procurements.
Being found affiliated means the companies will basically be treated as one in terms of size, so their receipts and employee numbers will be added together for purposes of the contract in question. Now, if the combined figures are still under the size standard for the given set-aside procurement, the joint venture can still bid on it. But, as you can guess, often, affiliation puts the joint venture over the size standard, making it ineligible for that procurement.
So, What Counts as a Contract?
The same regulation, 13 C.F.R. § 121.103(h), observes that “[f]or purposes of this paragraph (h), contract refers to prime contracts, novations of prime contracts, and any subcontract in which the joint venture is treated as a similarly situated entity as the term is defined in part 125 of this chapter.”
First, note that subcontracts as a whole generally don’t count, unless the joint venture is a similarly situated entity to the prime contractor. Second, note the fact it mentions subcontracts, which are generally of a private nature, indicates that private contracts might count as “contracts” for the purposes of the two-year rule as well, although it does not appear SBA has opined on this one way or the other. Something worth keeping in mind.
Note, too, that task or delivery orders are not mentioned in that definition. This tracks with the earlier language in the provision, which observes that “[h]owever, a joint venture may be issued an order under a previously awarded contract beyond the two-year period.” “As the Area Office correctly recognized, SBA regulations provide that a concern which is small at the time a long-term contract is awarded remains small for the duration of the contract, including for orders issued under the contract.” Team CSI Joint Venture, LLC, SBA No. SIZ-6335, 2025 (Feb. 11, 2025).
What If My First Award Gets Terminated?
Note, a relatively recent case explored an interesting question: If the first award gets terminated or cancelled, does that mean it is not the start date for the two-year rule? In the case of Hometown Veterans Medical, LLC, SBA No. SIZ-6343 (2025), SBA concluded that such a cancellation does not change the clock: “A review of the regulatory history of § 121.103(h) confirms that SBA intended that the term ‘contact award’ would encompass all awards, irrespective of whether the joint venture actually performed, or benefitted from, the contract.” The Federal Register, in its commentary on the rule, noted “SBA does not adopt the comment that recommended the word contract to mean only a contract that was kept and performed by the joint venture.” Small Business Size Regulations; 8(a) Business Development/Small Disadvantaged Business Status Determinations, 76 FR 8222-01. SBA observed that SBA had “considered — but expressly rejected — a proposal to revise § 121.103(h) such that a ‘contract award’ would mean ‘only a contract that was kept and performed by the joint venture.’”
My Two-Year Period is Up, What Do I Do Now?
Note, that once the two-year period passes, there is (in most cases) a very easy way around the issue per 13 C.F.R. § 121.103(h):
The same two (or more) entities may create additional joint ventures, and each new joint venture may submit offers for a period of two years from the date of the first contract to the joint venture without the partners to the joint venture being deemed affiliates. At some point, however, such a longstanding inter-relationship or contractual dependence between the same joint venture partners may lead to a finding of general affiliation between and among them.
There’s no clearcut point at which SBA will say “You can’t make any more joint ventures without being found affiliated for all procurements,” so the general rule is, the more times, the greater the risk. It would stand to reason that the second joint venture should likely not face this issue, but each subsequent one would raise the stakes more.
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