An 8(a) program protege was deemed affiliated with its mentor–and ineligible for a small business set-aside contract–because the joint venture agreement between the mentor and protege failed to comply with certain mandatory 8(a) joint venture requirements.

In a recent decision, the SBA Office of Hearings and Appeals concluded that an 8(a) mentor-protege joint venture was not entitled to take advantage of the special exception from affiliation because of the flaws in its joint venture agreement.  OHA’s decision is an important reminder to 8(a) mentors and proteges of the critical importance of strictly complying with the 8(a) joint venture regulation.

OHA’s decision in Kisan-Pike, A Joint Venture, SBA No. SIZ-5618 (2014) involved an Army Corps of Engineers solicitation for the design and construction of an Army Reserve Center.  The solicitation was issued as a small business set-aside.

Kisan-Pike, A Joint Venture, submitted a proposal.  Kisan-Pike was a joint venture between Kisan Engineering Company, P.C., an 8(a) program participant, and its large business mentor, The Pike Company, Inc.  Kisan and Pike had an active, approved 8(a) mentor-protege agreement at the time that Kisan-Pike submitted its proposal.  Kisan-Pike self certified as a small business based on the special exception from affiliation available to 8(a) mentor-protege joint ventures.

Kisan-Pike’s joint venture agreement included the following provisions:

 12.0 Performance of Work

The Managing Venturer will perform, at a minimum, forty [percent] (40%) of the Joint Venture’s work, consisting of management personnel and professional, technical, and support/trade staff. Partner Venturer, Pike, will perform at a maximum sixty [percent] (60%) of the Joint Venture’s work, consisting of management personnel and professional, technical support/trade staff.

Because the Corps solicitation was not an 8(a) set-aside, the SBA did not review and approve Kisan-Pike’s joint venture agreement before award of the contract.  However, in order to take advantage of the mentor-protege exception from affiliation, the joint venture agreement was required to comply with all of the 8(a) joint venture requirements set forth in 13 C.F.R. § 124.513.

After evaluating competitive proposals, the Corps announced that Kisan-Pike was the apparent awardee.  The Contracting Officer subsequently initiated a size protest against Kisan-Pike.  The size protest expressed concern that Kisan-Pike’s joint venture agreement did not comply with 13 C.F.R. § 124.513, and that as a result, Kisan-Pike might be ineligible for the mentor-protege exception from affiliation.

The SBA Area Office noted that 13 C.F.R. § 124.513(c)(6) requires the joint venture agreement to contain provisions “itemizing all major equipment, facilities, and other resources to be furnished by each party to the joint venture, with a detailed schedule of cost or value of each.”  In Kisan-Pike’s case, the Area Office determined, the joint venture agreement did not contain an itemization of equipment and facilities.  Instead, the agreement contained a “single sentence” stating that equipment and resources would be provided after award.  The Area Office determined that Kisan-Pike’s joint venture agreement did not comply with 13 C.F.R. § 124.513(c)(6).

The Area Office also noted that 13 C.F.R. § 124.513(c)(7) requires that the joint venture agreement specify the roles of the parties in the performance of the contract, as well as explain how the parties will comply with the performance of work requirements (i.e., limitation on subcontracting requirements) set forth in 13 C.F.R. § 124.513(d).  The Area Office determined that Kisan-Pike’s joint venture agreement “merely confirmed” that Kisan would perform at least 50% of non-construction labor costs and at least 15% of construction labor costs, but did not specify how the parties intended to divide the work or how the joint venture intended to ensure compliance with the performance of work requirements.  The Area Office determined that Kisan-Pike’s joint venture agreement did not comply with 13 C.F.R. § 124.513(c)(7).

Finally, the Area Office noted that 13 C.F.R. § 124.513(d) requires that the 8(a) company perform at least 40% of the work performed by an unpopulated joint venture.  The Area Office held that Kisan-Pike’s joint venture agreement merely made “broad” and “generic” claims that Kisan would perform at least 40% of the work “without any constructive plan to support [this] claim.”  The Area Office held that Kisan-Pike’s joint venture agreement was also deficient in this regard.

Because Kisan-Pike’s joint venture agreement did not meet all of the regulatory requirements, the Area Office held that Kisan and Pike were not entitled to take advantage of the mentor-protege exception from affiliation.  The Area Office issued a size determination finding Kisan and Pike to be affiliated for purposes of the procurement.  The affiliation rendered Kisan-Pike ineligible for award.

Kisan-Pike filed a size appeal with OHA.  Kisan-Pike argued that the Area Office had erred in its evaluation of the mentor-protege agreement and that Kisan and Pike were entitled to take advantage of the mentor-protege exception from affiliation.

OHA disagreed with Kisan-Pike.

With respect to 13 C.F.R. § 124.513(c)(6), OHA held that Kisan-Pike’s joint venture agreement was deficient.  Although the regulation required an itemization of equipment, facilities, and resources, Kisan-Pike merely provided a broad statement that these items would be provided after award.  “Such a broad statement,” OHA wrote, “lacks the specificity necessary to comply with 13 C.F.R. § 124.513(c)(6).”

Similarly, OHA held that Kisan-Pike’s joint venture agreement “falls short” of complying with 13 C.F.R. § 124.513(c)(7).  OHA wrote that “[a]lthough the agreement indicates that Kisan’s President, Mr. Singh, will negotiate the contract, it does not designate specific tasks or responsibilities to Kisan and Pike.”  Additionally, “the agreement does not explain how [Kisan-Pike] will fulfill the performance of work requirements set out in 13 C.F.R. § 124.513(d).”

OHA issued a decision affirming the Area Office’s size determination, and denying Kisan-Pike’s appeal.

The Kisan-Pike size appeal decision should serve as a warning to 8(a) proteges and their mentors.  Although the mentor-protege exception from affiliation may be used to qualify for non-8(a) contracts–such as the small business set-aside at issue here–the joint venture can only take advantage of the exception if the joint venture meets all of the 8(a) regulatory requirements under 13 C.F.R.§ 124.513(c).  As Kisan-Pike learned the hard way, any deviation from those requirements may cost the joint venture a contract.