I find Google Trends, which catalogs “hot searches” on any given day, rather fascinating.  Half of the hot searches seem related to one celebrity or another, but others reveal that many folks are spending their time Googling such things as “zombie apocalypse” and “national doughnut day.”  Does anyone remember what office workers actually did all day before the Internet?

If Google Trends had a government contracts subsection, “joint ventures” would be one of the trendiest of search terms.  Joint ventures are a hot topic these days, for small and large government contractors alike.  8(a) joint ventures are perhaps the trendiest of all, thanks to a special exception from the ordinary SBA affiliation rules.  In a recent SBA size appeal decision, SBA OHA confirmed that this exception from the affiliation rules is broad, even allowing an 8(a) mentor-protege joint venture–potentially–to violate the so-called “three in two” rule.

SBA OHA’s decision in Size Appeal of CJW Construction, Inc., SBA No. SIZ-5254 (2011), involved an SBA-approved 8(a) mentor-protege joint venture between CJW, an 8(a) participant, and Macro-Z, its mentor.  CJW and its mentor formed a number of joint ventures together, one of which bid on four contracts over a two year period.  The two companies also had other ties.  For instance, CJW’s owner was a former employee of Macro-Z.  In addition, Macro-Z had furnished CJW with subcontracts and had helped it obtain necessary surety bonding.

The SBA’s 8(a) Division of Program Certification and Eligibility requested that the SBA Area Office perform a size determination on CJW to determine its continued 8(a) program eligibility (note: this can and will happen if the 8(a) program office has reason to believe there is a size problem).  The  Area Office found CJW affiliated with Macro-Z, and CJW appealed to SBA OHA.

SBA OHA reversed the Area Office’s decision, and held that the mentor-protege relationship protected the parties from affiliation  In so doing, SBA OHA made two important rulings.

First, SBA OHA wrote that the SBA’s 8(a) regulations offer “broad protection to the concerns in an approved mentor/protege relationship.”  SBA OHA noted that “SBA had already examined the relationship between Appellant and Macro-Z when it approved Appellant’s 8(a) application and mentor/protege agreement.”  Accordingly, SBA OHA held, “the Area Office should not have reached behind those approvals to examine a relationship which had already been examined and approved by SBA.”

SBA OHA also held that CJW and Macro-Z did not automatically lose their affiliation protection because one of their joint ventures violated the former “three in two” rule, which at the time provided that two companies could become generally affiliated if their joint venture submitted more than three offers over a two-year period.  SBA OHA wrote that a violation of the three-in-two rule “does not compel the conclusion that the joint venture parties are automatically generally affiliated, nor does it strip a mentor/protege relationship of the protection” offered by the regulatory exception from affiliation.

Rather, SBA OHA continued, a violation of the three-in-two rule means that the SBA Area Office may examine the parties’ overall relationship to determine whether they are generally affiliated.  However, if the SBA has previously examined and approved the interactions between the parties–as was the case here–the SBA Area Office “should not undercut those approvals to find affiliation unless those violations are particularly egregious.”

The CJW Construction SBA size appeal decision indicates that SBA OHA supports a broad interpretation of the mentor-protege exception from affiliation.  For 8(a) firms and their mentors, SBA OHA’s decision is welcome news indeed.

Now that you’ve spent a few minutes reading this post, you may be getting hungry.  So go on, leave this blog and go get a doughnut or two, before the impending zombie apocalypse arrives.