Forming Eight JVs Did Not Create Affiliation Between JV Members

An 8(a) protege and its mentor were not affiliated with one another, despite forming eight joint ventures over a four-year period–and winning 15 contracts with those joint ventures.

In a recent size appeal case, the SBA Office of Hearings and Appeals upheld the decision of the SBA Area Office, which found that the mentor and protege were not affiliated despite their substantial history of joint venturing.

SBA OHA’s decision in Size Appeal of Quality Services International, Inc., SBA No. SIZ-5599 (2014) involved a GSA SDVOSB set-aside solicitation for facilities support services.  After evaluating competitive proposals, the GSA announced that SDS Joint Venture was the apparent successful offeror.

SDS was a joint venture comprised of two companies, Siege Enterprises, LLC (“SE”) and Dae Sung LLC (“DS”).   DS, in turn, had been an 8(a) protege under a mentor-protege agreement with LB&B.  Between 2010 and 2014, DS and LB&B formed eight joint ventures, which collectively were awarded 15 contracts.

After the award was announced, an unsuccessful competitor, Quality Services International Inc., filed a SBA size protest.  Quality Services noted that SE and DS were not in a mentor-protege relationship, meaning that both companies had to be small in order for SDS to qualify as a small business. Quality Services argued that DS was not a small business because of its extensive joint venturing with LB&B.  Quality pointed out that under the SBA’s regulations, an extensive pattern of joint venturing may be grounds for affiliation, even where the joint venture partners are a mentor and protege.

The SBA Area Office recognized that extensive joint venturing could cause affiliation.  In DS’s case, however, the SBA Area Office determined that the number of joint ventures and contracts were “significant” but not so extensive as to cause affiliation.  The Area Office issued a size determination finding SDS to be a small business.

Quality Services filed a size appeal with SBA OHA.  In its size appeal, Quality Services argued, in part, that the Area Office had erred by finding that the joint venturing between DS and LB&B did not establish affiliation.

SBA OHA disagreed.  It noted that Quality Services had the burden of proving that the Area Office had committed clear error in its decision.  SBA OHA wrote, “[t]he Area Office reviewed the joint ventures between DS and LB&B, considered the record, and concluded that the ties between the firms did not rise to the level of general affiliation either because of a longstanding relationship or contractual dependence.”  SBA OHA concluded, “[t]he Area Office exercised its judgment on this issue, and Appellant offers nothing but inapposite cases and mere disagreement with the result to contest it. This cannot establish clear error, either of fact or law.”  SBA OHA denied the size appeal.

The SBA’s affiliation regulations indicate that extensive joint venturing may result in general affiliation between the joint venture partners.  But as the Quality Services International size appeal demonstrates, the SBA Area Office has broad discretion to determine when the affiliation line has been crossed.  Even here, where the joint ventures resulted in 15 contract awards over four years, the Area Office did not abuse its discretion by finding that the joint venturing did not cause general affiliation.

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