Joint Venture Between Small Business, Large Company Not “Small”

Go on, go on.  Call me Captain Obvious for writing this post if you must, but the question actually comes up quite often: can a small business joint venture with a large business and qualify as “small” for purposes of a federal small business set-aside contract?

The answer, as confirmed in a recent SBA Office of Hearings and Appeals SBA size appeal decision, is “no,” unless the joint venturers are participants in the SBA’s 8(a) mentor-protege program.  Unfortunately for the joint venturers in Size Appeal of BY&R Contractors, LLC & West Coast Contractors of Nevada, Inc. JV, SBA No. SIZ-5349 (2012) not only were they not an 8(a) mentor and protege, but neither company was even an 8(a) participant.

The BY&R Contractors SBA size appeal involved a National Guard Bureau solicitation for construction services.  The solicitation was designated with NAICS code 236220 (Commercial and Institutional Building Construction), with a corresponding $33.5 million average annual receipts size standard.

BY&R Contractors, which was a small business under the size standard, formed a joint venture with West Coast Contractors of Nevada, Inc., which was not a small business.  The resulting joint venture submitted an offer on the procurement, self-certifying as small.  After the NGB announced the joint venture as the apparent successful offeror, a competitor filed a SBA size protest.

The SBA Area Office found that BY&R and WCC were affiliated for purposes of the contract due to their joint venture, and that WCC’s size alone precluded the joint venture from qualifying as small.  The SBA Area Office issued a size determination finding the joint venture “other than small,” and ineligible for the procurement.

The joint venture filed a SBA size appeal with SBA OHA, arguing primarily that the joint venture was entitled to an exception from affiliation under 13 C.F.R. § 124.513, the regulation governing joint ventures involving 8(a) companies.  However, neither BY&R nor WCC was an 8(a) company.

Because the regulation in question applies only to 8(a) companies, it is little surprise that the joint venture’s Hail Mary pass landed well short of the goal line.  SBA OHA wrote, “it is clear that [13 C.F.R. § 124. 513] is only applicable when one of the concerns is an 8(a) BD program participant. Here, Appellant admits that it is not an 8(a) BD program participant, and neither BY&R nor WCCN is an 8(a) BD program participant, and there is no mentor-protégé joint venture agreement. Appellant’s extensive argument that it has met the exception to affiliation based on [13 C.F.R. § 124.513] is misplaced and utterly inapposite.”  SBA OHA also rejected the joint venture’s other arguments, and denied the SBA size appeal.

If BY&R and WCC wanted to team for the procurement, they should have formed a prime/subcontractor relationship (taking care, of course, to avoid ostensible subcontractor affiliation).  As these would-be joint venturers learned the hard way, except in the narrow context of an 8(a) mentor-protege relationship, a joint venture between a large company and small business does not qualify as “small” for a federal small business set-aside contract.

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