Is a small business affiliated with its joint venture partner?  Forgive the stereotypical lawyerly response, but the answer is “yes and no.”  A small business is affiliated with its joint venture partner on a procurement-specific basis, but typically is not affiliated with its joint venture partner on an ongoing basis.  The SBA’s Office of Hearings and Appeals succinctly explained the basic rules relating to joint ventures and affiliation in Size Appeal of Innovative Resources, SBA No. SIZ-5238 (2011).

The Innovative Resources appeal dealt with an 8(a) set-aside procurement issued by the Air Force.  After the Air Force awarded the contract to Unity Contractor Services, Inc., an unsuccessful offeror filed an SBA size protest.

The protester alleged, in part, that Unity was affiliated with four other companies, due to joint ventures Unity had entered into with those companies, and because Unity had referred to its joint venture partners as its “affiliates” on its website.  Of the four joint ventures, only one had received a contract award, worth $21,000.  That joint venture was between Unity and its SBA-approved mentor under the 8(a) mentor-protégé program.  The remaining joint venture partners were not mentors to Unity.

The SBA Area Office held that Unity was not affiliated with any of its four joint venture partners.  On appeal, SBA OHA affirmed the Area Office’s decision.

SBA OHA first held that Unity was not affiliated with its mentor because “no determination of affiliation or control may be found between a protégé firm and its mentor based upon the Mentor-Protégé Agreement or assistance provided pursuant to it.”

Turning to the remaining joint venture partners, SBA OHA noted that “joint venturers on a particular procurement are affiliated with each other with regard to the performance of that contract.”  However, SBA OHA held that the creation of a single joint venture does not give rise to ongoing affiliation, beyond the contract performed by the joint venture:

“Involvement in a joint venture does not give one concern control of the operations of its joint venture partner. Therefore, being engaged in a joint venture with another concern does not render a concern affiliated with its joint venture partner. The exception to this rule is that if one concern enters into a number of joint ventures with another concern, it eventually may be found to be affiliated due to being economically dependent through contractual relations with the other concerns. However, Unity cannot be considered economically dependent upon any of its joint venture partners, because these ventures have produced only one small contract.” 

The Innovative Resources case neatly summarizes the general rules for joint ventures and affiliation: a single joint venture creates contract-specific affiliation, but not ongoing affiliation.

One final question—what about Unity’s description of its joint venture partners as its “affiliates”?  Obviously, using this terminology was not a wise move on Unity’s part (and may have convinced the protester to file its size protest in the first place).  However, SBA OHA held that a business’s description of its relationship with another business on its website is not dispositive of the issue, and in this case, Unity’s use of the word “affiliates” did not mean that affiliation existed, in SBA terms.

SBA OHA’s ruling in this regard makes sense—after all, if language on a website determined affiliation, contractors could simply state that they were unaffiliated with other businesses on their website, and the statement would be binding, notwithstanding the actual facts.