When an SBA approved mentor and protégé create a joint venture to pursue contracts set-aside for small businesses, SBA requires the mentor-protégé joint venture agreement to contain the requirements found in 13 C.F.R. § 125.8(b)(2). But how closely does the joint venture agreement have to match the language of these required provisions in order to be found complaint?
In DecisionPoint-Agile Defense JV, LLC, OHA considered whether the language in a joint venture’s operating agreement (OA) can be considered alongside the joint venture agreement (JVA) when determining if a JVA meets all the regulatory requirements.
Background
GSA issued a Small Business Pool Request for Proposals (RFP) for IT services and posted a pre-award notification of successful offerors. DecisionPoint-Agile Defense JV, LLC (Appellant) was one of the successful offerors. Appellant was a joint venture owned 51% by a small business and 49% by an other than small business. The two businesses were in a mentor-protégé relationship. The contracting officer filed a size protest, arguing Appellant’s JVA did not comply with the provisions required by 13 C.F.R. § 125.8(b)(2).
The Area Office issued a size determination finding Appellant other than small because the JVA did not contain several of the regulatory provisions required by SBA. Even though several of the missing provisions were stated in the OA, the Area Office claimed the language of the regulation requires the JVA to contain the provisions. Appellant appealed the size determination, arguing that the Area Office erred in limiting its analysis to just the JVA and refusing to include the OA in its consideration.
Discussion
OHA agreed with Appellant, finding the Area Office erred in failing to consider Appellant’s OA when determining whether Appellant met the JVA regulatory requirements. OHA noted that it has “consistently considered a concern’s operating agreements together with its joint venture agreement in judging a concern’s compliance.” Further, OHA stated that whether an operating agreement is explicitly incorporated into the joint venture agreement is irrelevant. The only requirement is that the documents were executed prior to the date on which the size of the joint venture was determined. With this consideration in mind, OHA reviewed Appellant’s JVA and OA together to determine whether the regulatory requirements were satisfied.
Managing Venturer and Responsible Manager
Designating a small business as the managing venturer of the joint venture, and designating a named employee of the small business managing venturer as the manager with ultimate responsibility for performance of the contract (the “Responsible Manager”). See 13 C.F.R. § 125.8(b)(2)(ii).
The Area Office argued that Appellant’s JVA failed to clearly designate that the manager would have ultimate responsibility for contract performance. As the small business, DPC was designated as Managing Venturer and the JVA stated that DPC’s CEO would be the Managing Director responsible for supervising the employees. Even though the JVA clearly designated someone to supervise the employees, the Area Office claimed this did not indicate ultimate responsibility over contract performance.
OHA concluded that the regulation never explicitly requires the JVA contain the exact language used in the regulation. OHA said “the regulation does not mandate particular language” and “SBA has stated that no specific format is required for a joint venture agreement.” The JVA had clearly designated DPC’s CEO as the Managing Director and provided a description of his duties. Additionally, the CEO’s responsibility in matters related to contract performance was provided in the OA. Thus, the small business was designated as the Managing Venturer and an employee was designated as the Responsible Manager with ultimate responsibility over contract performance.
Major Equipment, Facilities, and Other Resources
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, where practical. If a contract is indefinite in nature, such as an indefinite quantity contract or a multiple award contract where the level of effort or scope of work is not known, the joint venture must provide a general description of the anticipated major equipment, facilities, and other resources to be furnished by each party to the joint venture, without a detailed schedule of cost or value of each, or in the alternative, specify how the parties to the joint venture will furnish such resources to the joint venture once a definite scope of work is made publicly available. See 13 C.F.R. § 125.8(b)(2)(vi).
The JVA only stated that the Venturers would contribute property and share responsibility. For an indefinite quantity contract, the regulation only requires a general description of the anticipated major equipment, facilities, and other resources. Even though this was an IDIQ contract, the Area Office concluded that the JVA did not provide a general description.
The OA, however, did contain a description of resources that would be furnished by each Venturer, noting,
The Managing Venturer was to contribute $5,100 for registration fees, legal services and other expenses, and other resources by mutual agreement, included to support specific task orders. The Partner Venturer will contribute $4,900 for registration fees, legal services and other expenses. Also $15,000 for website development and maintenance, $5,000 per annum for office supplies, and $5,000 for marketing and public relations support.
Therefore, Appellant met the requirement by providing a general description of the resources in the OA.
Ensured Contract Performance
Obligating all parties to the joint venture to ensure performance of a contract set aside or reserved for small business and to complete performance despite the withdrawal of any member. See 13 C.F.R. § 125.8(b)(2)(viii).
Appellant’s JVA provided, “all parties to the Joint Venture are required to complete contract performance.” The Area Office argued this did not include the language “despite the withdrawal of any member.” Appellant’s OA did include this language, stating, “[a]ll parties to the Joint Venture are obligated to complete contract performance despite the withdrawal of any party to the Joint Venture.”
OHA found that the provision in the JVA alone satisfied the obligation, noting that the language presented “a flat, absolute requirement with no exceptions.” Further, the OA contained the exact regulatory language the Area Office wanted.
Additionally, there were regulatory provisions that were not included in Appellant’s JVA but were explicitly stated in the Operating Agreement, including Original Records and Performance of Work Statements. OHA found Appellant compliant because they were included in the Operating Agreement.
Key Takeaways
This case provides some comfort in OHA’s flexibility, and knowing that OHA doesn’t require joint ventures agreements to follow the regulation language verbatim, at least in some cases. But this case also serves as a lesson that it might be the better choice to simply include the regulatory language in your joint venture agreement anyway.
Here, the Appellant faced an adverse size determination because the required regulations were in the OA and not explicitly stated in the JVA. An easy fix to avoid this would be starting with the language used in the regulation and then adding in the specifics.
For example, clearly designate the Responsible Manager “as the manager with ultimate responsibility for performance of the contract.” Then feel free to list the specific areas the Responsible Manager will oversee, “this includes reviewing documents, supervising employees, payroll, etc…”
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