A recent SBA decision showcased the strict manner in which SBA interprets its joint venture agreement rules. After an agency awarded a contract to a joint venture entity, SBA determined the joint venture was ineligible due to fairly small deficiencies in a joint venture agreement. It’s a situation that no federal contractor wants to encounter. SBA requires strict adherence to the requirements that must be contained in nearly all joint venture agreements. Unfortunately, one company learned this lesson the hard way.
The case, Gray Venture, LLC, SBA No. VET-276, 2022 (July 21, 2022), arose when the Missile Defense Agency (MDA) released a Request for Proposal (RFP) in May 2021. This RFP was released as a service-disabled veteran owned small business (SDVOSB) set aside. Gray Venture, LLC (Gray Venture)–a joint venture comprised of GEBC, LLC, an SDVOSB, and Thompson Gray, Inc. GEBC’s SBA approved mentor–and separate company Strategic Alliance Solutions, LLC (SAS) were among the offerors.
In February 2022, Gray Venture was notified that it was the apparent successful awardee under the RFP. Following this notification, SAS filed a size protest and an SDVOSB protest, challenging Gray Venture’s eligibility. The size protest alleged that Gray Venture was other than small because GEBC was affiliated with a large business. The SDVOSB protest alleged that Gray Venture was ineligible as an SDVOSB because its joint venture agreement (JVA), which was comprised of an Operating Agreement and two Teaming Agreements, did not conform to the requirements contained in 13 C.F.R. § 125.18(b)(2).
When the SBA Government Contracting office reviewed Gray Venture’s JVA for the SDVSOB protest, it determined that the agreement did not meet three of the requirements found in 13 C.F.R. § 125.18(b)(2). As a result, SBA found that Gray Venture did not qualify as an SDVOSB joint venture and was therefore ineligible for award. Gray Venture appealed this decision.
One joint venture issue occurred because neither the Operating Agreement nor the Teaming Agreements specifically named the Managing Venturer and the Responsible Manager. An SDVOSB joint venture agreement must designate an SDVOSB as the Managing Venturer, and it must designate a “named employee,” as the Responsible Manager, who will be responsible for contract performance. 13 C.F.R. § 125.18(b)(2)(ii). The operating agreement stated that GEBC would be the “Manager” for Gray Venture, and that the “Manager” would appoint a “Project Manager.” However, both the Operating Agreement and the Teaming Agreements did not identify the name of the “Project Manager.” As a result, the Area Office concluded the JVA failed to meet regulatory requirement at 13 C.F.R. § 125.18(b)(2)(ii).
Gray Venture asserted that it did name a Managing Venturer and Responsible Manager, citing to Section 8.1 of the Operating Agreement, which stated a Small Business Concern” would be designated the “Manager.” GEBC was identified as the Small Business Concern elsewhere in the Operating Agreement. Additionally, the Teaming Agreements named GEBC’s CEO as Gray Venture’s “contractual representative.” This same individual signed the Operating Agreement on behalf of GBEC. Therefore, Gray Venture argued, reading the agreements together makes the Managing Venturer and Responsible Manager apparent. However, SBA maintained that the Operating Agreement and Teaming Agreements “must designate GEBC as a managing venturer, and specifically identify a (responsible) manager,” and that the “mental gymnastics” required of SBA to determine the Managing Venturer and Responsible Manager in this situation falls short of the specificity required by 13 C.F.R. § 125.18(b)(2)(ii).
In addition, an SDVOSB joint venture agreement must include the “responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract performance.” 13 C.F.R. § 125.18(b)(2)(vii). In this case, general information was described in both the Operating Agreement and Teaming Agreements, but the Area Office determined that this requirement was not in compliance because the Teaming Agreements were drafted prior to the issuance of the solicitation, which meant the Teaming Agreements could not be specific to this solicitation. Accordingly, the JVA was not in compliance with 13 C.F.R. § 125.18(b)(2)(vii).
Gray Venture claimed that the documents that made up its JVA set out the responsibilities of the parties, pointing to various provisions in the Operating Agreement and Teaming Agreements. For example, the Operating Agreement stated that the Manager had authority to make all decisions related to negotiation. Other responsibilities discussing labor, major equipment, facilities, resources provided by each member, negotiations related to each member’s requirements were to be incorporated into an addendum to the Operating Agreement, but that addendum had not been completed at the time of proposal submission. Finally, the Teaming Agreements named GEBC’s CEO as the contractual manager. Gray Venture asserted that reading the agreements in conjunction with one another demonstrated that GEBC’s CEO was responsible for negotiation and “setting the requirements for the provision of labor and other resources from the members.” In response, the SBA asserted that Gray Venture’s appeal pointed to a “few sentences from the ‘vast provisions’” of the Operating Agreement. Those sentences included general responsibilities, but none were specific to the solicitation in question, leading OHA to determine that general grants of authority and a “mere mention of the upcoming solicitation is not enough to meet the specificity requirements.”
OHA agreed with the SBA and DD/GC on two issues. First, OHA held that Gray Venture’s failure to specifically name a Responsible Manager in any of the agreements meant Gray Venture’s JVA was not in compliance with 13 C.F.R. § 125.18(b)(2)(ii). Additionally, OHA noted that the Operating Agreement and the Teaming Agreements were not specific to the RFP because they were executed prior to the RFP’s release. As such, Gray Venture’s lack of specificity with regard to the source of labor, negotiation, and contract performance was “fatal,” and did not comply with the regulatory requirements of 13 C.F.R. § 125.18(b)(2).
There are a couple lessons to be learned from Gray Venture’s situation. First, follow the requirements set forth for joint venture agreements because SBA requires strict adherence to the regulations. Second, always include a project-specific addendum if your joint venture agreement does not include the specificity required by SBA rules. And third, do not leave room for interpretation by assuming reviewers at SBA or any other agencies will simply infer necessary information.
Questions about this post? Email us.
Need legal assistance? Give us a call at 785-200-8919.
Looking for the latest government contracting legal news? Sign up for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook.