Forming a joint venture is an important tool to help small businesses increase their competitiveness under federal acquisitions. But for all the benefits, some headaches remain.
One common issue arises when a solicitation requires the prime contractor to hold a facility security clearance. Because a joint venture is an unpopulated legal entity formed for the purpose of bidding on a specific opportunity, the joint venture itself (as the prime contractor) often lacks the needed clearance—even though the joint venture’s members might both hold it. In these situations, a form-over-substance evaluation may leave the joint venture ineligible for award.
Fortunately, the SBA has recognized the silliness of such an exclusion and has invited feedback on a potential solution.
The issue of whether a joint venture itself must hold the requisite facility clearance is raised fairly frequently. In fact, my colleague Rob Kampen discussed the ProTech Services decision just a couple of months ago. In that bid protest, ProTech (a joint venture) challenged its exclusion from competition for lacking a facility clearance, even though each of its members held the required clearance. Finding that ProTech failed to meet an express solicitation requirement, the Department of Homeland Security excluded it from competition and, ultimately, GAO affirmed this decision.
In my opinion, this is an absurd result. The SBA’s regulations make clear that joint ventures are separate legal entities under which the joint venture members “combine their efforts, property, money, skill, or knowledge” to jointly bid on and perform contracts. In other words, a joint venture is nothing more than the sum of its parts—it relies totally on its members for all of the resources it needs to perform a contract. And because a joint venture is a limited purpose, limited duration entity, the reality is that some (if not most) have never needed a clearance before. Not allowing joint venture members to rely on the members’ clearances—particularly if all members have the clearance, as in ProTech Services—defies logic.
Thankfully, the SBA intends to step in and fix this issue.
In its recently-released proposed rule, the SBA says it is not appropriate for an agency to exclude a joint venture from competition based on the lack of a clearance if both venturers individually hold the clearance. As a solution, the SBA is considering amending the regulations to require either the joint venture itself or the lead venturer to hold the required clearance.
The SBA explains:
If such a provision were finalized, a joint venture lacking its own separate facility security clearance could still be awarded a contract requiring such a clearance provided the lead small business partner to the joint venture had the required facility security clearance and committed to keep at its cleared facility all records relating to the contract awarded to the joint venture. Additionally, if it is established that the security portion of the contract requiring a facility security clearance is ancillary to the principal purpose of the procurement, SBA believes that the non-lead partner to the joint venture (which may include a large business mentor) could possess such a clearance.
To me, this is a great solution. It recognizes that a joint venture might not have the requisite clearance but its lead member might. In that case, it would be ridiculous to exclude the joint venture from competition—especially because joint ventures are, at their heart, aimed at allowing lead venturers the ability to enhance their competitiveness.
Though this solution is included in the proposed rule, it is not styled as a revision to the SBA’s regulations. Instead, the SBA has sought feedback on this suggestion and invited further recommendations on how to fix this issue. Comments on the proposed rule are due January 17, 2020.
If implemented, this solution would fix the issue underlying ProTech Services and bring clarity to joint ventures and procuring agencies alike. But what’s a joint venture to do in the interim? If faced with a restrictive solicitation requirement relating to facility clearances, offerors should be prepared to discuss the issue with the contracting officer and, if necessary, consider filing a pre-award protest challenging the solicitation’s terms.
If you have any questions about the SBA’s proposed rule, please give me a call.