Picking Your Team: Joint Ventures Versus Prime/Subcontractor Teams (Part Two, Past Performance)

Federal contractors often ask: “Is it better to team up for government work with a prime-sub arrangement or with a joint venture?” Well, (spoiler alert) the answer is: it depends. But I won’t leave you with just that. This three-part series will provide insight on some of the major differences between these two types of “teams” that offerors should consider when making the decision between a joint venture or prime/subcontractor team in competing for and performing federal contracts. While this series will not provide a comprehensive list of all the differences between these two types of teams, it will cover some of the big ones that seem to come up more frequently in this decision-making process. The focus of the first article in this three-part series was work share considerations. This second article will focus on evaluations of a team’s past performance.

1. Past Performance in Competing for the Current Project:

As an initial matter, if you are looking through the FAR for a rule requiring the procuring agency to consider the past performance of joint venture members and/or prime-sub team members, you are not going to find anything concrete. We will discuss a bit of guidance from the FAR in a minute, but the only real requirements imposed on agencies to this extent are actually found in SBA’s small business regulations. For more details on this topic, check out our prior blog, here.

Joint Venturers

Under SBA’s rules, the procuring agency is required to consider the past performance of each party to a joint venture, in addition to any work the joint venture itself has performed. Specifically, SBA’s regulation for small business set-asides, found at 13 C.F.R. 125.8(e) (with a corresponding rule found in the regulations for each of the four major socioeconomic programs), says:

When evaluating the capabilities, past performance, experience, business systems and certifications of an entity submitting an offer for a contract set aside or reserved for small business as a joint venture established pursuant to this section, a procuring activity must consider work done and qualifications held individually by each partner to the joint venture as well as any work done by the joint venture itself previously. A procuring activity may not require the protégé firm to individually meet the same evaluation or responsibility criteria as that required of other offerors generally. The partners to the joint venture in the aggregate must demonstrate the past performance, experience, business systems and certifications necessary to perform the contract.

Now, the rule here may seem pretty straightforward. But it is important to note that, in our experience, there has been some variation in exactly how each agency considers each venturers’ qualifications and experience, qualitatively, on each contract. Sure, this rule establishes that an agency cannot require a protégé venturer to individually meet the same criteria as other offerors. But it does not specify how the agency must count the work that each venturer (not in a mentor-protégé relationship) brings to the table. For instance, we have seen agencies give more evaluation credit to joint ventures where both venturers bring relevant experience and capabilities to the table.

And in fact, with this regulation being newer and not part of the FAR, some agencies are not aware of it at all. So, if you run across an agency or solicitation stating that each venturers’ capabilities and experience will not be considered at all, it may be beneficial to address this rule with the agency directly or through a pre-award protest of the solicitation’s terms.

Prime-Sub Teams

The first place you will want to look for information on how a procuring agency plans to evaluate the past performance of subcontractors, generally, is the solicitation. We will discuss some of the rules and guidance from SBA’s regulations and the FAR here. But the solicitation you are pursuing will ultimately govern the evaluation criteria on this front. Now, if the solicitation doesn’t speak to the consideration of subcontractors’ past performance, the guidance and rules below may come into play (and may be leveraged, in some cases, in a protest of a past performance evaluation). Alternatively, where the solicitation appears to be overly restrictive of competition on this front (i.e. stating that the agency will not consider any subcontractor capabilities or past performance), the guidance and rules below may provide a basis for pushing back on those terms in some circumstances (again, either directly with the agency or through a pre-award protest).

We will start with the FAR–although, as we already hinted, there is not much there to stand on. For negotiated procurements, FAR 15.305 says that an agency’s “evaluation should take into account past performance information regarding . . . subcontractors that will perform major or critical aspects of the requirement when such information is relevant to the instant acquisition.” For starters, this provision uses the word “should,” which GAO has established is not an actual requirement and does not equate to “must.” This merely permits the agency to consider a subcontractor’s past performance where that subcontractor will perform “major or critical aspects” of the contract at issue and where such past performance information is determined “relevant to the instant acquisition”–and notably, this also allows the agency to establish its own criteria for determining whether these factors are met–which could be a pretty high bar (you can read about one example here).

Now, in some very specific situations, SBA’s small business regulations may come into play–and if so, they do provide a concrete requirement. SBA’s rule, found at 13 C.F.R. 125.2 says:

When an offer of a small business prime contractor includes a proposed team of small business subcontractors and specifically identifies the first-tier subcontractor(s) in the proposal, the head of the agency must consider the capabilities, past performance, and experience of each first tier subcontractor that is part of the team as the capabilities, past performance, and experience of the small business prime contractor if the capabilities, past performance, and experience of the small business prime does not independently demonstrate capabilities and past performance necessary for award.

The requirement here only applies to small business prime contractors who don’t have the past performance “necessary for award,” and who are proposing small business first-tier subcontractors (specifically identified in the proposal). Only then, must the agency consider the capabilities and past performance of those specifically identified small business first-tier subcontractors “as the experience of the small business prime contractor” itself. But at least this one is a concrete requirement (rather than a recommendation)–where it applies. And keep in mind that some agencies may be unaware of this rule too.

Now that we have (somewhat) answered the question of when and how an agency must consider the past performance of each team member (at least, to the best of our ability under the regulations), we will move on to the next, inevitable question: How will work the team does together count for each team member going forward?

2. Past Performance in Competing for Future Projects:

Spoiler alert, the answers to this one are also not abundantly clear–and are also wholly absent from the FAR. But this time, the guidance (which will someday be implemented as regulations) comes directly from Congress on both counts.

Joint Ventures

There is currently nothing in SBA’s regulations or the FAR that requires a procuring agency to consider the past performance of a firm that was obtained as a joint venture member. And GAO has established that agencies have the discretion to decide whether to do so or not, which can usually be determined by looking at your solicitation or asking the agency directly. But the good news is, at some point, agencies will be required to consider this information (but again, only in some circumstances). Via the 2021 National Defense Authorization Act (NDAA), Congress has amended the underlying statute governing this topic, which now says:

With respect to evaluating an offer for a prime contract made by a small business concern that previously participated in a joint venture with another business concern (whether or not such other business concern was a small business concern), the Administrator shall establish regulations—

(A) allowing the small business concern to elect to use the past performance of the joint venture if the small business concern has no relevant past performance of its own;

(B) requiring the small business concern, when making an election under subparagraph (A)— (i) to identify to the contracting officer the joint venture of which the small business concern was a member; and (ii) to inform the contracting officer what duties and responsibilities the small business concern carried out as part of the joint venture; and

(C) requiring a contracting officer, if the small business concern makes an election under subparagraph (A), to consider the past performance of the joint venture when evaluating the past performance of the small business concern, giving due consideration to the information provided under subparagraph (B)(ii).

Essentially, Congress directed the SBA Administrator to write regulations implementing this rule–although it is not yet an official rule. Given the direction from Congress, once SBA implements this rule, it will require agencies to consider any past performance gained as a joint venture member if the individual small businesses offeror does not have a record of relevant past performance of its own (though we will have to wait and see what SBA’s actual rule says for the specifics). Once implemented, this will certainly benefit many newer companies that began their federal contracting journey as a joint venture team.

Prime-Sub Teams

Similarly, there is currently nothing in SBA’s regulations or the FAR that directly requires a procuring agency to consider an offeror’s past performance that was obtained as a subcontractor. But in another section of the 2021 NDAA, Congress also included a section called, “Past Performance Ratings of First-Tier Small Business Subcontractors.” This section establishes that, for a first-tier subcontractor’s work performed under a “covered contract,” (one where the prime is required to develop a subcontracting plan), the subcontractor is entitled to request a past performance review from the prime–and the agency must consider it. Now, this too has its limitations, as the language Congress used in this 2021 NDAA provision only applies the requirement to large prime contractors with small subcontractors.

Under the 2021 NDAA, where the prime on a prior contract is a large business, the small business subcontractor will be able to submit that past performance to the agency, which must consider it. The 2021 NDAA says the following:

If a small business concern elects to use such record of past performance, a contracting officer shall consider such record of past performance when evaluating an offer for a prime contract made by such small business concern.

This, like the other 2021 NDAA provision we discussed, is not yet an official rule. When it is implemented by SBA, it too will provide a benefit to many newer companies that started out in the federal contracting world as subcontractors but are now looking to make their way to prime. But this rule, like many we have discussed today, will be limited to specific circumstances.

* * *

To recap, there may not be a 100% certain answer as to whether you will get better treatment of each team members’ past performance when bidding as a joint venture or prime-sub team in every situation. But we do know a few things from SBA’s regulations and the FAR:

  • An agency must consider each joint venturers’ past performance to some extent–both for joint ventures made up only of small businesses and for mentor-protégé joint ventures that include a large business venturer;
  • An agency may consider the past performance information of any subcontractor (large or small). where the agency finds that it is relevant to the current contract and the subcontractor will perform “major or critical aspects” of the contract; and
  • An agency must consider a small business first-tier subcontractor’s past performance information if they are specifically identified in the proposal of a small business prime offeror that does not, on its own, have the past performance history “necessary for award.”

Unfortunately, there is even less certainty (at this time) in the answer as to which is more valuable moving forward: experience gained as a joint venture member or as a subcontractor. But the 2021 NDAA does tell us that, at some point, we can expect some new SBA rules requiring:

  • Agencies to consider any past performance gained as a joint venture member if the individual small businesses offeror does not have a record of relevant past performance of its own; and
  • Agencies to consider any past performance gained as a small business subcontractor on a prior contract where the prime was a large business.

Thus, even with this limited list of things we do know, there are some helpful takeaways. First, there are some requirements an agency must follow in certain teaming situations–and, if these situations apply to you, it may provide some crucial considerations in “choosing your team.” Second, it is important to read your solicitation, first and foremost, to determine what the agency’s specific evaluation plan is for you and your team. But even then, the items discussed herein may still provide you with a basis to push back on unfair terms in the solicitation or unfair evaluation findings–even if it is simply a policy argument about Congressional intent and the direction these policies are moving. And the final takeaway here is to keep an eye on these questions and topics moving forward, watching out for the new rules that are sure to come, as well as future SmallGovCon blogs on the subject that may provide relevant updates and more helpful information.

If you have specific questions about past performance in regard to either type of team or under certain types of government contracts, or if you need help with a government contracting legal issue? Email us or give us a call at 785-200-8919.

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