Joint ventures operating under the SBA’s All Small Mentor-Protege Program may need to adjust their joint venture agreements because of a little-noticed change to SBA’s joint venture rules.
In its recent final rule, effective November 16, SBA amended two of the mandatory requirements for mentor-protege joint ventures pursuing small business set-aside contracts. SBA did not make corresponding changes to the joint venture rules for SBA’s four major socioeconomic programs–meaning that a joint venture agreement that complies with the small business set-aside rules may not be valid if the joint venture pursues 8(a), SDVOSB/VOSB, HUBZone or WOSB/EDWOSB contracts (and vice versa).
But for HUBZone Program participants, the proposed rule and DoD deviation contain a glaring problem: a requirement that the HUBZone member of a joint venture take sole responsibility for meeting the applicable limitations on subcontracting. This requirement, which doesn’t apply to joint venturers in other socioeconomic programs, is unfair to HUBZones, and at odds with SBA regulations.
Earlier this week, the FAR Council issued a proposed rule to conform the FAR to the SBA’s regulation governing limitations on subcontracting. But the DoD isn’t waiting around while the FAR Council finishes the process.
The DoD has issued a comprehensive FAR deviation, effective immediately. The DoD’s FAR deviation will, effectively, temporarily conform the DoD’s use of the FAR to the SBA’s regulation while the FAR Council works on a final rule.
The HUBZone program has received its fair share of coverage on our blog, from recommended changes in the 35% employee-location requirement to SBA regulatory updates to the program. Well, the HUBZone program is once again undergoing some changes thanks to the 2018 National Defense Authorization Act–but note that some of these changes are not effective until January 1, 2020.
These changes include a requirement for an improved online mapping tool, a mandate that HUBZone verifications be processed in 60 days, and more. Here’s a look at some of the most significant HUBZone changes in the 2018 NDAA.
I am excited to announce the publication of Government Contracts Joint Ventures, the first in a new series of new government contracting guides we’re calling “Koprince Law LLC GovCon Handbooks.” Packed with easy-to-understand examples and written in plain English, Government Contracts Joint Ventures should help you maximize your understanding of this important option for pursuing federal contracts.
What does the Handbook contain? I’m glad you asked.
The SBA has corrected a flaw in the profit-splitting provisions of its new joint venture regulations.
Under the corrected regulations, which became effective on December 27, all of the SBA’s joint venture regulations–those for small businesses, SDVOSBs, HUBZones, 8(a)s, and WOSBs–will require that each joint venturer receive profits commensurate with the work it performs. The SBA’s revisions clear up an inconsistency between the 8(a) joint venture regulations and the regulations for the SBA’s other set-aside programs, and eliminates a potential disincentive for joint venturers to avail themselves of the protections of a formal legal entity such as a limited liability company.
The HUBZone program will see significant changes to its rules as a result of major SBA changes set to take effect in late August.
These changes apply generally to two aspects of the HUBZone program: that relating to the SBA’s processing of HUBZone applications, and a significant expansion of the HUBZone joint venture requirements.