If you’re setting up your first joint venture under the SBA’s rules, you may be tempted to download the SBA’s template joint venture agreement and use it as-is.
But, as of the date of this post, the SBA’s template joint venture agreement is outdated–and it also has some other quirks and potential problems you should know about. If you’re planning to use the SBA’s joint venture template, read this first.
If you are part of a joint venture between a small protege and its large mentor under the SBA’s Mentor-Protege Program, heads up: the SBA recently amended its list of mandatory requirements for joint venture agreements to cover what happens to funds left over in the joint venture bank account at the end of a project.
Like the revised recordkeeping rules I discussed in an earlier post, the new required provision only applies to mentor-protege joint ventures pursuing small business set-aside contracts–not to JVs seeking 8(a), SDVOSB/VOSB, WOSB/EDWOSB or HUBZone work. Confusingly (and again, like the recordkeeping rules), SBA’s decision to change only the small business set-aside regulation, 13 C.F.R 125.8, means that the same joint venture agreement may not be valid for both small business set-aside contracts and socioeconomic contracts.
But once the SBA signs off on a mentor-protégé agreement, that’s that. As the SBA Office of Hearings and Appeals recently confirmed, competitors cannot use the size protest process to challenge whether an SBA mentor-protégé agreement should have been approved in the first place.
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).
The SBA’s recent final rule on Mentor-Protégé Program consolidation included a number of important updates and clarifications. Among these was an explanation of the rules involving a mentor owning part of a protégé while also being part of a joint venture with the same protégé. It’s something I’ve always wanted SBA to confirm, so I’m glad they did.
Joint ventures operating under the SBA’s regulations are subject to two work share restrictions: the limitations on subcontracting, which governs work share between the joint venture and its subcontractors) and the so-called “40 percent rule,” which governs work share between the joint venture partners.
It can be easy to get confused about how the rules work together. Fortunately, in a new rule published on October 16, SBA has provided some much-needed clarity.