Back in 2020, we discussed an SBA Office of Hearings and Appeals (OHA) decision stating that the managing venturer must control every aspect of the joint venture. This position, which we questioned in that article, has changed since that time, and we explored the changes to the regulatory language in question not long thereafter. But this regulatory language was still vague. Since that time, there has been much case law development. The Court of Federal Claims (COFC) held in 2022, “[a] minority owner’s control over “extraordinary” actions, such as actions intended to protect the investment of minority shareholders, will not result in a finding of negative control” and applied this idea to a populated joint venture. Swift & Staley, Inc. v. United States, No. 21-1279, 2022 WL 1231428 (Fed. Cl. Mar. 31, 2022), aff’d, No. 2022-1601, 2022 WL 17576348 (Fed. Cir. Dec. 12, 2022). It now appears, fairly established at this point, that non-managing venturers can have a say in what can best be described as “extraordinary actions.” These are the sorts of decisions that can completely change the trajectory of the joint venture. But contractors must still be very careful in giving the non-managing venturer a say in the joint venture’s decisions. As one firm learned the hard way in a recent COFC case, a joint venture with too many actions controllable by the non-managing venturer may end up ineligible for set-asides. Here, we explore this decision.Continue reading
A joint venture agreement must closely follow Small Business Administration rules to be compliant for a small business set-aside. And SBA interprets those rules strictly. If they are not followed, a joint venture that was up for award, can see that award go up in smoke. Here, SBA said that a joint venture involving a Service-Disabled Veteran-Owned Small Business (SDVOSB) was not compliant because it was both (a) not specific enough and (b) too detailed in providing for oversight of actions of the JV partners.Continue reading
The organizational documents for a business seeking certification under a SBA socio-economic program can play an important part in a company demonstrating its eligibility under the SBA’s requirement for control by the company’s owners, such as a service-disabled veteran or disadvantaged owner. Unlike some of the SBA’s requirements for eligibility, the manner in which a program applicant or participant might run afoul of this requirement are not always obvious. Typical provisions in the organizational documents that, under “non-SBA” circumstances may seem innocuous, may unintentionally undermine the disadvantaged owner’s requirement of showing of unconditional ownership and control.
In a recent OHA decision regarding Service-Disabled Veteran-Owned Small Business (SDVOSB) eligibility, (CVE Protest of: Randy Kinder Excavating, Inc. d/b/a RKE Contractors, Protester Re: E&L Construction Group, LLC), an unsuccessful bidder filed a protest of a set-aside contract award, alleging that the company was not unconditionally controlled by the disadvantaged owner. After considering a variety of arguments, OHA issued a decision based on a handful of provisions in the respondent’s operating agreement.Continue reading
An owner of a mere 4.16% minority interest nonetheless “controlled” a company within the meaning of the SBA’s affiliation rules because the company’s ownership was split among approximately 20 companies, each with an equal ownership interest.
In a recent size appeal decision, the SBA Office of Hearings and Appeals confirmed that, where a company has no 50% or greater owner, a minority owner may be presumed to control the company–even where that ownership is as little as 4.16%.
Under the SBA’s affiliation rules, a minority owner may “control” a company where the company’s governing documents impose supermajority voting requirements that require the minority owner’s consent for the company to make ordinary business decisions.
In a recent size appeal decision, the SBA Office of Hearings and Appeals confirmed that supermajority voting requirements may establish control (and affiliation), even where the minority owner does not actually exercise its control.
In a recent SBA Office of Hearings and Appeals size decision, a service-disabled veteran-owned small business’s operating agreement caused affiliation under the SBA’s affiliation rules, despite the fact that the majority owner was also labeled as the 51% manager.
SBA OHA’s decision in Size Appeal of Washington Patriot Construction, LLC, SBA No. SIZ-5447 (2013) shows the importance of carefully drafting a small business’s corporate operating agreements or bylaws to prevent affiliation with other companies controlled by the small business’s minority owners.
A director does not “control” a company under the SBA affiliation rules when that director can be removed at any time by the majority shareholder, according to a recent size appeal decision of the SBA Office of Hearings and Appeals.
In Size Appeal of Environmental Quality Management, Inc., SBA No. SIZ-5429 (2012), SBA OHA arrived at the commonsense conclusion that when a majority shareholder has unfettered discretion to fire a company’s directors, the majority shareholder–not the directors–control the company for purposes of the SBA affiliation rules.