SBA Expands Small Business Joint Venture Eligibility

Small businesses will be able to joint venture with one another more often under a new SBA rule.

As part of a recent major rulemaking, the SBA will allow two or more small businesses to joint venture for any procurement without being affiliated with regard to the performance of that requirement.

Under the current regulation, two or more small businesses may be affiliated with one another if they joint venture for a particular procurement, depending on that procurement’s value.  In fact, the underlying rule provides that joint venture partners are affiliated for purposes of that procurement.  However, an exception states that the businesses can avoid affiliation if the procurement exceeds half of the size standard corresponding to the NAICS code assigned to the contract (for revenue-based size standards) or $10 million (for employee-based size standards).

That’s a mouthful, so here is a quick example.  Let’s say Company A is a $5 million dollar business, and Company B is a $6 million dollar business.  Companies A and B want to joint venture for a contract carrying a $7 million size standard.  Can they do so?  It depends on the value of the procurement.  If the value of the procurement exceeds $3.5 million (half of $7 million), then the joint venture would be eligible, because both companies are smaller than $7 million.  But if the value of the procurement is less than $3.5 million, Companies A and B cannot joint venture, because they are considered affiliates–and their aggregated revenues exceed $7 million.

Last year, the SBA proposed to do away with this complexity and simply allow small businesses to joint venture together, without regard to affiliation, so long as all joint venture partners qualify as small under the NAICS code.  Now, the SBA has finalized that rule.

The SBA writes that public comments on the proposal were “overwhelmingly positive,” and that the SBA believes that “the proposed change [will] encourage more small business joint venturing, in furtherance of the government-wide goals for small business participation in federal contracting.”  The SBA concludes:

This final rule clarifies that a joint venture of two or more business concerns may submit an offer as a small business for a Federal procurement, subcontract or sale so long as each concern is small under the size standard corresponding to the NAICS code assigned to the contract.

The final rule takes effect on June 30, 2016.  But the final rule may not be the only important change to the SBA’s joint venture rules this year.  As part of a separate proposed regulation, the SBA has suggested other major changes, such as doing away with the concept of a “populated” joint venture.   A final version of that rule has yet to be released, so stay tuned.