This is the second of a two-part blog series where we tackle small business joint ventures and the SBA Mentor-Protégé Program. In this blog, we will discuss small business joint ventures and how a government contractor can get involved in one.
How can a government contractor participate in a small business joint venture?
The general rule for forming a small business joint venture is both members of the joint venture must be small businesses. There is an exception to this: the SBA Mentor-Protégé program, which we discussed in a previous blog. In an approved SBA Mentor-Protégé joint venture, the joint venture will be able to bid any opportunity that the protégé itself qualifies. In other words, even if a mentor is not a small business, it can form a joint venture with a protégé and bid on work reserved for small businesses if the protégé fits the qualifications for the reserved contracts.
What are the requirements for small business joint ventures?
There are several requirements for small business joint ventures, and they can vary depending on the designation the joint venture would like to qualify. The full list of joint venture requirements for small businesses can be found in 13 CFR 125.8, but in general the regulations require:
- Explanation of the joint venture purpose.
- The small business must own at least 51% of the joint venture, serve as the managing partner, and designate one of its employees as the JV’s project manager.
- The joint venture’s profits are split proportionately based on the work performed by each partner (not based on the ownership percentages). However, profits can exceed the percentage proportional to workshare if profit split percentages are agreed to by the JV’s members in advance.
- A separate bank account for the joint venture for all JV deposits and payments.
- The JV agreement lists the facilities and resources provided by each partner to the JV when practical.
- The JV agreement specifies each member’s responsibilities for negotiating contracts, sourcing labor, and contract performance, including how the JV members will meet performance of work requirements.
- All parties to the JV must complete performance of a contract even if a member withdraws.
- The administrative records for the JV be kept by the small business managing partner.
- The small business partner must perform more work than just administrative functions and the work done by the small business protégé/managing member must be at least 40% of the work done by the partners.
Does the joint venture agreement need pre-approval?
Generally, a joint venture agreement does not need pre-approval for a joint venture to bid on a contract. There is an exception though for the SBA Mentor-Protégé program, in which case the agreement must be approved prior to submitting a bid for a small business contract or any small business set-aside contract (8(a) contract, SDVOSB, VOSB, etc.).
If a joint venture receives a small business set-aside contract (either full or partial), the prime/small business member must abide by the applicable subcontracting limitations based on the contract type (service contracts, supplies/products contracts, construction contracts, and special trade contracts).
What are the benefits of a joint venture for government contractors?
A joint venture can be an extremely valuable tool used by small government contractors to help secure a federal contract by allowing two or more companies to combine their experience and resources.
One of the biggest advantages a joint venture offers a small business is the evaluation of past performance. The regulations require not only the past performance of the JV to be evaluated, but also the evaluation of the past performance of each member of the JV. This means that a small business with minimal government contract experience can team up with an experienced government contractor to take advantage of its past performance for the purpose of submitting a bid for a contract. The small business partner can then gain valuable experience through the JV, which will help it develop its own past performance that can be evaluated for future contracts.
Other than experience and past performance, joint ventures combine members’ skills, resources, equipment, and facilities; if any member of the JV is lacking in any of these areas, the pooled resources of the JV can help offset any potential weakness.
Redstone GCI is Here to Help
Joint ventures can be useful for Government contractors, but they can be tricky to understand. Redstone GCI can assist clients in navigating joint venture agreements and understand the potential compliance risks associated with joint ventures. Redstone GCI works with contractors throughout the U.S. and internationally with understanding the Government’s expectations in applying SBA and FAR requirements.