The Small Business Administration’s (SBA) joint venture (JV) regulations allow large businesses to perform set-aside contracts with their small business protégés and allow small businesses to pool their resources and experience to compete for set-aside work they would not independently qualify for. However, these JVs must strictly comply with SBA’s JV regulations. Among other things, this means each JV must have a JV agreement (JVA) that checks a litany of regulatory boxes. A recent SBA Office of Hearings and Appeals (OHA) case underscores just how carefully these agreements must be drafted and the costly risks to small government contractors, including ineligibility to receive an award.
Case Background
In the Size Appeal of Focus Revision Partners, SBA No. SIZ-6188 (Jan. 31, 2023), OHA concluded that NWI&T Atkins SB JV, LLC (NWI&T)—a JV between an SBA-approved mentor and its small business protégé—was ineligible for award of a small business indefinite delivery, indefinite quantity (IDIQ) contract because the JV’s JVA did not comply with SBA’s regulations. The facts relevant to OHA’s analysis were that on:
- March 15, 2021, the procuring agency released the subject solicitation;
- July 13, 2021, NWI&T submitted its proposal, including a copy of its JVA with its business proposal;
- September 10, 2021, NWI&T submitted a final revised proposal at the agency’s request;
- September 15, 2021, the agency issued NWI&T a pre-award notice;
- September 17, 2021, Appellant filed the subject size protest;
- September 23, 2021, the agency requested a revised technical proposal from NWI&T to capture certain changes not addressed in NWI&T’s final revised proposal; and
- September 24, 2021, NWI&T submitted to the agency, for the first time, an addendum to its JVA (JVA Addendum) as part of an unsolicited revision to its business proposal.
In its appeal, the Appellant argued that NWI&T’s JVA was deficient and, in finding NWI&T eligible for award, SBA improperly considered the JVA Addendum, which was submitted weeks after final proposal revisions. In comments submitted in response to the appeal, SBA agreed that without the JVA Addendum, NWI&T’s JVA was deficient. Notably, however, SBA argued that consideration of the JVA Addendum was proper and rendered NWI&T eligible for award because, according to SBA, when an agency requests updates to a proposal—regardless of whether the request asks for an updated JVA—it is appropriate for the agency to consider JVA updates and changes until the date of the final proposal revision, even if the final proposal revision is made after notification of award. OHA disagreed.
OHA’s Decision
First, OHA held that without the JVA Addendum, NWI&T’s JVA did not contain sufficient detail to satisfy SBA’s regulations. In particular, OHA explained that the JVA:
- was drafted several years before the subject procurement was issued;
- made references to a “Contract”, but the contract in question was not the instant procurement; and
- contained no specific information pertaining to the instant procurement and did not, for example, designate a named employee of the small business managing venturer to serve as the Responsible Manager or itemize all major equipment, facilities, and other resources to be furnished by each party to the JV, with a detailed schedule of cost or value of each, where practical.
Second, OHA held that SBA could not consider the JVA Addendum when analyzing NWI&T’s compliance with SBA’s JV regulations because:
- the JVA Addendum was not signed by the joint venturers, and thus was not a valid “addendum” or “amendment” under the terms of the JVA;
- there was no indication that the venturers jointly approved the JVA Addendum’s terms; and
- the JVA Addendum was created and submitted to the agency after the date of final proposal revisions, the relevant date for examining JV compliance.
OHA rejected NWI&T’s argument that September 24, 2021 (the date it submitted the JVA Addendum), should be considered the date of final proposal revisions and the relevant date for analyzing NWI&T’s JVA compliance. Instead, OHA concluded that September 10, 2021, was the relevant date because the agency confirmed that it requested final proposal revisions on September 7th and NWI&T responded to that request on September 10th. Moreover, because a pre-award notification was made on September 15, 2021, which pursuant to the Federal Acquisition Regulation occurs “upon completion of negotiations,” OHA concluded that final proposal revisions must already have been received by that date. OHA explained that to consider changes to a proposal after negotiations concluded is contrary to SBA regulations.
Third, OHA held that even if the JVA Addendum was signed and in existence as of the date of final proposal revisions, NWI&T’s JVA would still be deficient because the JVA, as supplemented by the JVA Addendum, did not contain sufficient detail to meet the JV regulation requirements. For example, OHA explained that the JVA Addendum (1) affirms that each venturer will provide the needed equipment and facilities to perform the work that it conducts for NWI&T, but fails to itemize all major equipment, facilities, and other resources to be furnished by each party to the JV, with a detailed schedule of cost or value of each and (2) does not explain how the joint venturers will source labor or will perform the contract; rather, the JVA Addendum merely indicates that the managing venturer’s role “must be more than administrative or ministerial” and that a managing venturer employee will “ensure” the managing venturer performs “at least 40%” of the total work. Moreover, OHA highlighted the fact that the JVA Addendum does not delineate the types or percentage of work that each joint venturer will perform, nor identify labor categories each joint venturer will contribute to performing the contract.
OHA recognized that SBA regulations are more lenient as to the level of detail expected within a JVA when, as in that case, the underlying procurement is an IDIQ. However, OHA found the JVA deficient because even in such cases, “a general description” of the anticipated major equipment, facilities, and other resources to be furnished by each party, as well as “a general description” of the anticipated responsibilities of the parties, is still necessary—and that description was missing from the JVA.
While the JVA in Focus Revision Partners undoubtedly failed to check a number of boxes, OHA’s analysis in that case highlights the fact that (1) timing of execution and content of a JVA is of critical importance when analyzing regulatory compliance and (2) since there is no guarantee an agency will engage in discussions or request final proposal revisions, it is important that small business JVs ensure their JVAs pass muster before submitting proposals. If they do not, they run the risk of being found ineligible for award—a costly mistake that, as the above case demonstrates, cannot be cured by submitting a JVA addendum after the agency requested and received final proposals.
Takeaway
The federal procurement cycle can often leave companies scrambling to organize their JVs at the 11th hour, as they negotiate the various roles and responsibilities they will have with respect to a specific procurement. However, it is crucial these entities negotiate a compliant JVA. This one document, and the amendments thereto, can be the deciding factor in whether a JV is eligible for award.
If you need assistance drafting a joint venture agreement or would like to discuss the benefits associated with small business joint venturing, please contact the author of this blog, Sam Finnerty, or another member of PilieroMazza’s Government Contracts Group.
