A recent decision issued by the SBA Office of Hearings and Appeals (OHA) emphasizes the importance of entering into joint venture agreements that are properly structured.

In Veterans Contracting, Inc., SBA No. CVE-107 (April 10, 2019), OHA found the agreement between the parties, that was intended to establish a Service-Disabled Veteran-Owned Small Business (SDVOSB) joint venture and had already been approved by the Veterans Administration’s Center for Verification and Evaluation (CVE), did not fully comply with the applicable regulatory requirements (13 C.F.R. § 125.18). As a result, OHA sustained the protest and found the joint venture to be ineligible for the award of the SDVOSB set-aside contract.

While SBA’s joint venture regulations require, among other things, that the JV agreement include details about “responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract performance” as well as “all major equipment, facilities, and other resources to be furnished by each party to the joint venture”, the joint venture agreement at issue in Veterans Contracting lacked those specific details. Instead, the joint venture agreement indicated that after “determining the scope of work” for each contract the parties would prepare and submit a “jointly executed statement” providing such details to the contracting authority. However, no such statement was provided at the time of the bid or the award of the protested contract.

In the midst of the protest at OHA, the joint venture submitted such a statement after the fact, but it was rejected by OHA as having no bearing on whether the JV was an eligible SDVOSB joint venture as of the time of the bid and the award of the contract, as required for purposes of CVE certification. In addition, without the necessary documentation of the details regarding each of the joint venture partner’s contributions and responsibilities with regard to the awarded contract, OHA concluded that there was no way to determine whether the joint venture would be in compliance with the regulatory requirement in 13 C.F.R. § 125.18(b)(3) that the SDVOSB partner perform at least forty percent (40%) of the work performed by the joint venture.

For those interested in pursuing joint ventures eligible for any type of set-aside government contract, the lesson here is a simple one. You need to make sure that your joint venture agreement is specifically tailored to the opportunities being pursued by the JV. Always identify the initial contract opportunity being pursued by the joint venture and include the additional details required by the regulations concerning work share etc. for that specific opportunity. The required details for subsequent bids or proposals can be addressed in separately executed addendums.

For more information about properly structuring joint ventures, please contact MWL Partner Peter Fish.