Recent Decisions Impacting Joint Venture Agreements
by Heather Mims, Senior Associate
Joint ventures continue to be a popular mechanism for offerors to compete for large procurements. However, failing to strictly follow the SBA regulations governing the potential uses of joint ventures, contents of joint venture agreements, and affiliation rules, can sometimes doom an otherwise successful offeror. Two recent decisions – one from the SBA and one from the GAO – are discussed below. While both decisions happen to concern 8(a) joint ventures, the lessons from these cases can apply to any joint venture.
Size Appeal of: Syscom, Inc., Appellant, Re: SNI United, LLC, SBA No. SIZ-6195 (Mar. 7, 2023)
This matter came to the SBA’s Office of Hearing and Appeals (OHA) on an appeal from a size determination concerning an apparent awardee, a joint venture between an 8(a) participant and a small business, after the SBA’s Area Office concluded that that joint venture was small for the instant procurement. OHA reversed that decision because the joint venture did not comply with the state laws of its state of organization, in this case Michigan, because its bylaws allowed the non-8(a) member to exert negative control. In order to compliant with SBA’s size standards, the SBA requires that a joint venture designate an 8(a) participate as the managing member, with day to day control over the joint venture. In this case, while the joint venture agreement designated the 8(a) member as the managing venturer, Michigan law requires that unless a managing member is identified in the company’s operating agreement, all members are deemed to be managers of the entity. As such, OHA noted that Michigan law must take precedence and because the entity’s organizational documents did not name a managing member, the joint venture was not eligible for award as it was not managed by an 8(a) participant.
The takeaway? Make sure you are compliant with state laws and SBA regulations, as the SBA may require compliance with both!
SBA Decision: Here
AttainX, Inc., B-421216; B-421216.2 (Jan. 23, 2023)
This matter came to the GAO on a protest of the award of a task order to an 8(a) small business joint venture comprised of an 8(a) small business as the managing member and a small business as the minority member. The protest, in part, argued that the agency did not properly evaluate the joint venture’s “similar experience” because it failed to consider that the examples submitted were solely for work managed by the minority member, rather than either the joint venture itself or the managing member. The RFQ did not contain a requirement for each member of a joint venture company to submit individual experience examples. However, in sustaining the protest, the GAO noted that the SBA requires agencies to consider the experience of the individual members of the joint venture if the joint venture itself does not have the necessary past performance. Although the RFQ did not contain a similar requirement, the GAO found that the agency did not reasonably evaluate the joint venture’s quotation as it was not in accordance with SBA regulations.
The takeaway? Even though an RFQ may be silent on an issue, if you are submitting a proposal as a joint venture under the SBA’s regulations, you will want to make sure your proposal is compliant with both the solicitation and SBA’s regulations.