Joint Venture Agreements on Set-Aside Projects: Be Detailed, Be Specific
By: Samarth Barot
Published Date: July 29, 2019
A joint venture is an arrangement through which two entities are allowed to bid on a project together, allowing each entity to share resources and reap mutual benefits. However, when forming a joint venture to bid on a federal project that is set-aside for small businesses, it is important to be very detailed and specific when drafting the joint venture agreement as even a relatively minor deviation or omission from the Small Business Administration’s (“SBA”) joint venture requirements can be enough to render a joint venture ineligible.
In a recent case, the SBA’s Office of Hearings and Appeals (OHA) sustained a protest challenging a joint venture’s status as a Service-Disabled Veteran-Owned Small Business (“SDVOSB”) because the joint venture agreement in that case was not specific enough to establish the joint venture’s eligibility as an SDVOSB. Veterans Contracting, Inc., SBA No. CVE-107 (Apr. 10, 2019).
In that case, CR Nationwide, LLC (“CRN”) and Trumble Construction, Inc. (“TCI”) formed a joint venture called CR Nationwide, LLC – Trumble Construction, Inc. JV1 (“CRNTC”). CRNTC was awarded a contract by the Department of Veterans Affairs (“VA”) for a construction project at the Louis Stokes Cleveland VA Medical Center in Cleveland, Ohio. Veterans Contracting, Inc., an unsuccessful bidder, protested the SDVOSB status of CRNTC.
In order to resolve the protest, the OHA reviewed CRNTC’s joint venture agreement. The SDVOSB joint venture regulations, as laid out in 13 C.F.R. § 125.18(b)(2), state, among other things, that the joint venture agreement must: (1) set forth the purpose of the joint venture; (2) designate an SDVOSB as the managing venturer of the joint venture; (3) state that the majority owner of the joint venture is an SDVOSB; (4) itemize all major equipment, facilities, and other resources to be furnished by each party to the joint venture, with a detailed cost or value of each, where practical; (5) specify the responsibilities of the parties with regard to the negotiation of the contract, source of labor, and contract performance; and (6) require that the final original records be retained by the SDVOSB managing venturer upon completion of the contract performed by the joint venture.
OHA found that CRNTC’s Joint Venture Agreement did not contain most of the information required by 13 C.F.R. § 125.18(b)(2). OHA noted that the joint venture agreement had been created months before the IFB was even issued and, as a result, the joint venture agreement did not itemize all major equipment, facilities, and other resources or specify the responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract performance. Although the joint venture agreement stated that CRNTC would separately furnish this information for each SDVO procurement by submitting a jointly-executed statement to the procuring activity, no such statement was actually prepared.
During the protest, CRNTC tried to cure the deficiencies by providing OHA with an unsigned and undated document showing an apparent breakdown of work for the solicitation at issue. OHA, however, held that it could not consider the information because an SDVOSB joint venture needs to be verified at the time of bid and award. Therefore, OHA could not credit CRNTC’s attempt to cure the joint venture agreement’s deficiencies in response to the eligibility protest. As a result, OHA sustained the protest and found CRNTC to be ineligible for the procurement.
Joint ventures continue to be an area of great interest for entities bidding on government contracts. However, when considering a joint venture, it is important to keep in mind that, if the procurement is a set-aside, the joint venture agreement must comply with SBA’s joint venture regulations. Failure to follow those regulations can result in the joint venture being excluded from the competition.