When drafting small business joint venture agreements, the devil is in the details. A template JV agreement—like the one from the Small Business Administration—may not guarantee a JV’s eligibility for a contract award. The details of the agreement, like which contracts the JV will pursue and what each side will contribute, are critical.
Even if approved, a generic JV agreement may not survive a protest.
In CVE Protest of Veterans Contracting, Inc., the SBA’s Office of Hearings and Appeals sustained a protest challenging a JV’s status as a service-disabled veteran-owned small business because its JV agreement was too generic to establish the JV’s eligibility as an SDVOSB. The JV in that case (CRNTC) was a joint venture between CR Nationwide, LLC (the SDVOSB partner) and Trumble Construction, Inc.
The Department of Veterans Affairs approved CRNTC’s SDVOSB status for a period of three years in June 2018. The approval was based on the JV agreement between CR Nationwide and Trumble, which made CR Nationwide the majority owner. But the JV agreement did not identify any particular solicitation that CRNTC would pursue or otherwise outline what each partner would contribute to the JV. The agreement specified that the parties would identify the contract and scope of work at a later date and would set those out in a jointly executed statement that would be submitted to the relevant contracting authority.
Six months later, CRNTC submitted a bid in response to an SDVOSB set-aside IFB for a construction project at the VA medical center in Cleveland, Ohio. The VA selected CRNTC as the apparent awardee in March 2019, and an unsuccessful bidder, Veterans Contracting, Inc., protested the award and challenged CRNTC’s status as an SDVOSB.
In its response to the protest CRNTC attached a copy of its JV agreement and highlighted the fact that its majority owner, CR Nationwide, was an SDVOSB. That was not enough for the Office of Hearings and Appeals. OHA reopened the record and required CRNTC to provide additional evidence to establish its eligibility as an SDVOSB. It highlighted the fact that CRNTC’s JV agreement did not specify the contributions of CR Nationwide and Trumble, and there was no evidence of a jointly executed statement outlining their contributions, like the JV agreement had contemplated.
Details after award do not necessarily prove the JV’s eligibility prior to award.
CRNTC subsequently provided OHA with a copy of the VA’s letter approving CR Nationwide as an SDVOSB. It also provided a document showing an apparent breakdown of work for the solicitation at issue, but the document was unsigned and undated. The VA’s contracting officer separately informed OHA that she did not receive a jointly-executed statement outlining what scopes of work CR Nationwide and Trumble would provide for the IFB’s scope of work.
OHA concluded that this evidence was not sufficient to prove that CRNTC was an SDVOSB either on the date that it submitted its bid, or the date when it was awarded the contract (eligibility on both dates is required). Because the JV agreement was prepared months earlier and did not even mention the IFB at issue, OHA concluded that it did not satisfy the SBA requirements of itemizing the resources each JV partner would contribute and specifying each partner’s responsibilities for contract negotiation, source of labor, and contract performance. The lack of a contemporaneous jointly executed statement addressing each party’s contribution also meant that CRNTC could not show that CR Nationwide (the SDVOSB partner) was actually performing 40% of the work, as required under SBA’s regulations.
OHA also refused to consider the “breakdown” document that CRNTC submitted during the protest. It noted that CRNTC’s eligibility had to be determined at the time it submitted its bid (December 2018) and when it received award (March 2019). The unsigned and undated “breakdown” document had no bearing on CRNTC’s eligibility on those dates because the document appeared to have been created only after OHA reopened the record and asked CRNTC to provide additional evidence of its eligibility.
Determine each party’s specific contribution before submitting a proposal.
In our experience, the factual situation from this case is fairly common. Eager to establish a new relationship, partners often rush to sign a template JV agreement before they have identified how or what they will do together. As a result, the JV agreement often does little more than identify the partners and ensure that the small business partner will be the majority owner. Although that may be sufficient for preliminary size or status approval, any resulting contract award could still be at risk. In order to prove the JV’s eligibility, attention to detail is required. The parties should be sure to clearly outline their respective contributions and responsibilities for a particular procurement before they submit their bid and receive award of the contract.
FURTHER READING
https://www.contractorsperspective.com/small-business/small-business-affiliation-at-fda/