In a recent decision, the Office of Hearings and Appeals (OHA) affirmed a Small Business Administration (SBA) Area Office’s size determination and held that procedural deficiencies in a contractor’s Joint Venture Agreement (JVA) and its supporting addendum disqualified it from small business status for the subject procurement.
Link to Factual Background Factual Background
On October 28, 2022, the U.S. Army Mission and Installation Contracting Command (Army) issued a Request for Proposal for construction of temporary training facilities. The Army set aside the procurement entirely for small businesses and assigned North American Industry Classification System (NAICS) code 532490, Other Commercial and Industrial Machinery and Equipment Rental and Leasing, with a size standard of $40 million. On December 1, 2023, the Army announced that Colt-Sunbelt Rentals JV, LLC (Colt-Sunbelt), a joint venture between an SBA-approved mentor-protégé of Sunbelt Rentals, Inc. and Colt Rentals LLC, was the apparent awardee.
On December 7, 2023, Critical Contingency Solutions, LLC (CCS), an unsuccessful offeror, protested Colt-Sunbelt’s small business size status, initially contending that Colt-Sunbelt was not an SBA-approved mentor-protégé.
Link to SBA Area Office Size Determination SBA Area Office Size Determination
On January 4, 2024, the SBA’s Area Office issued its size determination, finding that Colt-Sunbelt was an approved mentor-protégé, and due to a name change and acquisition of the initial parties to the agreement, this information had not yet been updated on SBA’s list of approved mentors and protégés. However, the SBA Area Office found that Colt-Sunbelt’s JVA was deficient since it did not name a Responsible Manager.
Although the original JVA lacked specific information about the subject procurement, Colt-Sunbelt submitted a Revised Addendum to the JVA during the course of the SBA Area Office’s size review, which contained information about the procurement. However, contrary to JVA requirements under 13 C.F.R. § 125.8(b)(2) and the terms of Colt-Sunbelt’s JVA, the Revised Addendum was still unsigned, undated, and did not name the employee designated as the Responsible Manager. Accordingly, the SBA Area Office concluded that Colt-Sunbelt is not a small business for the subject procurement.
Link to Joint Venture Addendum Requirements Joint Venture Addendum Requirements
The requirements for mentor-protégé joint ventures submitting offers for small business set aside contracts are governed by 13 C.F.R. § 125.8, which among other things details the necessary provisions and content for a JVA. In this case, CCS challenged Colt-Sunbelt’s JVA due to its failure to explicitly designate a Responsible Manager, in addition to other procedural deficiencies, including a lack of signatures and date.
Specifically at issue in this case, 13 C.F.R. § 125.8(b)(2)(ii) prescribes that all JVAs:
“Designat[e] a small business as the managing venturer of the joint venture, and designat[e] a named employee of the small business managing venturer as the manager with ultimate responsibility for performance of the contract (the “Responsible Manager”) [emphasis added].”
Link to OHA Appeal OHA Appeal
Colt-Sunbelt appealed the SBA Area Office’s size determination to OHA, arguing the following points:
- It did name a Responsible Manager in its JVA, and therefore, the documentation was compliant with SBA regulations.
- They were denied due process by SBA’s Area Office.
The essence of Colt-Sunbelt’s appeal was that, upon a full review of its proposal, JVA, and Revised Addendum, the SBA Area Office should have surmised that the designated Contract/Project Manager, who was named on several pages of its proposal, was an employee of Colt Rentals LLC and intended to serve as the Responsible Manager. Colt-Sunbelt also argued that it was denied due process, as it was not given proper notice of all issues under investigation by the SBA Area Office, including the formal adequacy of its JVA.
Link to Holding Holding
OHA, relying primarily on its 2023 decision in Size Appeal of Focus Revision Partners, SBA No. SIZ-6188 (2023) (Focus Revision) affirmed the SBA Area Office’s decision. OHA held that the JVA, as supplemented by the addendum, still did not name a Responsible Manager with ultimate responsibility for the performance of the contract as required by 13 C.F.R. § 125.8(b)(2), and the Revised Addendum was unsigned, despite Colt-Sunbelt/Appellant’s JVA stipulating that a proper addendum must be signed and incorporated “as an amendment” into the JVA. Citing additional precedent, OHA concluded that the appearance of a “Project/Contract Manager” in Colt-Sunbelts’ proposal but not in the JVA and Revised Addendum was inadequate for purposes of the regulation’s requirements. OHA rejected Colt-Sunbelt’s due process and lack of notice argument, stating that “CCS’s initial protest questioned whether Appellant was a valid joint venture, and Appellant thus knew, or should have known, that its status as a joint venture would be under review.” In sum, OHA affirmed the SBA Area Office’s decision that Colt-Sunbelt failed to qualify as a small business for the subject procurement.
Link to Conclusion Conclusion
OHA’s decision in this case once again showcases SBA’s strict reading of the requirements for joint venture documentation outlined in 13 C.F.R. § 125.8. Contractors seeking to take advantage of SBA programs, like the Mentor-Protégé Program, should be careful to follow all requirements outlined in the governing regulations to avoid a finding of affiliation and benefit from a small business size status.
The Bass, Berry & Sims Government Contracts Practice Group assists clients in meeting the demanding and ever-changing regulatory environment of contracting with federal, state and local governments. Please contact the authors if you have any questions about SBA’s Mentor-Protégé Program or how this decision may impact your business.