Joint Ventures 101 A Guide for Government Contractors

Joint Ventures 101 A Guide for Government Contractors

Introduction • Understand what a Joint Venture Is • Understand what a Joint Venture Looks Like • Understand the purpose of a Joint Venture • Understand how the SBA Treats Joint Ventures • Understand how SBA Joint Ventures Relate to Other SBA Rules • Understand the Joint Venture Timeline • Avoid Pitfalls in the Process

Understanding Joint Ventures What Is It, Exactly?

Joint Venture Is a “New Business” (Maybe) • Two or more companies come together to perform a single contract at the prime contract level. • Partnership, LLC, Corporation, “Pseudo-Partnership” • A series of agreements between or among the ventures and possibly a registration of a new business entity with the State • The agreements could include an “operating agreement, ” a “partnership agreement, ” a “bylaws, ” a “shareholders’ agreement, ” a “joint venture agreement. ”

What Does a Joint Venture Look Like • Single face to the Government • Chosen Business Form • A commitment to work together in a tighter relationship than the normal prime/sub for the project or projects. • Partnership, LLC, Corporation

Understand The Purpose of A Joint Venture Why Not Just Prime Sub?

General Advantages of a Joint Venture • Enable companies to spread risks of prime-contracting • Permit companies to leverage their combined capital • Allow all parties to have a voice and control over how the contract is performed and managed • Enable parties to share in profits of the entire project • Enable parties to develop direct relationships with the government agency contracting officials

Specific Small Business Related Advantages • Allows small businesses to team with other small businesses to go after bigger contracts • If the joint venture is made pursuant to an approved mentor-protégé agreement, allows small businesses to lean on a large business, and allows a large business to pursue work it would otherwise not qualify for.

The SBA and Joint Ventures What is this Affiliation Thing Again?

Size Status Based on Affiliation • SBA will aggregate the revenues of a company an all of its “affiliates” to determine the size of the company. • There are many different things that can cause affiliation – common ownership, familial relationships, undue reliance based on loans, contracts, or other relationships. • The ostensible subcontractor rule. • Joint ventures are affiliated with their co-venturers – except.

Exception to Joint Venture Based Affiliation • If both members of a joint venture are small in the relevant NAICS code. • If the members of a joint venture also in a mentor protégé relationship. • Two additional rules to allow a company to take advantage of this exception: • The joint venture must be “unpopulated, ” and • The joint venture must adhere to the “three-in-two” rule • Except that “three-in-two” may not be a complete bar to the affiliation exception.

Mentor Protégé – 8(a) • Submit a proposed mentor-protégé agreement for SBA approval. • The agreement must address how assistance will be provided that will help the protégé firm meet the goals established in its SBA-approved business plan. • Must describe specific assistance the mentor will give. • Mentor can offer a loan or an equity investment up to 40% in addition to assistance.

Mentor-Protégé All Small • Submit a proposed mentor-protégé agreement for SBA approval. • The business need (goal), as outlined by the Protégé, in one or more of the eligible categories for assistance. • The mentor’s plan to address that need (goal). • The timeline for a need (goal) to be met. • The measure by which SBA will determine the successful accomplishment of the goal. • Must describe specific assistance the mentor will give. • Mentor can offer a loan or an equity investment up to 40% in addition to assistance.

Timeline Start before the RFP is Published

Steps Identify a potential joint venture Come to an agreement about the general shape and form of the joint venture If this is to be a mentor-protégé relationship, prepare the mentor-protégé agreement Prepare the joint venture agreement and whatever other legal documents are required Prepare whatever administrative steps are required (bank account, office lease if necessary, etc. ) • Prepare whatever operational steps are required (work share, etc. ) • For a mentor-protégé relationship, submit all the documents for SBA approval • A joint venture need not be approved before a bid is submitted, but it must be approved before a contract is awarded • • •

Pitfalls What do you mean it was supposed to be unpopulated?

Common Pitfalls • Waiting too long to start the Joint Venture process. • Not closely vetting potential Joint Venture partners. • Not giving the details of the operating arrangement enough attention. • Not giving the details of the legal arrangement enough attention. • Not checking the agreements against the SBA requirements and suggestions and modifying them to match.

Conclusion • Joint Ventures are a great way to leverage complementary strengths and cover for weaknesses. • Take your time to really think through how you might use a joint venture to further your strategic plans. • For an SBA joint-venture (small only or mentor protégé), dot your I’s and cross your T’s on the operational, administrative, and legal requirements for a successful joint venture.

Questions?

Christopher Shiplett Phone: (703) 372 -9127 Web: randolphlaw. com