One of the primary benefits offered by the Small Business Administration’s (SBA) mentor-protégé programs is the ability to operate outside the normal rules governing affiliation. Generally speaking, SBA allows mentors to provide assistance (including technical, management, and financial assistance) to their protégé firms without fear of creating affiliation. That is, so long as the assistance provided is consistent with the mentor-protégé agreement, it cannot be used as the basis for a finding of affiliation.
However, some time ago, we wrote on this blog that participation in an SBA-approved joint venture does not necessarily guarantee an automatic exemption from affiliation. Contractors still must abide by particular SBA rules and regulations — or risk an adverse size determination.
We previously examined SBA’s decision in Kisan-Pike, A Joint Venture, SBA No. SIZ-5618 (2014). In that case, SBA’s Office of Hearings and Appeals (OHA) found affiliation between SBA-approved 8(a) joint venture partners based on the conclusion that the joint venture agreement failed to adequately:
- Itemize all major equipment, facilities, and other resources to be furnished by each party to the joint venture, with a detailed schedule of cost or value of each, and/or
- Specify the responsibilities of parties with regard to negotiation of the contract, source of labor, and contract performance, including ways that the parties to a joint venture will ensure that the joint venture and the 8(a) partner(s) to the joint venture will meet the performance of work requirements.
Because the joint venture agreement did not rise to the level required by the regulations, the 8(a) member was not shielded from a finding of affiliation.
Now, in a recent decision, SBA reiterates and seemingly expands on this proposition. In reviewing a joint venture between an SBA-approved mentor and protégé under the All Small program, SBA determined that the joint venture was not small for purposes of the procurement.
As in Kisan-Pike, the decision turns on the inadequacy of the written joint venture agreement. Specifically, SBA determined that the joint venture agreement:
- Did not specifically address the applicable procurement.
- Did not sufficiently describe the work to be performed by each member of the joint venture, and
- Did not sufficiently indicate that the joint venture partners would adhere to the requirements concerning the division or work and performance of work requirements.
Absent this information, SBA (once again) refused apply the exception to affiliation arising out of the previously approved mentor-protégé relationship.
These decisions offer two major takeaways for contractors when it comes to mentor-protégé joint venture agreements:
First, tailor your joint venture agreement specifically for each procurement. A key element missing from the agreement in this SBA OHA decision was any mention of the specific procurement at issue. By revising the agreement or adding an addendum to address the work being sought, it is harder to overlook the details required by the regulations.
Second, add as much detail as possible – and then add some more. A common thread in both of the protests detailed in this post is the idea that it is often difficult to provide details concerning the equipment, facilities, and other work that will go into the project so far in advance. The SBA hears you – but it does not seem to care. The bottom line is that contractors cannot ignore these requirements or rely on generic statements indicating that the joint venture partners will do the work and comply with the law. Details are expected and required.
It may be difficult, but contractors must take care to drill down into the details as much as possible. Based on what is now a pattern of case law, anything less runs the risk of an adverse size determination.