A joint venture (JV) is an association of two or more businesses to jointly bid on and perform work (for profit), through combining each other’s resources to minimize each other’s weaknesses. A joint venture presents a bold opportunity for all forms of government contractors, especially the small business.
A joint venture is a separate legal entity. This entity will not employ the workers that will perform the substantive work but they may have employees performing administrative functions. Because it is a separate legal entity, the joint venture must register and identify as a joint venture in SAM.gov before the bid submission deadline.
The joint venture typically must be a small business for small business set-asides. A key consideration in forming a joint venture is which small business has the relevant socio-economic designation that will benefit the JV. The managing member of the joint venture must be the business who holds the relevant socio-economic designation. An exception to this rule is that an approved joint venture in the SBA mentor and protégé program will be eligible for any small business opportunity of for which the JV small business partner is eligible.
The regulations surrounding a joint venture are varied depending on the designation for which the joint venture wants to qualify. In general, the following is required:
- Explaining the purpose of the joint venture.
- The small business (or the business who holds the relevant socio-economic designation) must own at least 51% of the joint venture, serve as its managing member, and designate one of its employees as the joint venture’s project manager.
- The joint venture’s profits be split in a manner corresponding with the work that each party performs and not be split according to the parties’ ownership percentages.
- The joint venture must establish a separate bank account, in the joint venture’s name. All payments owed to the joint venture will be deposited in this bank account and all payments will be made from this account. To make a withdrawal, the account must require the signature of both members.
- The joint venture agreement must itemize all major equipment, facilities, and resources, including the value of each, that each member will provide to the joint venture, where practical.
- The joint venture agreement must specify the responsibilities of the members regarding contract negotiation, source of labor, and include a discussion on how the joint venture will meet the performance of work requirement and other wise perform the contract.
- Each member must be obligated to complete the joint venture’s performance, even if the other member withdraws.
- The joint venture must establish compliant record keeping and reporting processes.
Meeting each requirement can be complex, and many joint ventures have not met one or more of these requirements and was determined ineligible. If you are going to enter a joint venture, it is imperative you ensure you meet each requirement.
For the small business, a joint venture can increase the probability of winning a federal contract through combining the advantages of a small business with the advantages of a large business. Through the combined resources of the two parties, a winning bid can be formed.
If a business is relatively inexperienced with federal contracts, the joint venture can help such a business shore up its past performance evaluation because the joint venture regulations require the agency to consider the past performance of the individual members to the joint venture. So, the inexperienced small business may consider a joint venture with a company who is fairly experienced to boost this metric. Being awarded the contract would subsequently boost the small business’s future past performance evaluations.
This benefit does not stop at past performance evaluations. If a small business considers itself weak in any category of consideration, it may consider teaming with other businesses who specifically help offset those weaknesses.
The joint venture agreement will not be reviewed until after the award and only if the joint venture’s eligibility is challenged. However, if the work is set-aside under the 8(a) Program, the joint venture agreement will have to be pre-approved by the managing member’s 8(a) office. Additionally, the joint venture needs pre-approval for work set-aside for SDVOSBs or VOSBs by the VA. The Center for Verification and Evaluation (CVE) must approve the joint venture agreement before bids are submitted. In these cases, the joint venture should submit the agreement for approval as early as possible to ensure approval before the bid submission deadline.
As a further requirement, the joint venture will not be awarded more than three contracts over a two-year period. This two-year period commences on the date of the first contract award. If the joint venture violates this rule, the members are considered affiliates. The SBA allows the businesses to simply form a new joint venture, which will begin a new two-year period when it is awarded its first contract.
Importantly, the managing member of the joint venture must perform at least 40% of the work that the joint venture does not subcontract. The joint venture should also ensure it is complying with any limitations on subcontracting. The members of the joint venture should closely monitor and adjust, as needed, the workshare throughout the term of the contract.
These SBA regulations are vast, and you should employ legal counsel to help you navigate them. Joint ventures serve as prime opportunities to jumpstart your business and shore up perceived weaknesses by bid evaluators.