McNew & Associates, Inc. Blog

SBA Proposes Significant Changes to Mentor-Protégé Joint Venture Rules
February 2, 2010, 11:21 PM
Filed under: Uncategorized

November 2, 2009
Joseph Hornyak – Northern Virginia

On October 28, 2009, the U.S. Small Business Administration (SBA) issued a lengthy proposed rule to make changes to its 8(a) and size regulations.  The changes have been summarized below. 

Number of Offers/Contracts Per Joint Venture

SBA’s current regulations limit a specific joint venture to submitting no more than three offers over a two-year period. The proposed rule would change the limit from three offers to three contract awards under one joint venture agreement. The proposed rule would also confirm that the same joint venturers could form additional joint ventures and be awarded three additional contracts for each. The proposed rule, however, makes clear that at some point, too many joint ventures between the same parties could lead to a finding of general affiliation.

“Populated” Versus “Unpopulated” Joint Ventures

A difficult decision joint venturers face when pursuing a government contract is whether to “populate” the joint venture with its own employees or simply use the employees of the individual joint venturers to perform the contract. The proposed rule purports to “clarify” SBA’s current policy as follows: “If a joint venture is a separate legal entity, then it must have its own employees. If a joint venture merely exists through a written agreement between two or more individual business entities, then it need not have its own separate employees and employees of each of the individual business entities may perform work for the joint venture.” In other words, if the parties wish their joint venture to take the form of a limited liability company (LLC), the joint venture LLC must hire its own employees to perform the contract (i.e., “populate” the LLC).

SBA Approval of 8(a) Joint Venture Agreements

SBA’s current regulations require SBA approval of joint venture agreements for 8(a) contracts prior to award. The proposed rule would permit the parties to a previously-approved joint venture to obtain SBA approval for a second and third 8(a) contact by merely providing SBA an addendum to the original agreement.

Distribution of Profits

SBA’s current regulations require the 8(a) firm to receive at least 51 percent of the net profits of an 8(a) joint venture. The proposed rule would delete this requirement and replace it with a requirement that the 8(a) firm receive “profits from the joint venture commensurate with the work performed by the 8(a) Participant(s).”

The “Significant Portion” Requirement

Under current SBA regulations, the protégé in a mentor-protégé joint venture must perform a “significant portion” of the work done by the joint venture. The proposed rule would state that the 8(a) member of a joint venture for an 8(a) contract must perform at least 40 percent of the work done by the joint venture.

Hornyak, Joseph. “SBA Proposes Significant Changes to Mentor-Protégé Joint Venture Rules.” Holland & Knight 2 Nov. 2009.

McNew & Associates, Inc.                                                     

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