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Joint Venture Agreements with Small Business

Posted by attorney David Rose

This brief article serves as an overview of the minimum requirements that must be accomplished in order to form a joint venture (JV) between a Woman Owned (WO) or Economically Disadvantaged Woman Owned Small Business (EDWOSB) and another small business. Keep in mind that these agreements are monitored and regulated by the Small Business Administration (SBA) and failure to adhere to the minimum standards will all but insure losing a protest should one be filed for affiliation in the event the joint venture is a challenged successful offeror.

The SBA finalized rules regarding the WO and EDWOSB program in 2010 and set up the following procedures for forming a joint venture at 13 CFR 127.506. For those reading this article familiar with the rules for 8(a) firms found at 13 CFR 124.520, they will seem familiar but not as complex. The Jobs Act of 2010 and the new rewrite of the SBA rules published in March 2011, contributed greatly to an overall improvement of the administration of the Small Business Program and the protections afforded small business.

A joint venture may submit an offer on an EDWOSB or WOSB requirement (contract) if the joint venture meets all of the following requirements:

(a) Except as provided in §121.103(h)(3) of this chapter (exceptions to the affiliation rule), the combined annual receipts or employees of the concerns entering into the joint venture must meet the applicable size standard corresponding to the NAICS code assigned to the contract;

(b) The EDWOSB or WOSB participant of the joint venture must be designated in the Central Contractor Registry and the ORCA (Representations and Certifications) as an EDWOSB or WOSB;

(c) The parties to the joint venture must enter into a written joint venture agreement. The joint venture agreement must contain a provision:

(1) Setting forth the purpose of the joint venture.

(2) Designating an EDWOSB or WOSB as the managing venturer of the joint venture, and an employee of the managing venturer as the project manager responsible for the performance of the contract;

(3) Stating that not less than 51 percent of the net profits earned by the joint venture will be distributed to the EDWOSB or WOSB;

(4) Specifying the responsibilities of the parties with regard to contract performance, sources of labor, and negotiation of the EDWOSB or WOSB contract; and

(5) Requiring the final original records be retained by the managing venturer upon completion of the EDWOSB or WOSB contract performed by the joint venture.

(d) The joint venture must perform the applicable percentage of work required of the EDWOSB or WOSB offerors in accordance with §125.6 of this chapter (limitations on subcontracting rule)*;

(e) The procuring activity will execute the contract in the name of the EDWOSB or WOSB or joint venture.

(f) The WOSB or EDWOSB must provide a copy of the joint venture agreement to the contracting officer.

* The Limitations on Subcontracting rule provides that for Services other than Construction, the JV must perform 50% of the labor dollars (cost of the contract after materials generally), 15% of the labor dollars of the contract for general construction and 25% of the contract for specialty construction (Specialty construction is generally defined as construction with a NAICS size limitation under $14 Million in annual gross receipts).

Please carefully negotiate any agreement you enter into with another firm. A carefully drafted instrument, whether a JV, subcontract, teaming agreement, or other document will help avoid disagreements down the road and assist in a mutually beneficial business relationship that consists of cooperation and, hopefully profitability on both sides. Please always consult a competent legal advisor when drafting any legal agreement.

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