The SBA takes its SDVOSB joint venture requirements very seriously, and even a relatively minor deviation or omission can be enough to render a joint venture ineligible.
Time and time again, the SBA’s Office of Hearing and Appeals has shown that it will strictly enforce the rules governing SDVOSB status. OHA’s stance on SDVOSB joint venture agreements is no different. A recent OHA ruling reinforces that SDVOSB joint venture agreements must abide by the letter of the regulation when it comes to required items in the agreement.
In ASIRTek Federal Services, LLC, SBA No. VET-269 (2018), OHA considered a protest by Cyber Protection Technologies, LLC that challenged the size and SDVOSB status of ASIRTek Federal Services, LLC, the awardee of an Air Force contract for engineering, management, and technical support services. Proposals under the procurement, which was set aside for SDVOSBs, were due July 20, 2016.
ASIRTek was a joint venture consisting of ITI Solutions, Inc. and FEDITC, LLC. The joint venture agreement (JVA) was dated April 1, 2015. It identified ITI as “Managing Venturer” and FEDITC as “Partner Venturer.” The agreement stated that it was set up to compete for a certain Air Force 8(a) procurement, and that additional awards would be added to the agreement through addendums with approval by the SBA.
The performance of specific responsibilities under the Contract and task orders awarded thereunder will be allocated between the Venturers as set forth in each proposal. The Venturer primarily responsible for developing the winning proposal for an individual task order under this Contract or who has first identified, in writing to the President, an opportunity for pursuit prior to RFP release shall be the managing party of the corresponding task order award and will be responsible for contract negotiations, unless otherwise agreed upon during proposal creation by both parties, in order to satisfy 13 C.F.R. 124.513(c)(7).
The JVA also stated that “The Venturers shall receive profits from the Joint Venture commensurate with the work performed by the Venturers.”
After creating the joint venture to bid on an 8(a) contract in 2015, ITI and FEDITC decided to use the joint venture to pursue the Air Force SDVOSB contract a year later. ITI and FEDITC created a “First Addendum” to the joint venture, referencing the Air Force contract, but only ITI signed the First Addendum. The First Addendum did not provide specific details regarding the responsibilities of the parties, with respect to the Air Force contract, for performance, source of labor, and contract negotiations.
The Air Force took a long time evaluating proposals. On December 13, 2017, the Air Force finally announced that ASIRTek was the apparent successful offeror.
A competitor filed an SDVOSB status protest, which was forwarded to the SBA Office of Government Contracting for review. The SBA determined that ASIRTek was ineligible because the JVA did not meet all of the regulatory requirements. The SBA declined to consider the First Addendum because FEDITC had not signed it before the proposal was submitted.
ASIRTek appealed to OHA.
OHA, in reviewing the JVA, reiterated that SBA regulations contain required provisions for SDVOSB joint venture agreements between an SDVOSB business and a non-SDVOSB small business. In particular, the 2016 version of the regulation in effect on the bid date stated that a joint venture agreement must include a provision “pecifying the responsibilities of the parties with regard to contract performance, source of labor and negotiation of the SDVO contract.”
The JVA did not sufficiently address how the parties would split up the responsibilities under the contract. “The principal problem for Appellant is that its JVA did not address the instant procurement at all, or indeed any SDVO SBC procurement. Rather, the JVA was dated April 1, 2015, more than a year before the instant RFP was issued.”
ASIRTek argued that it was unable to provide the required level of detail because the underlying contract was indefinite in nature. OHA rejected this argument, noting that “the RFP also provided detailed appendices, including technical requirements and labor estimates, which Appellant might have utilized to describe the types of work each joint venture partner would perform, and the labor each partner would contribute. Appellant therefore has not demonstrated that it would have been impossible for Appellant’s JVA to provide the information required by 13 C.F.R. § 125.15(b)(2)(iv) (2016).”
The joint venture agreement was also missing the section, as required by 13 C.F.R. § 125.15(b)(2)(iii) (as in effect for purposes of the size determination), stating that at least 51% of profits must go to the SDVOSB venturer. Instead, the JVA stated that profits would be split commensurate with contract performance–which was the requirement for some 8(a) joint ventures in July 2016 but not SDVOSB joint ventures. OHA reiterated that there were “no exceptions” to the requirement for certain terms in a joint venture agreement.
The regulation, as of August 24, 2016, now includes a similar but more detailed version of the requirement concerning description of how the parties will split up contract performance. Under the current version of the regulation, found at 13 C.F.R. 125.18(b)(2)(vii), there is now additional language addressing indefinite contracts:
If a contract is indefinite in nature, such as an indefinite quantity contract or a multiple award contract where the level of effort or scope of work is not known, the joint venture must provide a general description of the anticipated responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract performance, not including the ways that the parties to the joint venture will ensure that the joint venture and the SDVO small business partner(s) to the joint venture will meet the performance of work requirements set forth in paragraph (d) of this section, or in the alternative, specify how the parties to the joint venture will define such responsibilities once a definite scope of work is made publicly available.
Because of the date proposals were submitted, this language was not in effect at the relevant time. The August 2016 regulatory changes also conformed the SDVOSB joint venture profit-splitting rule with the regulation for 8(a) joint ventures. Both regulations now call for profits to be split commensurate with work share. Had these changes been effective, it might have resulted in a different outcome for ASIRTek.
As the opinion makes clear, the SBA strictly enforces its joint venture rules that are in effect at the relevant time. When it comes to an SDVOSB joint venture agreement, the requirements must all be met, or the SBA will find an SDVOSB joint venture ineligible for a contract. You’ve been warned!