The SBA’s new rule on Consolidation of Mentor-Protégé Programs contained a lot of updates. One of those was concerned the level of control that a lead joint venture member has to have over a joint venture. In particular, SBA now says that the lead venturer doesn’t have to have unequivocal control as the Office of Hearings and Appeals had suggested in the past. The other joint venture partners can have some say in the joint venture, but how much?
Earlier this year, we wrote about an OHA decision involving a service-disabled veteran-owned joint venture. The joint venture in question required unanimous agreement over certain actions, including the approval to bid on projects; entering into contracts with the government; entering into subcontracts over $500,000; incurring debt (other than trade payables or leases); incurring expenses valued at more than 5% of budget; and settling litigation.
OHA determined that the SDVOSB leader venturer must have control over the joint venture that is “unequivocal.” The unanimity requirements meant the SDVOSB did not have unequivocal control, so the joint venture was found to be ineligible for award as an SDVOSB.
Well, the new SBA rule has dialed back on the concept of unequivocal control for joint ventures, although the language is not crystal clear.
The new rule provides that the non-managing joint venture partners may have some role in the joint venture. In particular, “other partners to the joint venture may participate in all corporate governance activities and decisions of the joint venture as is commercially customary.”
So, SBA will allow the partner venturers to engage in corporate governance and decisionmaking as normally allowed in the commercial sphere. While it would have been nice to have, SBA left these terms undefined in the rule and provided no commentary explaining what they meant.
However, it seems clear that SBA wants to effectively overturn the notion that the lead venturer has to have complete and “unequivocal” control. Because the regulation doesn’t define what these terms mean, it will ultimately be up to the SBA Area Offices and OHA to define them.
Until that time, the best practice is to be careful as the regulation doesn’t provide examples or further explanation of corporate governance and commercially customary decisions.
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