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What if a Joint Venture dissolves before contract expiration?

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What happens if a JV is awarded a contract, then during performance of the contract, the JV members have a dispute and then dissolve their JV, but don't tell the agency but just keep performing the contract?  Then later, the agency finds out from other news sources about the JV no longer existing.

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48 minutes ago, govt2310 said:

What happens if a JV is awarded a contract, then during performance of the contract, the JV members have a dispute and then dissolve their JV, but don't tell the agency but just keep performing the contract?  Then later, the agency finds out from other news sources about the JV no longer existing.

Is there a problem? What are you thinking? Depending on state law, each member may be liable for any legal claims arising out of contract obligation under a contract it signed as a member of a JV. Not sure how it is that the JV no longer exists, what state it was formed in and whether that changes the general statement I made.

Edited by Neil Roberts
incomplete

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Let's say the contract did NOT require the JV to notify the government if the JV dissolved.  

My concern is, who is legally responsible to continue performing the contract?  If the JV is dissolved, then the contractor no longer exists, and there is no party called "contractor" that is legally required to continue doing the work.  I know that, if a contract is awarded to a JV, and it turns out the JV never existed, that contract is void ab initio.  But what happens if the JV did exist at the time of contract award, but during contract performance, it ceases to exist?

 

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My first-blush answer is that the JV partners are jointly and individually responsible for everything.  But see FAR 9.603 and 9.604(b) and (e).

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9 hours ago, govt2310 said:

What happens if a JV is awarded a contract, then during performance of the contract, the JV members have a dispute and then dissolve their JV, but don't tell the agency but just keep performing the contract? 

I don't really understand what the government's position would be. The contract was performed satisfactorily, was it not? What damages has the government suffered in your scenario?

There's always CPARS. You can mark down the JV for poor communications. Not sure how much impact that will have, though, since the JV no longer exists to compete for future contract awards.

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The contract is not over.  The contractor -- the JV -- is still supposed to be performing the services on the contract.  Let's say that one of the JV members is continuing to perform these services by taking over the duties of the other JV member.  What damages has the government suffered?  Well, we now have uncertainty on whether the contract will continue to be performed in the future, as the Period of Performance expiration date still has a long time to go.

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1 hour ago, govt2310 said:

The contract is not over.  ...  What damages has the government suffered?  Well, we now have uncertainty on whether the contract will continue to be performed in the future, as the Period of Performance expiration date still has a long time to go.

I feel your angst at not being properly informed. That said, I'm fairly confident that your uncertainty is not actionable from a contractual point of view. If contract performance suffers, that's another story. But right now I'm struggling to see how your uncertainty translates to contractual action. If I'm missing something, I'm sure somebody else will let me know.

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6 hours ago, govt2310 said:

The contract is not over.  The contractor -- the JV -- is still supposed to be performing the services on the contract.  Let's say that one of the JV members is continuing to perform these services by taking over the duties of the other JV member.  What damages has the government suffered?  Well, we now have uncertainty on whether the contract will continue to be performed in the future, as the Period of Performance expiration date still has a long time to go.

To govt2310...do you see this "damage" as significantly different from a company that files for bankruptcy and continues to perform the contract? Stuff like that happens. The time to possibly limit risk is to do your best in vetting financial/business strength of the proposed contractor in evaluating the source selection. Even then, it is not foolproof. You haven't indicated what type contract this is. For example, in construction contracts, performance bonds may be required and that would have given the government more comfort, I suspect.

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I posted this new FAR case last night.  This is proposed and ready for comments.  It was done by SBA and the FAR is implementing it.  It's long but maybe you can find something in it.

Federal Acquisition Regulation

FAR Case 2017-019:  Policy on Joint Ventures.  (June 5, 2020)

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On 6/4/2020 at 8:39 AM, govt2310 said:

Let's say the contract did NOT require the JV to notify the government if the JV dissolved.  

My concern is, who is legally responsible to continue performing the contract?  If the JV is dissolved, then the contractor no longer exists, and there is no party called "contractor" that is legally required to continue doing the work.  I know that, if a contract is awarded to a JV, and it turns out the JV never existed, that contract is void ab initio.  But what happens if the JV did exist at the time of contract award, but during contract performance, it ceases to exist?

 

Is this a joint venture under a contract reserved for a small or small- disadvantaged business, 8 (a), Hubzone, disabled veteran, etc. ? If yes, is the eligle firm the one that is still performing the contract? 

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@govt2310   Me thinks you need to consult an attorney.  It is not only a matter of contract performance but other issues as well.    Referenece?  How about this historic WIFCON discussion http://www.wifcon.com/arc/forum406.htm  and a read of APPEAL OF BALL, BALL, & BROSAMER, INC. IBCA-2103-N D found here https://doi.opengov.ibmcloud.com/sites/doi.opengov.ibmcloud.com/files/uploads/doi_decisions_099.pdf .

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govt2310, are you dealing with a real situation or posing a hypothetical?  Your use of phrases such as "lets say"  indicates you are asking a hypothetical question.  If not, can you state with completeness and clarity what the facts are?

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I didn’t want to sound like a grouch because my first thought was - you need to consult with agency counsel. This is a legal question, which may be fact specific, based upon the context of the situation. 

The reason I asked about  the type of contractual arrangement and which JV partner is performing the contract concerns whether the Contractor is performing within the terms and limitations of the contract. 

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Thanks everyone! 

To answer joel hoffman's question, let's say this is a small business set-aside, and the JV was a mentor-protege JV.  So you raise a good point: is the work being done by the remaining JV member that qualifies as small?  Good point.  

Regarding C Culham's comment, thanks, I will check those links out.  

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Note that the B3 Appeal Decision was highly dependent upon the specific facts. 

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10 hours ago, govt2310 said:

To answer joel hoffman's question, let's say this is a small business set-aside, and the JV was a mentor-protege JV.  So you raise a good point: is the work being done by the remaining JV member that qualifies as small?  Good point.  

.....but as @joel hoffman notes everything is fact specific.   Consider for example 13 CFR 125.6 and 13 CFR 125.8.   As @Retreadfed has noted as well the facts will get you to the most appropriate conclusion and the implied  situation can be twisted any old way one wants to continue the either this or that.

In the end using the basic facts posed in the initial post ---- JV awarded a contract, JV disbands without Government knowledge but continues to perform the contract ----my conclusion is that the JV will be held responsible for the performance absent a novation.  A novation I might add the government can agree to or not. 

If the JV asks for a novation and the Government agrees then the Government will have a new contractor to deal with. 

If the Government disagrees the Governments position of not agreeing to the novation needs to be buoyed by how Government feels the Government interests will be protected with regard to such issues of the Contract Disputes Act, bonding, etc, etc. 

If the JV never seeks novation the Government will look to the JV to perform within all the contractual requirements and if the JV (disbanded) fails to do so the Government will have an myriad of conclusions to make with regard to such issues as the Contracts Disputes Act, bonding (if any), default, failure to perform as a mentor/protege'........the list simply goes on an on.

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I didn’t elaborate.  But if the Mentor is the firm left performing and doesn’t qualify as a small business,  it may open up all sorts of problems. I don’t disagree with Carl.

Gosh, every KO should have some legal support. MAybe we are just raising issues for you to ask - challenge your lawyer(s) with.

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