RSA Conference Exhibitor List 2024 - Exhibitors Data
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Petefish Law - Joint Venturing & Teaming Presentation
1. Joint Venturing and
Teaming on Federal
Government Contracts
Government
Steven J. Koprince
Partner
Contracts
Petefish, Immel, Heeb & Hird, LLP
Solutions
for Small Business
2. ⢠Joint Ventures v. Teams
⢠Characteristics
⢠Legal forms
⢠Capabilities
⢠Size requirements
3. ⢠Joint Ventures
⢠How to Form
⢠Formation considerations
⢠Required JV provisions
⢠Recommended additional provisions
⢠Complying with subcontracting limits
⢠Special 8(a) rules
⢠VA CVE verification requirement
4. ⢠Prime/Sub Teams
⢠How to form
⢠Teaming agreements
⢠Recommended provisions
⢠Subcontracts
⢠Required provisions (flow-downs)
⢠Recommended provisions
⢠Subcontracting limits
⢠Ostensible subcontractor affiliation
5. ⢠Mentor-ProtÊgÊ Programs
⢠SBA 8(a) mentor-protÊgÊ program
⢠Eligibility and Requirements
⢠DoD mentor-protÊgÊ program
⢠Requirements
⢠Other agenciesâ mentor-protĂŠgĂŠ programs
⢠Affiliation concerns?
⢠New mentor-protÊgÊ programs on the horizon
6. Joint Ventures v. Teams
⢠Joint Ventures ⢠Teams
â Both parties perform at â Only one party performs
the prime contract level at the prime contract
â Parties split profits and level
losses â Subcontractor paid on a
â Parties may form a new pre-determined basis
legal entity â No new legal entity
â Subcontracting limits created
apply to JV as a whole â Subcontracting limits
apply to prime only
7. Joint Ventures v. Teams
⢠Liability
⢠JV: both parties responsible for entire contract
⢠Team: sub responsible only for its own share of
work
⢠Control
⢠JV: Both parties exercise some level of control
⢠Team: Prime should control the relationship
⢠Ostensible subcontractor affiliation
8. Joint Ventures v. Teams
⢠Advantages of a JV v. a Team:
⢠Government can rely on two companies to
perform entire contract
⢠Minority member may exercise more control
⢠Individual JV members not responsible for as
much work
⢠May receive favorable tax treatment
⢠Helps companies stay smaller longer
9. Joint Ventures v. Teams
⢠Disadvantages of a JV v. a Team:
⢠Lead contractor surrenders substantial control
⢠JVs may not be eligible to bid due to size
problems
⢠Both parties liable for entire contract
⢠Termination may be more difficult
⢠Government or competitors may raise past
performance questions
10. Joint Ventures v. Teams
⢠Size requirements
⢠JV: sizes of joint venturers are added together to
determine small business status
⢠See exceptions on next slide
⢠Team: only the size of the prime contractor is
considered in determining small business status
11. Joint Ventures v. Teams
⢠Size requirements
⢠Joint venture may take advantage of âindividual size
treatmentâ rule when:
⢠The procurement exceeds ½ of a revenue-based size
standard, or
⢠For an employee-based size standard, the procurement
exceeds $10 million
⢠Note: other requirements may apply within socioeconomic
set-asides
8(a) protĂŠgĂŠ may JV with mentor based only on
protĂŠgĂŠâs size
12. Joint Ventures
⢠What is a Joint Venture?
⢠Two or more companies
⢠Combine resources, skills, efforts, & knowledge
⢠Share profits and losses
⢠Temporary basis
⢠âThree in twoâ general affiliation rule
13. How to Form a JV
⢠A Joint Venture may be formal or informal.
⢠Formal JV: separate legal entity formed with a
state government
⢠LLC by far the most common
⢠Can be populated or unpopulated
⢠Informal JV: not a separate legal entity formed
with a state government
⢠Exists as a âpartnership by contractâ between the
parties
⢠Should be unpopulated
14. How to Form a JV
⢠Populated JV:
⢠The JV has employees of its own
⢠The JV acts, for purposes of the contract, as its
own separate company
⢠Formation may be more difficult (e.g., employee
insurance requirements)
⢠Unpopulated JV:
⢠Lacks its own employees
⢠Serves as a âlegal fictionâ for the partnership
15. How to Form a JV
⢠Other formation considerations:
⢠Management structure
⢠Facilities and resources
⢠Project Manager
⢠Key employees
⢠Subcontracting
16. How to Form a JV
⢠Joint Venture Agreements
Required contents vary by program
⢠Small business set-aside (no socioeconomic
designation)
⢠No required contents
⢠BUT, recall that parties must meet size
requirements
⢠See socioeconomic programs and later slides for
recommended provisions
17. How to Form a JV
⢠8(a) JV Agreements
⢠Must meet all requirements specified in 13 C.F.R.
124.513.
⢠Eligibility:
⢠At least one JV member must be 8(a) program
participant
⢠Parties must meet size requirements (note mentor-
protĂŠgĂŠ exception)
18. How to Form a JV
⢠8(a) JV Agreements
⢠Must contain a number of required provisions
specified in 13 C.F.R. 124.513(c), including:
⢠Description of purpose of JV
⢠Naming 8(a) participant as managing venturer
⢠Naming employee of 8(a) as project manager
⢠Distribution of profits based on performance of work
⢠Creating special bank account
⢠Several others
⢠Note: some requirements differ for populated v.
unpopulated JVs
19. How to Form a JV
⢠8(a) JV Agreements
⢠8(a) JV agreements must be approved by the SBA
prior to contract award
⢠In addition to JV agreement, parties must submit
a great deal of additional documentation called
for by the SBA 8(a) Standard Operating Procedure
⢠Bottom line: 8(a) JVs take a lot of work to form, so
start early (and get help if you need it)
20. How to Form a JV
⢠SDVOSB JV Agreements
⢠Must meet all requirements of 13 C.F.R. 125.15(b)
⢠Eligibility:
⢠At least one member of JV must be a SDVOSB
⢠Parties must meet size requirements
⢠SBA OHA has overturned prior case law stating that a
SDVOSB JV cannot be a separate legal entity (e.g., LLC)
21. How to Form a JV
⢠SDVOSB JV Agreements
⢠Must contain provisions required by 13 C.F.R.
125.15(c), including (but not limited to):
⢠SDVOSB must be named managing venturer
⢠A specific employee of the SDVOSB must be named
project manager
⢠SDVOSB must be entitled to at least 51% of profits
⢠SDVOSB must retain final records
22. How to Form a JV
⢠SDVOSB JV Agreements
⢠SBAâs prior approval is not necessary for SDVOSB
JV agreements
⢠SBA will review after an eligibility protest
⢠See special rules for VA CVE (next slide)
⢠No additional documentation required
23. How to Form a JV
⢠SDVOSB JV Agreements
⢠For VA SDVOSB set-aside contracts only:
⢠The JV must be a separate legal entity (no joint venture
by contract)
⢠The JV must be verified by the VAâs Center for Veterans
Enterprise
24. How to Form a JV
⢠HUBZone JV Agreements
Eligibility:
⢠Both joint venture partners must be HUBZones
⢠As a result, joint venturing relatively unpopular for
HUBZone set-asides
The good news:
⢠Because both parties must be HUBZones, SBA not
worried about HUBZone control
⢠Few requirements for content
25. How to Form a JV
⢠WOSB JV Agreements
Eligibility:
⢠One party must be a WOSB or EDWOSB
⢠Parties must meet size requirements
⢠JV Agreement contents:
⢠Must demonstrate control by WOSB
⢠Similar to SDVOSB JV requirements
⢠See 13 C.F.R. 127.506
26. JVs and Subcontracting
⢠The JV itself, as prime contractor, is subject to
the subcontracting limits
⢠Where the JV is unpopulated, the âlegal
fictionâ applies the subcontracting limits to
the JV parties
⢠For most JVs, no rule regarding work split
among JV members
⢠The 8(a) participant must perform at least 40% of
the JVâs work in an unpopulated 8(a) JV
27. How to Create a Team
⢠A prime/sub team should be formed well in
advance of proposal submission by way of a
teaming agreement
⢠Teaming agreement: binding agreement to
pursue a specific government contract as a
prime/sub team
28. How to Create a Team
⢠A teaming agreement should include
(recommended):
⢠Specific identification of project
⢠Division of laborâwho will do what?
⢠Ostensible subcontractor risk factor
⢠Exclusivity provision
⢠Non-disclosure
⢠Termination provisions
⢠Dispute resolution
29. Subcontracts
⢠Subcontract supersedes/replaces the teaming
agreement
⢠Much more detailed than teaming agreement
⢠Must include mandatory FAR provisions (flow-
downs)
⢠Consider an incorporation by reference clause
⢠Consider specific identification of (at minimum) key
flow-downs
⢠Provide the sub with a copy of the prime contract,
less any confidential information about your company
30. Subcontracts
⢠Recommended provisions to include in
subcontracts (not required):
⢠Termination for convenience
⢠Pass-through dispute resolution
⢠âPay-when-paidâ clause
⢠Robust reps and certs (OCIs, suspension and
debarment, etc.)
31. Limits on Subcontracting
⢠Every set-aside contract contains
subcontracting limits (FAR 52.219-14)
⢠Limits vary depending on type of contract
⢠Contrary to common perception, limits are
not based on the total value of the contract
32. Limits on Subcontracting
⢠âOrdinaryâ subcontracting limits:
⢠Services: 50% of the cost of the contract incurred for
personnel
⢠Specialty trade construction: 25% of cost of the
contract (excluding materials)
⢠General construction: 15% of the cost of the contract
(excluding materials)
⢠SDVOSB & HUBZone set-asides:
Prime can meet limits by subbing to other
SDVOSBs/HUBZones
33. Limits on Subcontracting
⢠Best practices:
⢠State in proposal, teaming agreement and
subcontract that subcontractor will perform no
more than allowable percentage of work
⢠âUp toâ larger number may violate the regulation
⢠Include ongoing compliance mechanism in
subcontract to reduce subâs work share if sub
begins performing in excess of limit
34. Ostensible Subcontractor
Affiliation
⢠What is it?
⢠SBA considers a small prime contractor affiliated
with its subcontractor for purposes of a set-aside
contract where:
⢠The prime is âunusually reliantâ upon the sub, and/or
⢠The sub will perform the primary and vital portions of
the contract
⢠Why does it matter?
⢠If sizes of prime and sub, combined, exceed size
standard, prime is ineligible for award
35. Ostensible Subcontractor
Affiliation
⢠SBA evaluates ostensible subcontractor
affiliation on a case-by-case basis, looking at
âtotalityâ of relationship between the parties
⢠Best practice: reduce/eliminate number and
severity of ostensible subcontractor risk
factors as identified in regulation and SBA
OHA cases
36. Ostensible Subcontractor
Affiliation
⢠Risk factors:
⢠Incumbency
⢠Sub is an ineligible incumbent for the prime contract
(outgrew size standard or lost 8(a) certification)
⢠Division of work
⢠The greater the subâs share, the more likely it is to be
an ostensible subcontractor
â Even if meets the subcontracting limits
⢠Sub more likely to be an ostensible subcontractor if it
performs more complex or key functions
37. Ostensible Subcontractor
Affiliation
⢠Risk factors:
⢠Management responsibilities
⢠If top contract manager (e.g., project manager) is subâs
employee, almost certain to be affiliated
⢠Other management roles may contribute to a âtotalityâ
finding
Experience/expertise
⢠Is prime relying on sub for all/most of its past
performance or relevant experience?
38. Ostensible Subcontractor
Affiliation
⢠Risk factors:
⢠Management responsibilities
⢠If top contract manager (e.g., project manager) is subâs
employee, almost certain to be affiliated
⢠Other management roles may contribute to a âtotalityâ
finding
Experience/expertise
⢠Is prime relying on sub for all/most of its past
performance or relevant experience?
39. Ostensible Subcontractor
Affiliation
⢠Risk factors:
⢠Transferred personnel
⢠SBA OHA recently recognized executive order on right
of first refusal
⢠BUT, does not apply to management or non-SCA
personnel
⢠And is it effective?
40. Ostensible Subcontractor
Affiliation
⢠This stuff matters!
⢠October 2010: GTSI (top-100 contractor)
suspended from all government contracting
⢠Allegations: violation of subcontracting limits and
ostensible subcontractor affiliation rules
⢠Two of GTSIâs prime contractors also suspended
⢠Suspension lifted, but GTSI pays heavy price
⢠Morris-Griffin case: federal judge tosses breach of
contract suit
⢠Contract illegal and fraudulent due to violations
41. Mentor-ProtĂŠgĂŠ Programs
⢠8(a) Mentor-ProtÊgÊ Program
⢠Who can participate?
⢠ProtÊgÊ (8(a) company):
⢠Be in âdevelopmentalâ stage; or
⢠Have never received an 8(a) contract; or
⢠Have a size less than half its primary NAICS code
⢠Mentor:
⢠Any company (including large business) with favorable
character, financial profile.
42. Mentor-ProtĂŠgĂŠ Programs
⢠8(a) Mentor-ProtÊgÊ Program
⢠Benefits:
⢠8(a) and mentor are not affiliated based on
assistance provided by mentor to protĂŠgĂŠ under
agreement
⢠8(a) and mentor may JV as a small business for
any federal contract for which the 8(a) protĂŠgĂŠ
qualifies as small
43. Mentor-ProtĂŠgĂŠ Programs
⢠8(a) Mentor-ProtÊgÊ Program
⢠Requirements:
⢠Parties must submit a written agreement setting forth
the assistance to be provided
⢠In recent years, SBA looking for very detailed MP
agreements
⢠Parties must submit certain supporting
documentation
⢠SBA must approve agreement
⢠Agreement must be re-approved annually, or benefits
are lost
44. Mentor-ProtĂŠgĂŠ Programs
⢠DoD Mentor-ProtÊgÊ Program
⢠Who can participate?
⢠ProtÊgÊ:
⢠Self-certified SDB
⢠SDVOSB
⢠HUBZone
⢠WOSB
⢠Mentor: must have at least one active DoD
subcontracting plan
45. Mentor-ProtĂŠgĂŠ Programs
⢠DoD Mentor-ProtÊgÊ Program
⢠Benefits:
⢠Mentor and protÊgÊ not affiliated on basis of
assistance provided by mentor to protĂŠgĂŠ under
agreement
⢠Mentor may receive credit against its
subcontracting plans for assistance (credit
agreement) or reimbursement of funds expended
(reimbursement agreement)
⢠BUT, no joint venturing capability
46. Mentor-ProtĂŠgĂŠ Programs
⢠DoD Mentor-ProtÊgÊ Program
⢠Requirements:
⢠Mentor must submit an application to serve as a
DoD mentor
⢠Parties must then submit a mentor-protÊgÊ
agreement for approval
⢠Like SBA, DoD has required great detail in recent years
47. Mentor-ProtĂŠgĂŠ Programs
⢠DHS ⢠FAA
⢠State ⢠USAID
⢠Treasury ⢠Energy
⢠NASA ⢠VA
⢠GSA ⢠EPA
⢠HHS ⢠DOT (proposed)
48. Mentor-ProtĂŠgĂŠ Programs
⢠Affiliation risks?
⢠March 2011: SBA adopts new size regulations
⢠New regulations provide that exception from
affiliation only allowed when mentor-protĂŠgĂŠ
program has been approved by SBA or created by
Congress
⢠Currently, only SBA 8(a) and DoD comply
49. Mentor-ProtĂŠgĂŠ Programs
⢠New SBA mentor-protÊgÊ programs on the
horizon:
⢠SDVOSB
⢠HUBZone
⢠WOSB
⢠Congressional directive: programs should be
similar to 8(a)
⢠May include JV capability