This is the second article in a series on joint ventures. The first article can be found here.
In the increasingly competitive federal market, more and more small businesses are forming joint ventures to better position themselves for success. In this context a joint venture is a business partnership formed between two or more entities to allow them to compete together for government contracts reserved for small businesses.
While there are many benefits to forming a joint venture, it is important to consider the key elements of a successful joint venture to ensure compliance with SBA requirements. Joint ventures are not immune to SBA protests, so it is critical to establish a solid foundation, to have a clear vision of your joint venture, and to stay up-to-date with SBA regulations.
What are some preliminary considerations?
Before establishing a joint venture, determine what type of joint venture you are forming, whether it’s all-small or 8(a), mentor protégé, WOSB, HUBZone, etc.
Over the past few years, SBA has been working through a series of regulatory and policy updates to harmonize the expected acceptable tenets of a joint venture agreement across the different types of joint ventures. Although the differences between a small business joint venture and an 8(a) joint venture are not as significant as they used to be, there are still some seemingly small variations on reporting requirements that can have an impact on a joint venture’s eligibility for its program(s), so it’s important to understand the designations which apply to each joint venture and each solicitation.
Another initial consideration is whether to prepare a joint venture agreement or a joint venture and operating agreement.
A standard joint venture agreement will cover the specific contract opportunity your joint venture is pursuing. With each new opportunity, an addendum will need to be prepared. Alternatively, an operating agreement will generally include bylaws and rules that establish members’ rights and responsibilities. A joint venture and operating agreement will be more broad, but will contain more provisions in order to properly establish the joint venture.
What are SBA’s joint venture requirements?
Though SBA requirements differ with each type of joint venture, there are several SBA provisions that all joint venture agreements must include. Some components of a compliant joint venture agreement include:
- set forth the purpose of the joint venture
- identify the Managing Venturer
- identify the Responsible Manager
- state that managing member owns at least 51 percent of the joint venture
- delineate how profits will be distributed, whether commensurate with the work performed or a percentage agreed to by the entities
What are more contract-specific provisions?
In addition to the required items above, SBA also requires more specific provisions for each contract your joint venture is awarded. These provisions include:
- compliance with industry specific performance of work requirement, which requires the managing member to perform at least 40% of the work in many industries
- itemization of all major equipment, facilities, and other resources to be contributed by each venturer to perform the contract
- a statement to address the responsibilities of each entity, which should be negotiated mostly by the managing member
Joint ventures are not immune to protests. In this instance, the first thing SBA will look at is whether there are consent provisions which indicate negative control. It is critical that the managing venturer has control over the day-to-day operations of the joint venture, and a comprehensive joint venture and/or operating agreement helps establish such control.
If you’d like to learn more about what you need to know when creating a joint venture, don’t hesitate to reach out to us. We’d love to hear from you and answer any questions you may have.
The information provided here does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only.