One of the benefits of being an SBA 8(a) Business Development Program participant is the ability to enter into an 8(a) Joint Venture with another company (or possibly companies) to pursue 8(a) contracts. Many 8(a) companies come to us and tell us that they want to do a joint venture (JV) with another company, and after speaking with them, it becomes clear they don't necessarily have a good understanding of what a JV is and what the implications are for their company. This blog post will provide a general overview of 8(a) JVs, including some of the advantages and disadvantages.
In the eyes of the SBA, a joint venture is "an association of individuals and/or concerns with interests in any degree or proportion consorting to engage in and carry out no more than three specific or limited-purpose business ventures for joint profit over a two year period, for which purpose they combine their efforts, property, money, skill, or knowledge, but not on a continuing or permanent basis for conducting business generally."
Under the Federal Acquisition Regulations, a joint venture is a form of a teaming arrangement that can be used by the parties to pursue federal contract opportunities. In the case of a JV, the JV entity is the prime contractor. The other type of teaming arrangement is a prime-subcontractor teaming relationship where one company is the prime contractor on a given contract.
In general, JVs tend to be more complicated because a new legal entity is created. In addition, 8(a) joint ventures, which is a JV between a current 8(a) firm and another small business, requires prior approval of the SBA before the JV can be awarded an 8(a) contract.
What Are The Advantages of an 8(a) Joint Venture?
Despite the fact that JVs tend to be more complicated than a prime-subcontractor teaming agreement, there are numerous benefits and reasons why an 8(a) company might choose to JV with another company, including but not limited to the following:
- Allows the JV partners to spread the risk of prime contracting.
- Allows the JV to pursue larger contracts that perhaps the 8(a) JV partner could not have pursued on its own.
- Enables the JV partners to leverage combined capital.
- Allows the JV partners to develop direct relationships with government agencies and contracting officials.
- Enables one partner to take advantage of bonding capacity of the other partner.
- Allows for the utilization of both partners with respect to performance of the contract.
- SBA approved 8(a) JVs are eligible for 8(a) contracts (competitive and/or sole-source).
- SBA approved 8(a) JVs are exempted from affiliation provided all requirements of 13 CFR 124.513(b)(1) are met.
- Both partners' past performance can be used.
What Are The Disadvantages of an 8(a) Joint Venture?
- Requires prior SBA approval, therefore will require planning.
- The 8(a) JV partner must exercise control over the JV (this would be a disadvantage for the non-8(a) firm).
- SBA must approve all amendments to the JV agreement.
- The JV must keep separate accounting records.
- Failure to follow SBA regulations can result in affiliation between the JV partners.
Things To Note About 8(a) Joint Ventures
In the event your 8(a) firm is considering a JV, here are some things to know about 8(a) JVs.
- The non-8(a) JV partner must be a small business.
- The 8(a) JV partner must show that it lacks the necessary capacity to perform the contract on its own, that the agreement is fair and equitable, and that the agreement will be of substantial benefit to the 8(a) JV partner.
- A formal JV agreement that complies with SBA regulations (13 CFR 124.513) must be approved by the SBA prior to the award of an 8(a) contract on behalf of the JV.
- The 8(a) JV partner must be designated as the managing venturer of the JV and an employee of the 8(a) JV partner must be designated as the project manager responsible for performance of the contract.
- Where a separate legal entity is formed, the 8(a) JV partner must own at least 51% of the entity.
- The 8(a) JV partner must receive profits from the JV commensurate with the work performed by the 8(a) JV partner.
- For an 8(a) contract, the limitations on subcontracting apply. In addition, the 8(a) JV partner must perform at least 40% of the work performed by the JV.
For questions about 8(a) Joint Ventures, including formation and compliance, please contact us at: firstname.lastname@example.org.