Recent GAO Decision Illustrates Importance of Being Proactive When It Comes to 8(a) Joint Ventures

On October 26, 2015, the Government Accountability Office (GAO) issued a decision In the Matter of FedServ-RBS JV, LLC, File No. B-411790.  Although this case is consistent with current precedent and applicable regulations, it highlights several things, including: the significant challenges 8(a) Joint Ventures (JV) face in getting approval; the power the Small Business Administration (SBA) holds relative to 8(a) JVs being awarded 8(a) contracts; and the fact that contracting agencies are forced to award contracts to second place bidders (which may not be the lowest price or even the best value) if the SBA fails to timely approve a JV application.

SBA Regulations and Procedures on 8(a) Joint Ventures (13 CFR 124.507):

• After a requirement has been accepted by SBA and the agency has selected an apparent successful offeror, the agency must submit the identify of the offeror to the SBA district office servicing the offeror for an eligibility determination.
• Upon SBA's receipt of the eligibility determination request, the District Office has five (5) working days to provide the eligibility determination.  Where the apparent successful offeror is a proposed 8(a) joint venture, SBA approval of the joint venture application is required prior to award.
• Under current regulations and procedures, 8(a) joint venture applications are submitted with respect to specific procurement opportunities (i.e., in response to a specific RFP).  However, SBA is not obligated to review applications until such time as the joint venture has been selected for award.  Note that there is a proposed rule out which would allow 8(a) participants to submit a joint venture agreement for review whether or not in connection with a specific procurement.
• If the 8(a) joint venture agreement is not approve or the SBA has not completed its review of a pending application within the 5 working days noted above, the SBA must notify the agency that the joint venture is ineligible.

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Background and Facts:

• April 28, 2015:  The RFP in this case was issued as an 8(a) competitive small business set-aside by the Army Corps of Engineers for maintenance, repair, minor construction and operation and of a reservoir project in Virginia.
• May 29, 2015:  Proposals were due.  Five (5) offerors submitted proposals, including FedServ-RBS Joint Venture, LLC (FedServ-RBS).
• June 4, 2015:  FedServ-RBS submitted a copy of its joint venture application to the appropriate SBA District Office.
• June 16, 2015:  The SBA District Office notified FedServ-RBS that its application was incomplete and contained a number of deficiencies which were identified in the letter.
• June 25, 2015:  The Agency determined that FedServ-RBS' proposal represented the "best value" and sent a letter to SBA requesting its determination of FedServ-RBS' eligibility as an SBA-approved 8(a) joint venture.
• June 26, 2015: FedServ-RBS reviewed the SBA's letter regarding its deficient 8(a) joint venture application (apparently the President of the 8(a) participant was on business-travel and the letter was not opened until his return).
• ​July 1, 2015:  FedServ-RBS mailed the completed joint venture application to the District Office.
• July 1, 2015:  The District Office notified the Agency that FedServ-RBS that as of that date, FedServ-RBS was not an approved 8(a) joint venture.
• Upon receipt of SBA's July 1 correspondence, the source selection authority reevaluated the remaining offerors and determined that another company presented the best value to the Agency.  Following contract award, FedServ-RBS filed this protest.

OHA's Decision:

The main issue in the case was whether the Agency followed required procedures for approval of an 8(a) joint venture.  In concluding that both the Agency and the SBA followed proper procedures, OHA found that:  (1) the SBA was under no obligation to inform the Agency that its eligibility determination had been made prior to full consideration of the joint venture agreement (i.e., after FedServ-RBS submitted all documents addressing the SBA's deficiency notice); (2) the SBA was under no obligation to inform the Agency of the status of its review of an 8(a) joint venture agreement or explain the reasons for its determination; (3) nothing in the regulations would compel or force the Agency to stay a contract award until the SBA completes its review of an 8(a) joint venture agreement.

Lessons Learned:

• As pointed out by FedServ, this decisions in conjunction with current regulations/procedures, could and often may preclude newly-formed joint ventures from receiving 8(a) contract awards unless either the SBA District Office is diligent and timely in their review of the joint venture application OR the contracting Agency is willing to postpone contract award until the SBA review of the joint venture application is complete.  Hopefully, when issued in the Final Rule, the new provision regarding joint venture application submission to SBA will help to address this issue.
• The SBA District Offices  have significant control over whether an 8(a) joint venture is approved.  Thus, you want to ensure that you have good relationships with your District Office, and in particular, with your Business Opportunity Specialist (BOS)
• If you think you might want to form a joint venture for a specific procurement (whether or not an RFP has been issued), you should be proactive in communicating with your BOS.
• Especially in cases where the turnaround might be tight, you should work with an attorney or consultant experienced with 8(a) joint ventures to ensure that your joint venture application is compliant and increase your chances of having your application be approved in a timely manner.

If you have any questions regarding 8(a) joint ventures, please contact us at: (808) 369-9710 or at info@holomuaconsulting.com.