The document discusses joint ventures and teaming agreements for pursuing federal government contracts. It describes the key differences between joint ventures and prime/subcontractor teams. For joint ventures, it covers formation considerations, required provisions for 8(a) and SDVOSB joint ventures, and subcontracting limits. For teams, it discusses recommended teaming agreement provisions and subcontract requirements. The document also provides an overview of mentor-protégé programs through SBA and DoD.

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-Protégé Programs
• SBA 8(a) mentor-protégé program
• Eligibility and Requirements
• DoD mentor-protégé program
• Requirements
• Other agencies’ mentor-protégé programs
• Affiliation concerns?
• New mentor-protégé programs on the horizon

6. Joint Ventures v. Teams
• Joint Ventures • Teams
– Both parties perform at – Only one party performs
the prime contract level at the prime contract
– Parties split profits and level
losses – Subcontractor paid on a
– Parties may form a new pre-determined basis
legal entity – No new legal entity
– Subcontracting limits created
apply to JV as a whole – 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 “individual size
treatment” 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) protégé may JV with mentor based only on
protégé’s size

12. Joint Ventures
• What is a Joint Venture?
• Two or more companies
• Combine resources, skills, efforts, & knowledge
• Share profits and losses
• Temporary basis
• “Three in two” 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 “partnership by contract” 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 “legal fiction” 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-
protégé 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
• SBA’s 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 VA’s 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 “legal
fiction” 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 JV’s 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 labor—who 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
• “Pay-when-paid” 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
• “Ordinary” 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
• “Up to” larger number may violate the regulation
• Include ongoing compliance mechanism in
subcontract to reduce sub’s 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 “unusually reliant” 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
“totality” 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 sub’s share, the more likely it is to be
an ostensible subcontractor
– 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 sub’s
employee, almost certain to be affiliated
• Other management roles may contribute to a “totality”
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 sub’s
employee, almost certain to be affiliated
• Other management roles may contribute to a “totality”
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 GTSI’s 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-Protégé Programs
• 8(a) Mentor-Protégé Program
• Who can participate?
• Protégé (8(a) company):
• Be in “developmental” 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-Protégé Programs
• 8(a) Mentor-Protégé Program
• Benefits:
• 8(a) and mentor are not affiliated based on
assistance provided by mentor to protégé under
agreement
• 8(a) and mentor may JV as a small business for
any federal contract for which the 8(a) protégé
qualifies as small

43. Mentor-Protégé Programs
• 8(a) Mentor-Protégé 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-Protégé Programs
• DoD Mentor-Protégé Program
• Who can participate?
• Protégé:
• Self-certified SDB
• SDVOSB
• HUBZone
• WOSB
• Mentor: must have at least one active DoD
subcontracting plan

45. Mentor-Protégé Programs
• DoD Mentor-Protégé Program
• Benefits:
• Mentor and protégé not affiliated on basis of
assistance provided by mentor to protégé 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-Protégé Programs
• DoD Mentor-Protégé Program
• Requirements:
• Mentor must submit an application to serve as a
DoD mentor
• Parties must then submit a mentor-protégé
agreement for approval
• Like SBA, DoD has required great detail in recent years

47. Mentor-Protégé Programs
• DHS • FAA
• State • USAID
• Treasury • Energy
• NASA • VA
• GSA • EPA
• HHS • DOT (proposed)

48. Mentor-Protégé Programs
• Affiliation risks?
• March 2011: SBA adopts new size regulations
• New regulations provide that exception from
affiliation only allowed when mentor-protégé
program has been approved by SBA or created by
Congress
• Currently, only SBA 8(a) and DoD comply

49. Mentor-Protégé Programs
• New SBA mentor-protégé programs on the
horizon:
• SDVOSB
• HUBZone
• WOSB
• Congressional directive: programs should be
similar to 8(a)
• May include JV capability

50. Questions?
Thank you!
Questions?

51. Steven Koprince
785-655-0450 (mobile)
785-843-0450 (office)
skoprince@petefishlaw.com
www.petefishlaw.com
www.smallgovcon.com
www.governmentcontractsbook.com