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