Just because an 8(a) small business and a large business have been approved to participate in the Small Business Administration's (SBA) 8(a) mentor-protégé program under 13 CFR § 124.520 does not mean that any joint venture between the two companies will be automatically exempt from the rules of affiliation.
In a recent, first of its kind, decision, a joint venture consisting of an approved mentor-protégé team was awarded, and then lost, a multi-million dollar U.S. Army Corps of Engineers (Corps) small business set-aside contract to design and build an Army Reserve Center because the SBA found the joint venture partners to be affiliated under the SBA's rules of affiliation (13 CFR § 121.103).
After award, the contracting officer questioned whether the joint venture agreement submitted by the joint venture partners satisfied the SBA's rules and initiated a size protest with the SBA Area Office. The Area Office determined that the joint venture agreement did not itemize all major equipment, facilities, and other resources to be provided by each party, failed to specify the responsibilities of the parties, and did not show how the joint venturers would meet the minimum performance requirements.
In Size Appeal of: Kisan-Pike, A Joint Venture, SBA No. SIZ-5618, 2014, the SBA's Office of Hearings and Appeals (OHA) affirmed the SBA Area Office's size determination that a joint venture between 8(a) protégé, Kisan Engineering Company, P.C., and it mentor, The Pike Company, Inc. exceeded the size standard for a small business general contractor because the two joint venture partners were affiliated.
Under 13 CFR § 124.513(c)(6) and (7), a valid joint venture must contain provisions:
" Itemizing all major equipment, facilities, and other resources to be furnished by each party to the joint venture, with a detailed schedule of cost or value of each; [and]
" Specifying the responsibilities of parties with regard to negotiation of the contract, source of labor, and contract performance, including ways that the parties to a joint venture will ensure that the joint venture and the 8(a) partner(s) to the joint venture will meet the performance of work requirements set forth in paragraph (d) of this section.
In the Kisan-Pike joint venture agreement, the joint venture partners tried to satisfy the first requirement with the simple statement: "Upon award of the contract, Kisan and Pike will provide equipment, facilities, and other resources to the Joint Venture required to execute the contract."
The SBA found neither this statement, nor the joint venturer's claim that it was sufficiently detailed because it was a design build contract and they could not confirm the construction plan before the Corps approved the design to be persuasive. The SBA noted that the Phase II proposal contained proposed design drawings and a detailed construction schedule, so presumably, the joint venture would have some idea of what equipment and resources each could provide.
With respect to the source of labor and contract performance, the joint venture agreement stated that the president of the protégé would negotiate and manage the contract, but did not designate specific tasks to either Kisan or Pike. The agreement also only noted that the joint venture must perform 15% of the cost of the contract incurred for personnel with its own employees (not including the cost of material). The SBA found that simply stating the minimum performance requirements is insufficient to meet the requirement.
The Area Office also found (and OHA confirmed) that the agreement did not meet the requirements set forth in 13 CFR § 124.513(d), which requires the 8(a) protégé to perform at least 40% of the work performed by the joint venture and that the protégé's work consist of "more than administrative of ministerial functions." All the agreement did was make "broad" and "generic" representations that Kisan will perform at least 40% of the work without any details or plan.
Most interesting to participants in the SBA 8(a) mentor-protégé program, OHA rejected the argument that mentors and protégés are presumably unaffiliated when there is an SBA-approved mentor-protégé agreement. 13 CFR § 124.520(d)(4) states: "No determination of affiliation or control may be found between a protégé firm and its mentor based on the mentor/protégé agreement or any assistance provided pursuant to the agreement." OHA explained that the Area Office did not find affiliation based on the mentor-protégé agreement itself, but rather the Area Office determined that the exception of mentor-protégé joint ventures is not available because the agreement did not meet the requirements set forth in the SBA regulations.
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