Under the Small Business Administration's regulations, two firms may partner as a joint venture to perform a small business set-aside contract, provided that each partner is a small business under the size standard assigned to the contract. But, a recent SBA decision highlights the fact that simply entering into a joint venture does not excuse each member of the joint venture from SBA scrutiny over affiliation.
In this recent case, a U.S. Department of Defense, Missile Defense Agency contract for business operations support was awarded to a joint venture composed of two (allegedly) small businesses. Following a size protest, the SBA took a closer look at each member of the JV and didn't like what it found.
While one of the JV partners was in fact small, the other had a problem. Specifically, citing to the economic dependence rule, the SBA found that the second firm derived more than 70% (and, in fact, close to 100%) of its business from one source (a large business) over a three year period. Based on this dependence, the SBA determined that the firms are affiliated.
This is bad news not only for the (now no longer small) firm, but also the JV itself. Because each member of the JV is not small, the SBA determined that the JV is not small for purposes of this procurement. In other words, the JV lost the contract.
This case highlights two important points. First, it is essential for small businesses to understand the SBA's rules on affiliation and be confident in their size. Size protests unfold quickly, so information about your business's size should be at your fingertips — and nothing should come as a surprise. Second, the case reinforces the importance of smart teaming on government contracts. If you pick the wrong dance partner, you could find your time and effort in pursuing (and even winning) a contract award is ultimately wasted.
If you are interested, you can learn a lot more about smart and strategic teaming in this presentation.
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