koprince sdvosb joint venturing & teaming presentation - el paso august 2012

Steven J. KoprincePartner

Petefish, Immel, Heeb & Hird, LLP

Government Contracts Solutions for Small Business

SDVOSB Joint

Venturing, Teaming &

Subcontracting7th Annual Veterans

Business Conference

Overview

• Why joint venture or team?• Where can I find teammates?• JV and teaming legal risks• Joint ventures v. prime/subcontractor teams• SDVOSB joint ventures• SDVOSB prime/subcontractor teams• Mentor protégé programs• Question-and-answer

Why JV or Team?

• Offer more to the government in terms of:ResourcesPast performanceKey personnelOther capabilities

• Improve proposal• Pursue larger or more complex contracts• Share risks and liabilities

Finding Teammates

• Industry days• Procurement conferences• OSDBUs• PTACs & SBDCs• Personal contacts• Online resources (e.g., LinkedIn)

Legal Risks

• Non-compliance with mandatory JV provisions

• JV affiliation/size problems• Violation of ostensible subcontractor rule• Violation of subcontracting limits• Loss of SDVOSB “control” by service-disabled

veteran

Joint Ventures v. Teams

• Joint Ventures– Both parties perform at

the prime contract level– Parties split profits and

losses– Parties may form a new

legal entity– Subcontracting limits

apply to JV as a whole

• Teams– Only one party performs

at the prime contract level

– Subcontractor paid on a pre-determined basis

– No new legal entity created

– Subcontracting limits apply to prime only


• 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


• 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


• 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


• Size requirements• JV: sizes of joint venturers may be added together

to determine small business status

• Team: only the size of the prime contractor is considered in determining small business status

SDVOSB 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


• SDVOSB JV Requirements (13 C.F.R. 125.15):At least one joint venturer must be a SDVOSBJoint venture must qualify as small• Cannot JV with a large business

Parties must adopt written JV agreement containing mandatory provisions

JV can be informal or formal


• Mandatory SDVOSB JV provisions (13 C.F.R. 125.15(b)): SDVOSB designated as managing venturerEmployee of SDVOSB as project manager• Need specific name!

At least 51% of net profits to SDVOSB• Regardless of work share

Specify responsibilities of parties


• Mandatory SDVOSB JV provisions (13 C.F.R. 125.15(b)): All parties obligated to continue performanceFinal original records maintained by SDVOSB

managing venturer• For VA & FAA procurements:

JV itself must be verified by CVEJV must be a separate legal entity

• No prior approval required for others

JVs and Subcontracting

• The JV itself, as prime contractor, is subject to the subcontracting limits

• For SDVOSB JVs, no rule regarding work split among JV membersKeep in mind management requirementBeware “control” issues.

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

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

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• For SDVOSB prime contracts, self-

performance requirements can be met by subbing to other SDVOSBs.

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

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

Serving as a SDVOSB Sub

• For most prime contracts, may self-certify as a SDVOSB subcontractor if meet all qualifications

• However, for VA prime contracts containing VAAR 852.219-9, must be listed as verified in VetBiz to qualify as a SDVOSB subcontractor

Mentor-Protégé Programs

• DoD Mentor-Protégé Program• SDVOSB may participate as protégé• Mentor: must have at least one active DoD

subcontracting plan• Recently, DoD has required very thorough and

detailed applications


• 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


• DHS• State• Treasury• NASA• GSA• HHS

• FAA• USAID• Energy• VA• EPA• DOT (proposed)


• 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• SBA OHA has held that affiliation may exist based

on VA M-P assistance


• New SBA mentor-protégé programs on the horizon, including SDVOSB

• Congressional directive: programs should be similar to 8(a)• May include JV capability

Questions?

Thank you!

Questions?