Control and Responsibility in SDVO SBC Joint Ventures: More than a Title

June 24, 2015

By Peter B. Ford

Most Service-Disabled Veteran-Owned (“SDVO”) Small Business Concerns (“SDVO SBCs”) are likely familiar with the Small Business Administration’s (“SBA”) requirements for an SDVO SBC to submit an offer for an SDVO contract as a joint venture (“JV”). One requirement in particular, i.e., that the parties’ joint venture agreement (“JVA”) contains a provision designating the SDVO SBC as “managing venturer” and an employee of the SDVO SBC as “project manager”, has been heard time and time again by the many SDVO SBCs who have a hungry appetite for joint venturing.

And, for those SDVO SBCs who have watched an SDVO contract award fall out of their hands, simply because they either did not identify the project manager by name or designated the SDVO SBC as managing venturer in a different document—which was not part of the JVA— I would bet this requirement is deeply ingrained in memory.

But, is that really enough to survive a SDVO SBC status protest? In other words, if within the four corners of the JVA there is an express, unambiguous statement that the SDVO SBC and a specific employee of the SDVO SBC will serve as managing venturer and project manager, respectively, is the JVA bulletproof—at least with respect to this SBA requirement? The SBA Office of Hearings and Appeals (“OHA”) certainly does not think so. In this regard, OHA has repeatedly found a JVA for an SDVO contract to be deficient and noncompliant with SBA regulations where the apparent “managing venturer” and/or “project manager” exists in title only.

On the managing venturer issue, the OHA case law makes clear that to comply with the regulation requiring the SDVO SBC be the managing venturer, the SDVO SBC’s control must be unequivocal. Thus, provisions in a JVA requiring a supermajority vote are problematic when the effect of the provision is that the non-SDVO SBC partner to the JV could potentially exercise negative control over significant decisions and hobble the SDVO SBC in its management of the JV. So, how much say can the non-SDVO SBC partner have over the JV’s business operations?  Very little, if any.

OHA has compared the managing venturer of a JV for an SDVO contract to the service-disabled veteran (“SDV”) owner of an individually-owned SDVO SBC, meaning that the autonomy and authority necessary to be considered the “managing venturer” arguably extends to any and all JV decisions. In fact, case law suggests that even a dual signature requirement for withdrawals from an SDVO SBC JV operating account–which is a very common requirement found in small business JVAs–is too much control for the non-SDVO SBC JV partner to possess.

With respect to the project manager requirement, the OHA case law clarifies that the project manager/SDVO SBC employee must substantively manage each significant part of SDVO contract performance. Thus, if a contract has several phases of performance, the project manager/SDVO SBC employee must be managing each phase. And, to the extent that an employee of the non-SDVO SBC partner to the JV is managing a significant aspect of SDVO contract performance, the JV is not in compliance with the regulation requiring an employee of the SDVO SBC be the project manager.

In closing, complying with the SBA regulations governing SDVO SBC JVs requires more than just a cut-and-paste of the regulatory-mandated JVA provisions. Therefore, if you are considering entering into a SDVO SBC JV relationship, upfront thought and consideration should be given to how you can demonstrate that the SDVO SBC managing venturer will control the JV and how the project manager will be responsible for contract performance.

About the author: Peter Ford is an associate with PilieroMazza in the Government Contracts Group. He may be reached at pford@pilieromazza.com.

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