By Megan Connor
When the SBA issued its final rule concerning its new Small Business Mentor Protégé Programs, it adopted a major change for 8(a) and small business joint ventures: no more populated joint ventures. Instead, the rule provides that where a joint venture is formed as a separate legal entity, like a limited liability company, it may not have its own separate employees to perform contracts awarded to the joint venture.
For contractors well-versed in the National Industrial Security Program Operating Manual (“NISPOM”) and who otherwise pursue and perform cleared contracts, the SBA’s move away from populated joint ventures in favor of unpopulated joint ventures raises some eyebrows. A joint venture without any personnel of its own cannot obtain a facility clearance (“FCL”) because an FCL always depends on the personnel security clearance (“PCL”) of the company’s key management personnel, including the facility security officer (“FSO”). In other words, the only way a contractor receives an FCL is if it has cleared employees.
So how, then, can a small business comply with the SBA’s regulations requirement for an unpopulated joint venture (if a separate legal entity) and the requirements of Defense Security Service and NISPOM?
By “populating” the joint venture with administrative personnel. This is expressly allowed under SBA’s regulations. While the SBA does not want separate legal entity joint ventures populated with direct labor, the regulations expressly allow a joint venture to have “its own separate employees to perform administrative functions.” 13 C.F.R. § 121.103(h). Thus, a joint venture may be populated with employees and still be considered an unpopulated joint venture so long as these employees are not performing the contracts awarded to the joint venture.
The administrative personnel employed by an unpopulated joint venture can be the individuals upon whom the joint venture’s FCL is based. For instance, the joint venture could employ a single management position, the FSO, and the joint venture’s FCL would be contingent on the FSO’s PCL. Although the NISPOM requires the FSO to be an employee of the cleared entity, there is no requirement for the FSO to be a full-time employee, so the FSO could split his time as the FSO of the joint venture and as the FSO of one of the venturers. The FSO could not perform direct labor on the joint venture’s contracts, but could (and should) be performing administrative functions, like supervising the joint venture’s compliance with the NISPOM and maintaining the joint venture’s records in the Joint Personnel Adjudication System.
About the Author: Megan Connor, an associate with PilieroMazza, focuses her practice in the areas of government contracts, small business administration programs, business and corporate law, and litigation. She may be reached at [email protected].