New CVE Guidance on Joint Ventures and Mentor-Protégé Relationships

May 15, 2017

By Peter B. Ford

Earlier this month, the VA’s Center for Verification and Evaluation (“CVE”) published a new VA Verification Assistance Brief, Understanding Joint Venture and Mentor-Protégé Agreement Eligibility (“Assistance Brief”). The Assistance Brief explains the criteria that make a joint venture (“JV”) eligible for verification and inclusion in the VA VetBiz Vendor Information Pages (“VIP”) database, which is helpful given that the VA’s regulations, specifically 38 C.F.R. Part 74, say very little in terms of how a JV can be verified by CVE as an eligible veteran-owned or service-disabled-veteran-owned small business (“VOSB” or “SDVOSB”). Nevertheless, VOSBs and SDVOSBs interested in forming JVs to pursue set-aside work with the VA must not treat the new CVE guidance as gospel because the Assistance Brief, while informative, cites outdated SBA regulations and, at the same time, raises questions about how the VA’s own regulations should be interpreted.

If you are wondering why a VA Verification Assistance Brief on JVs would reference SBA rules in the first place, the answer is two-fold: for a JV to be considered a VOSB or SDVOSB for VA set-aside work, (1) the JV must qualify as a small business under the SBA’s size rules for SDVOSB JVs; and (2) the parties’ joint venture agreement (“JVA”) must contain the 12 provisions required by the SBA’s regulations on SDVOSB JVs. And, in this regard, the Assistance Brief is a valuable resource (with one exception discussed below), as it cites the full text of each provision that must be set forth in the JVA. Moreover, the Assistance Brief explains that a JV between a verified SDVOSB or VOSB and a large business can qualify as small, provided the parties have a Mentor-Protégé Agreement (“MPA”) approved by the SBA. In other words, the Assistance Brief confirms that the VA will recognize the exemption from affiliation available to JVs formed under the umbrella of an SBA-approved MPA.

Still, VOSBs and SDVOSBs should be cautioned that the VA/CVE is mistaken with respect to how JV profits should be split. According to the Assistance Brief, the JVA has to contain a provision stating that the VOSB or SDVOSB partner will receive profits from the JV commensurate with its ownership interest in the JV. However, in December of last year, the SBA made a technical correction to its SDVOSB JV regulations to clarify that the JVA shall state that the SDVOSB partner must receive profits from the JV commensurate with the work performed by the SDVOSB. Notably, the Assistance Brief also states that a JV may be in the form of a partnership. While the SBA’s rules on JVs make clear that a JV can have a formal structure (e.g., an LLC) or an informal structure (e.g., a partnership), a JV—as defined under the VA’s regulations—must be in the form of a separate legal entity, which suggests you cannot form a JV as a partnership to pursue VA work.   

In closing, the Assistance Brief sheds additional light on how a JV can be verified by CVE and included in the VIP database. Thus, if you are looking to form a JV to pursue VA set-aside work, you should review the Assistance Brief—but for informational purposes only. As the disclaimer in the Assistance Brief appropriately warns, the information provided may not be accurate or up-to-date and, as such, you need to review the applicable regulations and/or seek counsel with expertise in this area.

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

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