Using a Joint Venture for Supply Procurements

January 25, 2019

By Jon Williams

Joint ventures have been popular arrangements for chasing government contracts, particularly since the start of SBA’s All Small Mentor-Protégé program in 2016. The “ASMPP” allows any small business to enter into an SBA-approved mentor-protégé relationship with a large business. Once a mentor-protégé relationship is approved, the small business and large business can form a joint venture to pursue small business set-asides. This marriage of a small and large business to pursue small business contracts can provide a real competitive edge in competitions for set-aside work, which is a big reason we continue to see a lot of activity with joint ventures and mentor-protégé relationships more than two years after the ASMPP opened its doors.

Joint ventures are commonly formed to pursue contracts for professional services and construction projects. But what if you want to use one to pursue a supply procurement? The approach may seem less obvious at first, but joint ventures can provide a similar competitive advantage for supply contracts.

A joint venture may qualify as the manufacturer for a supply procurement if the joint venture partners perform the manufacturing effort. The joint venture itself does not have employees to perform the manufacturing because it must be “unpopulated” according to SBA rules. Therefore, the joint venture itself does not perform the manufacturing—the manufacturing is performed by the joint venture partners. Also, the manufacturing does not need to occur in a facility that is owned outright by the joint venture; if the joint venture occupies the manufacturing facility under a lease from one of the joint venture partners, this has sufficed in prior SBA cases.

So if a joint venture can qualify as a manufacturer, can it qualify as a nonmanufacturer? SBA’s nonmanufacturer rule is one of the most confusing small business rules. It is significant here, though, because under this rule, as long as it qualifies as a nonmanufacturer, a small business can qualify for a set-aside supply procurement, even if it is not the manufacturer of the supply. It is not as clear under SBA rules how some of its joint venture requirements would apply to a nonmanufacturer joint venture, and some of the requirements may be difficult to meet in the nonmanufacturer scenario. But if a joint venture can qualify as a manufacturer, it should be able to qualify as a nonmanufacturer as long as the joint venture partners satisfy the nonmanufacturer and joint venture rules.

SBA’s manufacturer and nonmanufacturer rules are complicated, and they need to be waded through carefully to ensure a joint venture satisfies all their requirements. If done right, using a joint venture to qualify as a manufacturer or a nonmanufacturer for a supply procurement can create a real competitive advantage for firms (including mentors and protégés) pursuing set-aside supply contracts.

About the Author: Jon Williams is a partner with PilieroMazza and a member of the Government Contracts Group. He may be reached at jwilliams@pilieromazza.com.
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