Ogechi Achuko, an Associate in Hogan Lovells’ Government Contracts Practice, contributed to this post.
In a recent decision, Kisan-Pike, A Joint Venture, SBA No. SIZ-5618 (Nov. 24, 2014), the Small Business Administration (“SBA”) deemed that an 8(a) Business Development protégé was affiliated with its SBA-approved mentor, a large company, as a result of a deficient joint venture agreement. Kisan-Pike was a joint venture between Kisan Engineering Company, P.C., a small business, and its large business mentor, The Pike Company. Both companies had an SBA-approved mentor-protégé agreement under SBA’s 8(a) Business Development (“BD”) Program.
While ordinarily a joint venture between a large business and a small business would make the joint venture ineligible for small business set-asides due to affiliation between the two entities, the SBA regulations provide that joint ventures between a small business protégé and large business mentor will qualify as small for that particular procurement if certain joint venture agreement requirements are met. 13 C.F.R. § 124.513(b)(3). Specifically, to compete for small business set-aside contracts, joint venture agreements must comply with the requirements in 13 C.F.R. § 124.513(c) and (d), which include a requirement to specify in the agreement:
• All major equipment, facilities, and other resources to be furnished by each party to the joint venture, with a detailed schedule of cost or value of each; and
• The responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract performance
13 C.F.R. §§ 121.103(h)(3)(iii), 124.513.
Kisan-Pike submitted a mentor-protégé joint venture agreement for a small business set-aside contract involving the design and construction of an Army Reserve Center. In the agreement, Kisan-Pike provided generic information regarding work share under the agreement. With respect to equipment to be provided by each party, it stated “upon award of the Contract, Kisan and Pike will provide equipment, facilities and other resources to the Joint Venture required to execute the contract.” With respect to performance of work, the agreement indicated that Kisan would perform a minimum of 40% of the joint venture’s work, and Pike would perform a maximum of 60%, and that both would provide “management personnel and professional, technical support/trade staff.”
The SBA Office of Hearing and Appeals (“OHA”) concluded that the Kisan-Pike joint venture agreement lacked the requisite detail about the resources to be furnished by each party, and the responsibilities of the parties. As a consequence of the faulty joint venture agreement, Kisan-Pike could not take advantage of the mentor-protégé special exemption from affiliation and was not considered a “small business” because it exceeded the applicable size standard.
OHA’s decision provides a warning to 8(a) mentors and protégés on the importance of strict compliance with the 8(a) joint venture regulations under 13 C.F.R. §§ 124.513(c) and (d). SBA mentors and protégés cannot solely rely on their collaborative status alone to avail their joint venture of the mentor-protégé exception; instead, they must demonstrate in the joint venture agreement that the protégé will be actively involved in contract performance, and specify exactly what services and resources will be provided by the protégé. Otherwise, the parties will likely be deemed affiliated and the joint venture will be ineligible for small business set-asides.