Joint Venture and Teaming
Arrangements
February 28, 2013
Construction Opportunities Conference
David Rose
Principal Attorney
Rose Consulting Law Firm
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What is a small business?
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Organized for profit
Place of Business in the U.S., operates primarily
in the U.S., or makes a significant contribution to
the U.S. economy (taxes, use of American
products/labor)
Does not exceed the small business size
standard for the procurement.
Each North American Industrial Classification
System (NAICS) Code has a small business size
standard.
13 CFR 121.105
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NAICS Codes and Size Standards
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Sector 23 – Construction
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Subsector 236 – Construction of Buildings
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236115 New Single-Family Housing Construction (except Operative Builders)
$33.5
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236116 New Multifamily Housing Construction (except Operative Builders)
$33.5
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236117 New Housing Operative Builders
$33.5
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236118 Residential Remodelers
$33.5
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236210 Industrial Building Construction
$33.5
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236220 Commercial and Institutional Building Construction
$33.5
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Subsector 562 – Waste Management and Remediation Services
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562111 Solid Waste Collection
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562112 Hazardous Waste Collection $12.5
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562119 Other Waste Collection
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562211 Hazardous Waste Treatment and Disposal
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562212 Solid Waste Landfill
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562213 Solid Waste Combustors and Incinerators
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562219 Other Nonhazardous Waste Treatment and Disposal
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562910 Remediation Services
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Except,
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562920 Materials Recovery Facilities $12.5
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562991 Septic Tank and Related Services
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$12.5
$12.5
$12.5
$12.5
$12.5
$12.5
$14.0
Environmental Remediation Services
500
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$7.0
562998 All Other Miscellaneous Waste Management Services
$7.0
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Engineering NAICS/Size Standards
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Sector 54 – Professional, Scientific and Technical Services
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Subsector 541 – Professional, Scientific and Technical Services
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541110 Offices of Lawyers
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541191 Title Abstract and Settlement Offices
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541199 All Other Legal Services
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541211 Offices of Certified Public Accountants
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541213 Tax Preparation Services
$19.0
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541214 Payroll Services
$19.0
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541219 Other Accounting Services
$19.0
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541310 Architectural Services
$7.0
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541320 Landscape Architectural Services
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541330 Engineering Services
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Except,
Military and Aerospace Equipment and Military Weapons
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Except,
Contracts and Subcontracts for Engineering Services Awarded Under the
National Energy Policy Act of 1992
$10.0
$10.0
$10.0
$19.0
$7.0
$14.0
$35.5
$35.5
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Except,
Marine Engineering and Naval Architecture
$35.5
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NAICS codes 221111, 221112, 221113, 221119, 221121, 221122 – A firm is small if, including its
affiliates, it is primarily engaged in the generation, transmission, and/or distribution of electric energy for
sale and its total electric output for the preceding fiscal year did not exceed 4 million megawatt hours.
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Size must include Affiliates
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What is an Affiliate?
When one controls or has the power to control
another.
 Common ownership
 Common control
 Common management
 Identity of Interest (family members, common
investments, dependant through contractual
relationships)
 Newly organized concerns
 Joint Ventures
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13 CFR 121.103
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What other issues can create Affiliation?
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The ownership Structure
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Who are the other owner(s) besides the 51% owner?
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Are they owner(s) of other companies?
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Are they companies themselves?
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Are they in the same or similar line of business?
Look at the Operating Agreement or By-Laws
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Are there shared control arrangements?
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Do managers in the LLC or board members (Inc.) share
decision making?
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What about negative control issues – Can a manager or board member block a
quorum by not attending a meeting?
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Does the firm unduly rely on another for materials or subcontracts (like an unofficial
mentor)?
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SBA uses a totality of the circumstances review, so generally no one
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factor may determine affiliation although it can.
13 CFR 121.103
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Joint Ventures
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A joint venture is an association of individuals and/or concerns
with interests in any degree or proportion by way of contract,
express or implied, consorting to engage in and carry out no
more than three specific or limited-purpose business ventures
for joint profit over a two year period, for which purpose they
combine their efforts, property, money, skill, or knowledge, but
not on a continuing or permanent basis for conducting
business generally.
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This means that the joint venture entity cannot have more
than 3 contracts over a two year period, starting from the date
of the submission of the first offer (3-in-2 rule).
13 CFR 121.103(h)
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Joint Venture vs. Prime/Sub Relationship
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SBA affiliation regulations purposely do not
define “teams” or “teaming agreements”
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Joint Ventures
 Formal joint venture (Separate legal entity,
such as LLC)
 Informal (no new entity formed)

Prime Subcontractor Relationships
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Teaming Arrangement: FAR 9.601
“Contractor Team Arrangement,” as used in this
subpart, means an arrangement in which—
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Two or more companies form a partnership or joint
venture to act as a potential prime contractor.
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A potential prime contractor agrees with one or more
other companies to have them act as its
subcontractors under a specified Government
contract or acquisition program.
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What are the Benefits?
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General benefit for all concerns, both large and
small:
 The
joint or team is able to compete for larger,
more technically complex contracts by
combining the capabilities and past
performance of various team members.
FAR 9.601
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Joint Venture Exceptions to Affiliation
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A joint venture is a small business concern, when the
combined revenue/employees of all joint venture
partners do not exceed the small business size standard.
Exception, a joint venture is considered small, when
each joint venture partner is small and if:
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The procurement is bundled; or
For a procurement having a receipts based size standard,
the dollar value of the procurement exceeds ½ the size
standard; or
For procurements having an employee based size
standard, the dollar value of the procurement exceeds $10
million.
13 CFR 121.103(h)(3)
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Points for Prime/Sub Relationships
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Agencies may consider an offeror’s subcontractor’s
capabilities and experience under relevant evaluation
factors, where the RFP does not prohibit the
consideration of a subcontractor’s experience in the
evaluation of proposals (Roca Management Education &
Training, Inc., January 15, 2004, GAO, B-293067).
The prime contractor is solely responsible for meeting all
contract requirements, including the Limitations on
Subcontracting percentage.
Must watch out for Ostensible Subcontractor relationship
with its subcontractor(s).
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What is an Ostensible Subcontractor?
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An ostensible subcontractor is a
subcontractor that performs primary and
vital requirements, or a subcontractor upon
which the prime contractor is unusually
reliant.
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A contractor and its ostensible
subcontractor are treated as joint
venturers, and therefore affiliates, for size
determination purposes.
13 CFR 121.103(h)(4)
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When is one Ostensible?
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The SBA originally came up with what we refer to as the 7 factor test. Although they use
the “Totality of the Circumstances” test now, we will see in decisions by the GAO, Claims
Courts and others grappling with the Ostensible Subcontractor issue, the 7 factor test being
frequently referred to. So, to give you some point of reference, I am going to list the 7
factors here.
(1) who will manage the contract
(2) which party possesses the background and expertise necessary for contract
performance
(3) which party chased the contract
(4) the degree of collaboration in preparation and submission of the competitive proposal
(5) whether there are discrete tasks to be performed by each of the teaming partners, or
whether there is instead commingling of personnel and resources
(6) the relative amount of work to be performed by each teaming partner
(7) which party will perform the more complex and costly contract functions.
D.P. Associates, Inc., No. 2719, Aug. 7, 1987
These factors are not weighed equally, and not one of them is a conclusive
test of unusual reliance.
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Morris-Griffin v. C&L Service Corporation = Ostensible
Subcontractor
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Recent Case on Affiliation and Ostensible
Subcontractors –
http://www.roseconsultingllc.org/Summary_of_MorrisGriffin_v.pdf
Morris‐Griffin v. C&L Service Corporation, 2010 WL
3221975 (E.D. Va)
Large HUD loan processing company teamed with
janitorial 8(a) company to win 8(a) set-aside contract to
process loans for HUD – found to have fraudulently
circumvented the SBA rules by using a nominal 8(a)
contractor.
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Points for Joint Ventures
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Do not violate the “3-in-2 rule” – three contracts
won in a two year period, by the same joint
venture entity.
If you violate the rule, general affiliation will be
found.
13 CFR 124.513(a) requires formal approval by
SBA of all joint ventures pursuing 8(a) contracts.
Performance of work requirements apply to
cooperative efforts of the joint venture entity.
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Formal 8(a) Joint Ventures
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For competitive 8(a) procurements that meet 13
CFR 124.513(b)(1)(ii):
 8(a) firm can joint venture with one or more
other businesses and the joint venture is
considered small, so long as each is small
under the size standard for the procurement,
and;
 The size of at least one 8(a) member of the
joint venture must be less than ½ the
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size standard for the procurement.
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Formal 8(a) Joint Ventures (cont’d)
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For joint venture between 8(a) protégé and
SBA approved mentor:
 The
joint venture is considered small, so long as
the 8(a) protégé is small for the procurement.
13 CFR 124.513(b)(3)
 The
joint venture may bid as a small business
on any federal prime procurement.
13 CFR 121.103(h)(3)(iii)
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Formal 8(a) Joint Ventures (cont’d)
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For any 8(a) joint venture between 8(a) business
and another firm to perform an 8(a):
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If the JV is populated, then the 8(a) firm must
perform 40% of the work of the JV and none of the
work may be subcontracted out to JV members.
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If unpopulated (other than admin personnel), then
the 8(a) prime must perform 40% of the work
performed by the total amount of work
subcontracted to members of the JV.
13 CFR 124.513(d)
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Lets Talk about HUBZone JVs
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A HUBZone can only joint venture with another HUBZone
 You do not need to go through formalization of the HUBZone
process for the JV
The same rules apply so far as size of each business
The aggregate of the HUBZone firms in the JV must meet the
applicable Limitations on Subcontracting .
13 CFR §126.616
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Lets Talk about WOSB JVs
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51% of the net profits earned by the joint venture must go to the
WOSB
Final Records to be retained by the WOSB
A copy of the JV must be provided to the CO.
WOSB partner must be managing member
 Employee of WOSB must be the project manager
Specify the responsibilities of the Parties with respect to contract
performance, sources of labor and contract negotiation
Meet applicable Limitations on Subcontracting
13 CFR § 127.506(c)
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Where Can I Find the CFR?
Federal Regulations (CFR) on-line:
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http://ecfr.gpoaccess.gov
Size regulations -- 13 CFR Part 121
8(a) & SDB regulations -- 13 CFR Part 124
Government Contracting Programs – 13 CFR Part 125.6
HUBZone Program – 13 CFR Part 126
Service Disabled Veteran Program – 13 CFR 125
Women-Owned Small Business Program-13 CFR 127
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If you have additional questions,
please contact Dave directly:
David A. Rose
drose@roseconsultinglawfirm.com
Principal Attorney
(678) 854-0222
Rose Consulting Law Firm http://www.roseconsultinglawfirm.com
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SAME National Industry Small Business Advocate of the Year
Global International Magazine
Government Contracts Law Firm of the Year (GA)