Pros and Cons of
Joint Ventures and
Teaming Agreements
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

Sector 23 – Construction

Subsector 236 – Construction of Buildings
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236115 New Single-Family Housing Construction (except Operative Builders)
$33.5

236116 New Multifamily Housing Construction (except Operative Builders)
$33.5

236117 New Housing Operative Builders
$33.5

236118 Residential Remodelers
$33.5

236210 Industrial Building Construction
$33.5

236220 Commercial and Institutional Building Construction
$33.5

Subsector 562 – Waste Management and Remediation Services

562111 Solid Waste Collection

562112 Hazardous Waste Collection $12.5

562119 Other Waste Collection

562211 Hazardous Waste Treatment and Disposal

562212 Solid Waste Landfill

562213 Solid Waste Combustors and Incinerators

562219 Other Nonhazardous Waste Treatment and Disposal

562910 Remediation Services

Except,

562920 Materials Recovery Facilities $12.5

562991 Septic Tank and Related Services

$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

Sector 54 – Professional, Scientific and Technical Services

Subsector 541 – Professional, Scientific and Technical Services

541110 Offices of Lawyers
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541191 Title Abstract and Settlement Offices

541199 All Other Legal Services

541211 Offices of Certified Public Accountants

541213 Tax Preparation Services
$19.0

541214 Payroll Services
$19.0

541219 Other Accounting Services
$19.0

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

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

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

factor may determine affiliation although it can.
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13 CFR 121.103
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Average Annual Receipts

Use Federal Tax Returns

Average of last three completed fiscal years
13 CFR 121.104
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Number of Employees


Count all individuals employed on a full-time,
part-time, or other basis. This includes
employees obtained from a temporary employee
agency, professional employee organization or
leasing concern.
Numbers of employees for each of the pay
periods for the preceding completed 12 calendar
months(running average).
13 CFR 121.106
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Joint Ventures

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.

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

SBA affiliation regulations purposely do not
define “teams” or “teaming agreements”

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—

Two or more companies form a partnership or joint
venture to act as a potential prime contractor.

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.

More about Teaming Agreements later
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What are the Benefits?

General benefit for all concerns, both large and
small:
 The
joint venture 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?

An ostensible subcontractor is a
subcontractor that performs primary and
vital requirements, or a subcontractor upon
which the prime contractor is unusually
reliant.

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

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)

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)

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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* This is separate from the Limitations in Subcontracting at 13 CFR 125.6, which can
require the JV as a whole to perform 15, 25 or 50% of the work with its own
employees.
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Lets Talk about the VA
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For anyone who has tried to re-verify or get a joint venture verified, this
should not be surprising.
The average time to process a CVE package right now is 90 days – maybe.
Understand how that is counted.
If you are going to put together a JV, the rules are similar to a JV for an SBA
venture; however!!!
 If you are going to pursue a Veteran’s First Procurement – there are
some bad templates out there!
 It must be verified by VA prior to submittal of the proposal
 It does not have to be verified to pursue other than the VA but must still
be properly drafted
 The VA is very picky about ownership and control issues – even more so
than the SBA and it is far more difficult to reach a human than it is with
the SBA.
 A verification, as of an interim final rule effective June 27,
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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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Lets Talk about Mentor Protege
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There are 14-15 Mentor Protégé Programs in the Federal Government

SBA by far has the one with the greatest benefits but it is the toughest club to join
 3 best parts of theirs:
 Exemption from affiliation for JVs between the mentor and protégé for pursuit
of any federal procurement
 Mentor may own up to 40% equity investment in protégé
 Mentor may bond the protégé’s jobs for them if written into the MP agreement
 By and large the next best is DOD
 DoD allows for reimbursement of some expenses of the mentor, or
subcontracting credit and also sets aside some procurements for those in the
program.
The rest all contain provisions for extra small business credit in the Mentor’s small
business plan for being a mentor, some have reimbursement of expenses to some
extent for assisting a protégé, etc. Warning – Only SBA’s mentor protégé program
has an affiliation exemption and allows for a JV to exist between a
large and small business.
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The NDAA of 2013
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Passed on January 3, 2013
 This date is very important as will become
clear
Significant legislation affects small businesses in
many areas
 Over 250 pages of the NDAA changes the
Small Business Act
Very common way of changing law – using
stronger legislation to push the change
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The new Mentor Protégé Program
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Or Is It!
The Administrator is authorized to establish a mentor-protege
program for all small business concerns.
The mentor-protege program established under paragraph (1)
shall be identical to the mentor-protege program of the
Administration for small business concerns that participate in
the program under section 8(a)
except that the Administrator may modify the program to the
extent necessary given the types of small business concerns
included as proteges.
REGULATIONS- Not later than 270 days after publ.
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The New Mentor Protégé Program

270 days after this act is passed the Administrator shall:

issue, subject to notice and comment, regulations with respect to mentorprotégé programs
 which shall address, at a minimum, the following
(A) Eligibility criteria for program participants, including any restrictions on
the number of mentor-protégé relationships permitted for each participant.
(B) The types of developmental assistance to be provided by mentors,
including how the assistance provided shall improve the competitive viability of
the protégés.
(C) Whether any developmental assistance provided by a mentor may affect
the status of a program participant as a small business concern due to
affiliation.
(D) The length of mentor-protégé relationships.
(E) The effect of mentor-protégé relationships on contracting.
(F) Benefits that may accrue to a mentor as a result of
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The New Mentor Protégé Program
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What does all this mean?
The NDAA further expands the mentor-protégé program by
permitting all small business concerns to qualify for protégé
status. This newly-expanded program must function
identically to the program established for the 8(a) companies.
While the SBA has not yet issued regulations on the mentorprotégé program created in the Jobs Act, the NDAA directs the
SBA to issue, subject to notice and comment, regulations
pursuant to the even broader mandate of section 1641 within
270 days from the enactment of the NDAA.
It’s the “Exception” language that may allow the Mentor
Protégé Program for other businesses to differ
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Teaming Agreements
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
Unlike Joint Ventures, a Teaming Agreements (TA)
requires one company (or entity) to act as a Prime
contractor and all other members of the team are
subcontractors.
What does this mean legally?
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The prime is the only one who has privity (is on the hook) with the
client.
The subcontractors do not have a Federal contract but have a
commercial subcontract with the Prime – if the Prime opts to
award one once the contract is awarded – only to the Prime
So there is a great deal of risk to the Team if the TA is poorly
drafted, is unenforceable, or is not clear in what is expected from
the Parties.
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Teaming Agreements

So how do we obtain equity (share the pain) with the
Prime in our Teaming Agreement (TA) in a Federal
Contract?
 First – Be aware of the FAR Flow-down Clauses.
 Note: FAR flow downs will vary with type of contract
 There are mandatory flow-down clauses
 Clearly define roles of the Parties – who leads, who
assembles proposals, contacts with client
 Clearly identify the project
 Clearly identify what each member of the team will get
if you win – Attachment “A”
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Teaming Agreements
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If proprietary information is to be furnished for the
proposal to the prime, and they are normally a
competitor, state it will be provided in a sealed or
confidential manner, not to be opened. Protect yourself.
Do you desire exclusivity?
If orals are to be given, does the sub(s) wish/need to
participate?
State whether costs of proposal preparation are borne by
each Party or will be charged against the team should
the proposal be successful (not normally done)
Make sure there is some agreement on how a
subcontract will be negotiated/awarded to sub(s)
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Teaming Agreements
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What are the agreements regarding news
releases/publicity among the team members?
Non-Disclosure/Confidentiality provisions
Events that terminate the Agreement (do not want this
thing hanging out there if we lose or decide not to work
together)
What provisions shall survive the termination of the
agreement (e.g. confidentiality)

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Man this is dry AND boring isn’t it!!!
Where will notices be sent to for each party – ensure
adequate communications – keep any debates at a
minimum
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Teaming Agreements
In order to assist in avoiding charges of affiliation insert a
comment stating this agreement is not intended to form a
joint venture …
 Non-assignment clause
 Do not restrict the right of a Party to negotiate with the
client on unrelated or pre-existing matters (careful
drafting required)
 No Poaching of employees
***Understand that provisions in TAs between two
sophisticated Parties (large businesses) can be much more
onerous than between a large and small business

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Where Can I Find the CFR?
Federal Regulations (CFR) on-line:

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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