Procurement Technical Assistance Center
Presents
Partnering for Success
By
SHERRY ROSE
Alliance for Business Conference
March 10, 2011
Atlantic City, NJ
Partnering for Success
JOINT VENTURES,
TEAMING
ARRANGEMENTS, ETC.
Why Partner?
1) Increase Competitive Edge
2) Enhance Capabilities
3) Diversify
4) Compete with Large Firms
General Affiliation:

How does SBA determine affiliation?
Concerns and entities are affiliates of each
other when one controls or has the power to
control the other, or a third party (or parties)
controls of has the power to control both
 It does not matter whether control is
exercised, so long as the power to control
exists
 Factors: ownership, management, previous
relationships or ties; contractual relationships.




Control may be positive or negative (e.g., negative
control where shareholder has ability to prevent
quorum or otherwise block actions of board or
directors)
Totality of circumstances, even though one single
factor is insufficient for finding of control.
In determining size, SBA counts the receipts or
employees of the concern and all of its domestic and
foreign affiliates, regardless of whether organized for
profit.
Affiliation
Some General Principles of Affiliation
(13 CFR 121.103)
 Power to Control
 Common Managers
 Common Stockholders
 Identical Business Interests
 Contractual Relationships
 Joint Venture Arrangements
What is a Joint Venture?
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.
What is a Joint Venture?
This means that…
The joint venture entity cannot submit more than three offers
over a two-year period, starting from the date of the
submission of the first offer.
A joint venture may or may not be in the form of a separate
legal entity.
The joint venture is viewed as a business entity in
determining power to control its management.
SBA may also determine that the relationship between a
prime contractor and its subcontractor is a joint venture,
and that affiliation between the two exists.
Affiliation
Parties to a
Joint Venture
are considered to
be affiliates if
submitting offers
on a particular
procurement.
Affiliation
SBA may also determine that the
relationship between a prime
contractor and its subcontractor is
a joint venture, and that affiliation
between the two exists.
What is Ostensible
Subcontracting?
A contractor and subcontractor are treated as joint
ventures if the ostensible subcontractor
will perform primary and vital requirements of a
contract or if the prime contractor is unusually
reliant upon the ostensible subcontractor.
All requirements of the contract are considered in
reviewing such relationship, including contract
management, technical responsibilities, and the
percentage of subcontracted work.
Ostensible Subcontracting: 13 CFR 121.103 (h)(4)
Seven-Factors Test
1. Which party chased the contract?
2. What degree of collaboration was there
between the prime contractor and
subcontractor on the proposal?
3. Which party possesses the requisite
background and expertise to carry out the
contract?
4. Who will manage the contract?
Seven-Factors Test
5. Are there discrete tasks to be performed by
each party, or is there commingling of
personnel and materials?
6. What is the amount of work to be performed
by each party?
7. Which party performs the more complex and
costly contract functions?
Seven-Factors Test
The “seven factors” test is only one tool used by
SBA to evaluate whether the relationship is a true
prime/subcontractor relationship or a joint venture
under the ostensible subcontractor regulations.
It is not the exclusive test of the presence of unusual
reliance. Ultimately, a finding of unusual
reliance, which rises to the level of a joint
venture affiliation, must be a reasonable
conclusion based on the totality of the
circumstances.
To learn more

Decisions made by the Office of Hearings
and Appeals (OHA) in Washington can
provide insight on “ostensible
subcontracting” if you’re concerned.
Go to: www.sba.gov/oha and then “search
decisions.”

Search using key words such as
“ostensible subcontracting” or “totality of
the circumstances” or “joint venture.”
Affiliation
 Know how to advise a firm to form a
Joint Venture without becoming
affiliated with its partner!
Affiliation with another partner could
result in a finding that a firm is no longer
a small business.
Affiliation
There is an
Exception to
Every Rule!
Exclusion from Affiliation
A joint venture arrangement
of two or more business
concerns may submit an offer as a
small business for a Federal
procurement without regard to affiliation
provided…
Exclusions
1) Each concern is small under the
size standard corresponding to the
NAICS code assigned to the
contract, provided:
A) The procurement qualifies as a
“bundled” requirement, at any dollar value;
or…
Exclusions
B) The procurement is other than a
“bundled” requirement and:
For a procurement having a revenue-based
size standard, the dollar value or the
procurement, including options, exceeds
half the size standard corresponding to the
NAICS code assigned to the contract…or…
Exclusions
For a procurement having an employeebased size standard, the dollar value of the
procurement, including options, exceeds
$10 million.
What is a Bundled Requirement?
Bundled requirement or bundling
refers to the consolidation of two or more
procurement requirements for goods or
services previously provided or performed
under separate smaller contracts into a
solicitation of offers for a single contract
that is likely to be unsuitable for award to a
small business.
Mentor - Protégé
Two firms approved by SBA to be a mentor
and protégé under 13 CFR 124.520 may joint
venture as a small business for any Federal
Government procurement, provided…
…the protégé qualifies as small for the size standard
corresponding to the NAICS code assigned to the
procurement,
…and, for purposes of 8(a) sole source requirements,
has not reached the dollar limit set forth in 13 CFR
124.519.
8(a) BD Participants
A joint venture or teaming
arrangement of at least one 8(a)
Participant and one or more
other business concerns may
submit an offer for a competitive 8(a)
procurement without regard to
affiliation under so long as the
requirements of 13 CFR
124.513(b)(1) are met.
Requirements of
13 CFR 124.513(b)(1)
The requirements of 13 CFR 124.513(b)(1)
include the following:
A joint venture of at least one 8(a) Participant
and one or more other business concerns may
submit an offer as a small business for a
competitive 8(a) procurement so long as each
concern is small under the size standard
corresponding to the NAICS code assigned to
the contract, provided…
Requirements of
13 CFR 124.513(b)(1)
1) The size of at least one 8(a) Participant to
the joint venture is less than one half the size
standard corresponding to the NAICS
assigned to the contract; or
2) For a procurement having an employeebased size standard, the procurement
exceeds $10 million;
Service Disabled Veteran-Owned
13 CFR 125.15 (b)

An SDVOSB may enter into a joint venture agreement with
one or more other small businesses for the purpose of
performing an SDVOSB contract –

-
Joint venture of at least one SDVOSB and one or more other
business concerns may submit an offer for a competitive SDVOSB
procurement so long as each concern is small under the applicable
NAICS code and size standard, provided:
For a revenue-based size standard, the procurement exceeds half
the size standard corresponding to the applicable NAICS code;
-For an employee-based size standard, the procurement exceeds
$10 million.
- The joint venture must contain provision set forth in the
regulations.

-For sole source and competitive SDVOSB
procurements that do not exceed dollar levels,
an SDVOSB entering into a joint venture
agreement with another concern is considered
to be affiliated with respect to performance of the
SDVOSB contract (annual receipts or
employees must meet applicable size standard).
SDVOSB must
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Be managing partner of jv and project manager
Receive at least 51% of net profits of jv
The jv must perform applicable percentage of work
Prime Contractor Performance Requirements
(Limitations On Subcontracting) (13 CFR 125.6)

In order to be awarded a full or partial small business set-aside contract,
8(a) contract, or an unrestricted procurement where firm claims 10% SDB
price evaluation preference, a small business concern must:
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In the case of a contract for services (except construction), perform at least 50
percent of the cost incurred for personnel with its own employees
In the case of a contract for supplies or products (other than procurement from a
non-manufacturer of such supplies or products), perform at least 50 percent of
the cost of manufacturing the supplies or products (not including the cost of
materials)
In the case of a contract for general construction, perform at least 15 percent of
the cost of the contract with its own employees (not including cost of materials)
In the case of a contract for construction by special trade contractors, perform at
least 25 percent of the cost of the contract with its own employees (not including
cost of materials)
An SDVOSB – same percentages apply, except percentages may be met by the
SDVOSB prime contractor or the employees of other SDVOSB’s.
A HUBZone small business – same percentages; however, service and
manufacturing percentages may be met by one or more qualified HUBZone small
businesses.
Supply of Manufactured
Products (13 cfr 121.406)

On a small business set-aside or 8(a) contract, a
small business must –
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Be the manufacturer of the end item being procured
(end item must be manufactured in the U.S), or –
Qualify as a non-manufacturer, kit assembler, or
supplier under Simplified Acquisition Procedures.
Non-Manufacturer
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Does not exceed 500 employees
Is primarily engaged in retail or wholesale trade
and normally sells type of item being supplied
Will supply the end item of a small business
manufacturer or processor made in the United
States (unless a waiver has been granted by
SBA)
NOTE: THERE ARE NO WAIVERS TO THE
NON-MANUFACTURING RULE FOR
HUBZONE CONTRACTS (13 CFR
126.601(e)(1))
Kit Assembler

Where the manufactured item is a kit of supplies or other
goods provided for a special purpose, the small business
offeror must –
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Have fewer than 500 employees, AND
50 percent of the total value of the components of the kit must be
manufactured by U.S. small businesses under the size standard
for the applicable NAICS code
The offeror need not itself be the manufacturer of any of the
items assembled
If the Government has specified an item for the kit which is not
produced by U.S. small business concerns, such item shall be
excluded for calculation of total value.
Simplified Acquisition
Procedures

Where the procurement for a manufactured item
is processed under Simplified Acquisition
Procedures (13.101 of FAR – 48 CFR 1301) and
where the anticipated contract cost will not
exceed $25,000, offeror need not supply end
product of a small business concern as long as
the product is manufactured or produced in the
U.S. and the offeror has fewer than 500
employees.

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Offeror need not be manufacturer
Does not apply to subcontractors.
What is a Manufacturer?

There can be only one manufacturer of the end item being
acquired
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With its own facilities, performs the primary activities in
transforming inorganic or organic substances, including the
assembly of parts and components, into the end item being
acquired.
End item must possess characteristics which, as a result of
mechanical, chemical or human action, it did not possess before
original substances, parts or components were assembled or
transformed.
Firms that add substances, parts or components to an existing end
item to modify its performance will NOT be considered end item
manufacturer where those identical modifications can be performed
by and are available from manufacturer.

What are the Evaluation
Factors?
Evaluation factors:
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Proportion of total value added by efforts of the
concern, excluding costs of overhead, testing, quality
control, and profit;
Importance of the elements added to the function of
the end item, regardless of relative value;
Concern’s technical capabilities; plant, facilities and
equipment; production or assembly line processes;
packaging and boxing operations; labeling of
products; and product warranties.
Computer Assemblers

Firms that provide computer and other information
technology equipment primarily consisting of
components parts (such as motherboards, video
cards, network cards, memory power supplies,
storage devices, and similar items) who install
components totaling less than 50% of the value of
the end item are generally NOT considered the
manufacturer of the end item.
Recent OHA Decisions
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Size Appeal of ACCESS Systems, Inc., SIZ4843 (April 4, 2007)
Size Appeal of TKC Technology Solutions,
LLC, SIZ-4783 (May 10, 2006)
Size Appeal of Lance Bailey & Associates,
Inc., SIZ-4817 (November 1, 2006)
Size Appeal of Taylor Consultants, Inc.,
SIZ-4775 (April 7, 2006)
Procurement Technical Assistance Center
SHERRY ROSE
E-mail: srose@adm.njit.edu
1535 Bacharach Blvd.
Atlantic City, NJ 08401
Phone 609-343-4845
Fax: 609-343-4710