Joint Ventures Pursuant to SBA MPAs – Attention to the Details!

On May 5, 2021, in DSC-EMI Maintenance Solutions, LLC, SBA No. SIZ-6096, the Office of Hearings and Appeals (OHA) of the Small Business Administration (SBA) affirmed a size determination that a joint venture formed pursuant to SBA’s Mentor-Protégé Program was other-than-small because the joint venture agreement (JVA) failed to contain all provisions required by the SBA’s joint venture regulation (at 13 C.F.R. § 125.8(b)) and was therefore ineligible for the exemption from affiliation afforded under SBA’s joint venture affiliation rule (at 13 C.F.R. §  121.103(h)).

OHA noted that notwithstanding the fact that the procurement was for a Facilities Support Services ID/IQ contract, “the work required for significant part of the procurement was known in advance, the maintenance of equipment identified and in known locations.”  Because “the locations to be serviced are known, and the nature of the work is known,” OHA concluded that it was possible for the joint venture “to identify the equipment necessary to perform the maintenance, and which firm would supply which items of this equipment, that is, a precise allocation of known responsibilities, including the allocation of personnel and equipment.”  Since no version of the JVA listed the equipment, OHA ruled that the JVA failed to satisfy the 13 C.F.R. § 125.8(b)(vi) requirement that the JVA itemize “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, where practical.”  (OHA also noted that the JVA and Addendum failed to identify a program manager in violation of 13 C.F.R. § 125.8(b)(ii).) 

As we’ve previously discussed, SBA published a final rule that implemented wide-ranging modifications to SBA’s Mentor-Protégé Program and joint venture regulations.  One such change was to 13 C.F.R. § 121.404 to clarify that compliance with the joint venture requirements (e.g., 13 C.F.R. § 125.8) would now be measured at the time of final proposal revision (FPR) submission.  The protested procurement spanned the change in SBA regulations—with initial proposals submitted in February 2020 and FPRs in December 2020.  Because the joint venture only executed an addendum to the JVA in June 2020—between the time of its initial and final proposal submissions, this protest presented the question of whether the JVA’s compliance with the joint venture requirements should be assessed as of the date of initial proposals or FPR submission.  Typically, OHA applies the version of the SBA regulations that are in effect as of the date of initial proposal submission.  But, OHA declined to squarely address which version of the regulations would apply here—whether the former version of SBA’s regulations or the SBA regulations revised as of November 2020—because it was irrelevant.  Even applying the revised SBA regulations and assessing the JVA’s compliance at the time of FPR submission did not save the JVA as the June 2020 Addendum nonetheless failed to satisfy 13 C.F.R. § 125.8(ii), (vi).

It is important to note that the SBA Office of General Counsel argued that because the revised regulation was in effect at the time of the joint venture’s FPR, the revised regulation should control.  SBA argued that the analysis under 13 C.F.R. § 121.404 required SBA to assess when an event triggers an exception to Section 121.404 and to apply the rule as written at the time of the event.  Based on the decision, SBA seemed particularly concerned with the question of which version of 13 C.F.R. § 121.404 applies based on SBA’s rulemaking that took effect in November 2020, which we discussed here.  SBA is concerned that the impact of this regulatory amendment will be delayed by years.  But, this is a fight that must play out another day as OHA avoided addressing the issue in DSC-EMI Maintenance Solutions, LLC.

Crowell will continue to monitor OHA decisions regarding JVA compliance with the SBA regulations, as well as any indicators from SBA on when the changes to 13 C.F.R. § 121.404 will be imposed on multiple award contract holders.