Contributors

Related

Many joint venture (JV) contractors have spent weeks of painstaking effort developing proposals only to learn later after winning a significant contract award that they are ineligible because of the failure to follow the mandatory regulations for JV agreements under the Small Business Administration’s (SBA) All-Small Mentor-Protégé Program (ASMPP). If a JV agreement fails to include every mandatory provision required by SBA’s regulations, that JV contractor can be determined ineligible for award. Therefore, at the beginning of the proposal process, contractors must review closely SBA’s regulations associated with the ASMPP to make sure that they have a compliant JV agreement.  A failure to do so can result in the loss of millions of dollars in contracts.  In this alert, we provide steps to make sure your JV agreement is compliant.  

1. Understand which SBA regulations apply to that particular JV and to the particular set-aside contract that the JV is pursuing.    

The first step to ensure a compliant JV agreement is to understand which SBA regulations apply to your particular JV and contract. Each size and socioeconomic program has its own regulations:  

To be eligible for a particular type of set-aside contract, the JV agreement must contain every provision that is required by SBA’s regulations associated with that program. Significantly, while the regulations between the various programs are similar, they are not the same. For example, a JV with a SDVOSB protégé will not be eligible for an SDVOSB contract if its JV agreement includes only the provisions required for small business JVs because the SDVOSB and small business JV regulations are different. Compare 13 CFR § 125.8(b)(2)(xi) (requiring a provision addressing annual performance-of-work statements 45 days after the operating year of the JV), with 13 CFR § 128.402(c)(11) (requiring a provision addressing quarterly financial statements not later than 45 days after each operating quarter of the JV). Therefore, before submitting a proposal as a JV, contractors should closely review the applicable JV regulations and make sure that every required item is included in the JV agreement. 

2. Understand that SBA’s JV regulations require the JV agreement to address the particular contract that you are pursuing.  

SBA’s Office of Hearings and Appeals (OHA) has ruled multiple times that a JV agreement is noncompliant if it fails to address the particular contract that the JV is pursuing.  CVE Protest of Veterans Contracting, Inc., SBA No CVE-107, 2019 WL 1917136 (Apr. 10, 2019); In the Matter of Asirtek Fed. Servs., LLC, SBA No. VET-269, 2018 WL 1778323 (Mar. 27, 2018).

SBA’s regulations include several provisions requiring the JV agreement to address the particular contract that the JV is pursuing. For example, the regulations require that a responsible manager be identified by name in the JV agreement who must have “ultimate responsibility for performance of the contract.” See e.g. 13 CFR § 127.506(c)(2), 13 CFR § 125.8(b)(2)(ii) (emphasis added).  The regulations also require the JV agreement to identify the responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract performance.  

When a JV agreement fails to discuss the actual contract that the JV is pursuing, it also fails to meet these regulations. Contractors must be very careful to update the JV agreement so that it addresses each particular contract. For example, if a contractor submits a proposal for one contract that has a JV agreement created for that particular contract, it must then update that JV agreement (or create a new JV entirely) before submitting a proposal for another separate contract. Contractors who fail to follow this step can be deemed ineligible and lose significant awards.  

3. Make sure to review your JV agreement, and to agree and sign any required addendums before submitting your final proposal revision.  

As discussed above, each JV agreement must address certain items for each contract that the JV is pursuing. To accomplish this task, ASMPP JV partners have two options: (1) Create a new JV for each contract that has a JV agreement addressing each required item for each contract; or (2) Add addendums or amendments to the existing JV agreement to address each required item for each contract. While most contractors have opted for the second option, several have also forgotten to actually update their addendum to address the new contract before submitting a final proposal revision.  Several contractors have learned that failing to add the addendum can be fatal to their JV agreement compliance. Size Appeal of Colt-Sunbelt Rentals JV, LLC, SBA No. SIZ-6288,  2024 WL 1957821 (Apr. 16, 2024); Asirtek Fed. Servs., LLC, SBA No. VET-269 (Mar. 27, 2018).

4. Understand that the JV can only win awards for a two-year period from the date of the first award.

The primary benefit of the ASMPP is the exception to SBA’s affiliation rules that a mentor and a protégé receive after obtaining SBA’s approval of a mentor-protégé agreement. The ASMPP allows a more experienced mentor to team with a small protégé without combining their annual receipts and/or number of employees when calculating the size of the JV.  

However, to maintain that exception to affiliation, the JV must have a compliant JV agreement as discussed above. Further, the JV must also follow the “Two-Year Rule” that is set forth at 13 C.F.R. § 121.103(h). To comply with the Two-Year Rule, a JV may only submit proposals for contracts for a two-year period after the date of the first award. Therefore, once the JV wins its first award, the JV has a two-year period during which it can submit as many proposals or bids as it desires. However, if a JV submits a proposal after that two-year period expires, it will not receive the exception to affiliation for that proposal and will be deemed large if the combined receipts and/or number of employees of the JV partners exceed the applicable size standard. In other words, if the proposal for that contract award was submitted during the two-year period, the JV still meets the affiliation exception even if the actual contract award from that proposal is made after the two-year period.  Notably, the Two-Year Rule applies only to contract awards and not to orders issued under already awarded contracts.  

Significantly, the Two-Year Rule applies to the JV itself, not to the JV partners. Therefore, the best method to comply with the Two-Year Rule is to create new JVs between the same mentor and protégé before the expiration of the two-year period.  

Similar to the above-discussed rules, a failure to comply with the Two-Year Rule can be fatal to the eligibility of the JV for the award of a contract. Size Appeal of Hometown Veterans Med. LLC, SBA No. SIZ-6343, 2025 WL 943020 (Mar. 17, 2025).  

5. Ensure that your mentor-protégé agreement is still active through the date of the JV’s submission of the final proposal revision.  

In order to have a compliant JV under the ASMPP, the parties to that JV must have an active mentor-protégé agreement in place when the JV’s final proposal revision is submitted to the Government. The ASMPP allows either party to a mentor-protégé agreement to terminate that agreement with 30 days advance written notice to the other party. If the mentor-protégé agreement is not terminated earlier, it typically will last a total of six years. Therefore, it is possible for a mentor-protégé agreement to be terminated or expire after the JV submits a proposal. However, if an active mentor-protégé agreement does not exist at the time of the JV’s submission of the final proposal revision, the JV will not receive the exception to affiliation provided by the ASMPP and the parties will be required to combine their annual receipts and/or number of employees to determine the JV’s size. Size Appeal of Primary Health Care LLC d/b/a Anglin Distinctive Health Care JV, LLC, SBA No. SIZ-6370, 2025 WL 2780313 (Sept. 17, 2025).  The JV will also not be able to comply with the particular provisions of SBA’s regulations that specifically reference a protégé’s workshare or other protégé obligations (e.g., 13 C.F.R. § 125.8(c)) because no protégé exists if there is no mentor-protégé agreement. Therefore, the JV parties must ensure that they have an active mentor-protégé agreement in place when the JV submits its final proposal revision.  

Conclusion

The ASMPP provides outstanding benefits for protégé companies to receive assistance and resources from large and experienced companies, including by joint venturing together to perform various federal contracts. Large business mentors also receive benefits by obtaining access to perform up to 60% of the work of the JV on contracts for which that large business would otherwise be ineligible. However, while the ASMPP provides great benefits for those involved, it also includes various pitfalls for the unwary. Before submitting a proposal for a contract as a JV, contractors should closely review the steps and regulations set forth above and should also talk with legal counsel who have experience drafting JV agreements under SBA’s programs.  If you have any questions about compliance with SBA’s JV regulations, please contact Josh Mullen, Matt Delfino, or your regular Womble Bond Dickinson attorney. Womble Bond Dickinson’s Government Contracting Team has extensive experience assisting clients with the establishment of JVs, drafting JV agreements, and litigating issues related to them, including size and status protests and bid protests.  

Recommended