Joint Ventures, Mentor-Protégé & SBA Updates Valerie Coleman Program Manager, Prime Contracts Program U. S. Small Business Administration

JOINT VENTURES

Policy of the Government Working together helps small business to compete in unrestricted competition and set-asides The policy is to place a fair proportion of its acquisitions with: Small business Small disadvantaged business [SDB/8(a)] HUBZone small business Women owned small business (WOSB) Veteran owned small business (VOSB) Service disabled veteran owned small business (SDVOSB)

What’s a fair proportion? Small Business 23% SDB [including 8(a)] 5% WOSB 5% HUBZone 3% SDVOSB 3% (there is no statutory goal for VOSB)

Contract Teaming Agreement Only two types: Two or more companies form a partnership or joint venture to act as a potential prime contractor; or 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. Applies to large and small business

Why JV? JVs maintain competition from small business and it is an investment in the economy through small business participation

Benefits of JVs to the Small Business Gain new capacity and expertise Combine capabilities and past performance Increase bidding power and bonding capacity Share risk Short time frame

Risks Finding the right joint venturers Creating a relationship https://www.epls.gov/ Existing relationship New relationship Creating a relationship Imbalance in the level of expertise, investment or assets Not having the JV agreement in writing Objectives are not clear

SBA Definition of a Joint Venture 13 CFR 121.103(h) An association of individuals and/or concerns with interests in any degree or proportion by way of contract, and Consorts to engage in and carry out no more than three specific awards over a two year period, Who combine efforts, property, money, skill or knowledge, and Is not on a continuing or permanent basis

And, Consists only of small businesses (exception 8(a) & ASMPP ) Self-certifies that it is “small” Is subject to the regulations as they govern small business – just like any other small business Is reviewed by the contracting officer, not SBA (except for 8(a) JVs).

What is a small business? Small Business Joint Ventures August 7, 2013 What is a small business? 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 revenue OR employee size standard for the procurement Each North American Industrial Classification System (NAICS) code has a small business size standard (wholesale and retail NAICS are not used in government procurements). 13 CFR 121.105 Dwight.Johnson@sba.gov (402) 221-7206

NAICS Codes and Size Standards Small Business Joint Ventures August 7, 2013 NAICS Codes and Size Standards NAICS Description Revenue (M) # employees 236210 Industrial Building Construction $33.5 236220 Commercial and Institutional Building Construction $33.5 237310 Highway, Street, and Bridge Construction $33.5 315232 Women’s and Girls’ Cut and Sew Blouse and Shirt Mfg 500 323114 Quick Printing 500 336212 Truck Trailer Manufacturing 500 337211 Wood Office Furniture Manufacturing 500 484110 General Freight Trucking, Local $25.5 492110 Couriers and Express Delivery Services 1500 493110 General Warehousing and Storage $25.5 531110 Lessors of Residential Buildings and Dwellings $7.0 541511 Custom Computer Programming Services $25.0 541611 Admin Management and General MGMT Consulting Svcs $7.0 541620 Environmental Consulting Services $7.0 www.sba.gov/size Dwight.Johnson@sba.gov (402) 221-7206

Size must include affiliates Small Business Joint Ventures August 7, 2013 Size must include affiliates 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) A Newly organized concern Joint Ventures 13 CFR 121.103 Dwight.Johnson@sba.gov (402) 221-7206

Average Annual Receipts Small Business Joint Ventures August 7, 2013 Average Annual Receipts Use Federal Tax Returns Cost of Goods Sold plus Total Income Average of last three completed fiscal years 13 CFR 121.104 Dwight.Johnson@sba.gov (402) 221-7206

Small Business Joint Ventures August 7, 2013 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). Payroll records/IRS Form 941 13 CFR 121.106 Dwight.Johnson@sba.gov (402) 221-7206

Two Types of Affiliation Small Business Joint Ventures August 7, 2013 Two Types of Affiliation General Affiliation On-going basis Common ownership, common control, economic dependence, etc. Applies to the company in all business transactions For a specific procurement Joint venture Applies only to the contract at hand Dwight.Johnson@sba.gov (402) 221-7206

Affiliation 13 CFR 121.103 Power to control Common managers Identical business interests Common stockholders Ownership of multiple businesses Contractual relationships JV arrangements

Affiliation Presumption of Affiliation Firms owned or controlled by: Married couples or parties to a civil union Parents, children, and siblings Conduct business with each other: Subcontracts Joint ventures Share or provide loans, resources, equipment, locations or employees with one another. Rebut presumption by showing a clear line of fracture between the concerns Other types of familial relationships are not grounds for affiliation on family relationships

Affiliation Identity of Interest – Economic Dependence 70% of receipts over prior 3 fiscal years Can be rebutted – e.g., only in business for short term Not applicable if business owned and controlled by an Indian Tribe, Alaskan Native Corporation (ANC), Native Hawaiian Organization (NHO), or Community Development Corporation (CDC) or wholly owned entity of such

Joint Venture Exception to Affiliation Two or more small business concerns May submit an offer for prime contract or subcontract Each must be small under the size standard for the NAICS assigned to contract/subcontract

Limitations on Subcontracting 52.219-14 Services - Not more than 50% Note: Rental of an item is a service Supplies - Not more than 50% (less cost of materials) Mixed requirements – CO selects NAICS Determines limitation on subcontracting Construction General - Not more than 85% (less cost of materials) Special Trades - Not more than 75% (less cost of materials)

What should be in a JV Agreement? A provision setting forth the purpose of the JV Small Business as managing venturer Employee of Small Business as project manager Signed letter of intent Project manager cannot be employed by the mentor and become an employee of the small business for purposes of performance under the joint venture A provision stating the distribution of profits/losses A provision providing for the establishment of a special bank account

More Parts of a JV A provision itemizing 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 each A provision specifying the responsibilities of parties A provision obligating all parties to the joint venture A provision designating that accounting and other administration records relating to the JV shall be kept in the office of the managing venturer

Still More… A provision requiring the final original records be retained by the managing venturer upon completion of the contract performed by the joint venture. A provision for handling substitution or addition of co-venturers A provision for handling disputes A provision for handling the termination of the JV

All Small Mentor Protégé Program (ASMPP)

ASMPP Background Authorized under the 2010 Small Business Jobs Act and the 2013 NDAA Rather than creating programs for separate constituencies – SDVOB, WOSB, HUBZones - SBA created a single, all-inclusive Mentor-Protégé Program modeled on its 8(a) program. The ASMPP’s aim is two-fold: develop strong Protégé firms through Mentor-provided business development assistance; and enhance the ability of Protégé firms to successfully compete for government contracts.

New Rule Highlights Final Rule Effective Date: August 24, 2016 Creates the ASMPP Streamlines the rules for the 8(a) Mentor-Protégé Program and made them consistent with the ASMPP Prescribes content for Joint Venture Agreements under both programs Authorizes the SBA to evaluate other Federal Agency Mentor-Protégé Programs

ASMPP Update The SBA began accepting applications on October 1, 2016. Applications must be submitted via certify.sba.gov. No paper applications will be accepted. Website: https://www.sba.gov/allsmallmpp Please note that a Mentor-Protégé relationship should be established before starting the application – the ASMPP is not a matching program

Program Administration Centralized in HQ, rather than the distributive 8(a) model Online Application – certify.sba.gov Online course tutorial requirement Annual Review and Evaluation Template agreements i.e. MPA, joint venture Incremental staff augmentation at HQ – demand driven

ASMPP Highlights Generally, Protégé may only have one Mentor at a time, and a maximum of two. Mentors cannot have more than 3 Protégés in the aggregate. Protégés and Mentors must either be for-profit entities or agricultural cooperatives. Participants can be both a Protégé and a Mentor if no competition or conflict exists. Participants self-certify as small in the NAICS in which they’re seeking business development assistance.

ASMPP Highlights No reapplication required for 8(a) firms in the last 6 months of the 8(a) program wishing to transfer their existing MPA to the ASMPP. No financial statements or tax returns required. Business plan (SBA-approved or other) required for consideration.

How Do I Find a Good Mentor? Research - Make sure the mentor has a good reputation and is willing to provide coaching, as needed. Verify that the Mentor is not just looking for access to federal small business set-aside contracts   Verify if the mentor has good supplier relationships Verify if the mentor has experience working with the federal government Be clear and concise about the goals and objectives outlined in the agreement Make certain the goals and objectives align with the business plan to provide growth for the company

Approved Forms of Mentor Assistance Management & Technical Assistance (internal business management systems) Financial Assistance (in the form of equity investments and/or loans) Contracting Assistance ( contracting processes, capabilities acquisitions & performance) Trade Education (learn how to export, IT business plan, finding markets) Business Development Assistance (strategy, finding contracting and partnership opportunities) General and/or Administrative Assistance (business processes and support)

ASMPP Update As of 7/24/17 Received: 286 apps Approved: 247 Processing Time: 8-10 days

ASMPP Joint Ventures An approved Protégé and Mentor may joint venture as a small business for any government prime contract or subcontract, provided the protégé qualifies as small for the procurement. The ASMPP does not review, evaluate or approve joint venture entities or joint venture agreements. In order to receive the exclusion from affiliation, the joint venture must meet the requirements outlined in 13 CFR 125.8(b)(2), (c), and (d).

ASMPP Resources SBA webpage : https://www.sba.gov/allsmallmpp All Small Mentor Protégé Program Tutorial : https://www.sba.gov/tools/sba-learning- center/training/sbas-all-small-mentor- protege-program For more information on the ASMPP: allsmallmpp@sba.gov

SBA Mentor Protégé Programs

SBA Mentor Protégé Programs Program change: from “Mentor must have good financial condition” to “Mentor must demonstrate that it can fulfill its mentor protégé obligations” Generally, a mentor will have no more than one protégé at a time. SBA may authorize a concern to mentor more than one protégée at a time where it can demonstrate that the additional mentor-protégé relationship will not adversely affect the development of either protégé firm (e.g., the second firm may not be a competitor of the first firm). Under no circumstances will a mentor be permitted to have more than three protégés at one time in the aggregate Applies to entire corporation family, all affiliates/divisions

SBA Mentor Protégé Programs Small business may be both a protégé and a mentor at the same time Protégés must qualify as small for primary NAICS or secondary NAICS – applies to 8(a) Protégé may have up to 2 mentors in its lifetime in any program

SBA Mentor Protégé Programs 8(a) mentor/protégé may notify SBA that it is transferring relationship to the all small MP relationship after graduation Mentors may own up to 40% of protégé - will not be required to divest at end of relationship Mentor may transfer relationship to purchaser Size of an approved 8(a) JV may be protested

SBA Mentor Protégé Programs A protégé firm may generally have only one mentor at a time. SBA may approve a second mentor for a particular protégé firm where the second relationship will not compete or otherwise conflict with the assistance set forth in the first mentor-protégé relationship and: (i) The second relationship pertains to an unrelated NAICS code; or (ii) The protégé firm is seeking to acquire a specific expertise that the first mentor does not possess.

SBA Mentor Protégé Programs Relationship lasts 3 years, with 3-year extension, but reviewed annually to ensure protégé is receiving identified assistance and contracts are being properly performed by appropriate parties Past performance and experience of JV members or subcontractors must be considered by the CO Protégé must identify all other mentor protégé relationships At the conclusion of a relationship, protégé must report on whether it benefitted

SBA Mentor Protégé Programs Protégé must perform 40% of work performed by JV, and 40% of aggregate performed by members of the JV at any tier Joint Venture must certify it will comply with performance requirements, and report to SBA and the CO on performance All Mentors must be for-profit HUBZone JV rules align with other programs Applicants may request reconsideration of denial

SBA Mentor Protégé Programs Mentor that fails to provide assistance: may result in termination of the agreement; mentor prohibited from acting as mentor for two years; SBA may request for agency to stop work and/or allow protégé to perform May be grounds for debarment

SBA Mentor Protégé Programs SBA does not currently certify small, WOSB, or SDVO – but status can be protested in connection with procurement SBA will not review all small mentor protégé joint ventures – but JV structure can be protested in connection with procurement Once a protégé qualifies as other than small for the size standard for its primary NAICS code, it will not be eligible for any further contracting benefits from its mentor-protégé relationship

SBA Updates

HUBZone Expansion Qualified Base Closure Area Qualified Disaster Area New Maps – www.sba.gov/hubzone

Similarly Situated Entity Same small business program status as prime Example: For WOSB requirement, WOSB with WOSB subcontractor Subcontractor must be small for NAICS assigned to subcontract Effective June 30, 2016 Cannot be used until FAR Council updates FAR (52.219-14)

Subcontracting Reporting and Use Contracting officers have discretion to require a subcontracting plan where a small business rerepresents its size as an other than small business. May require subcontracting plans even for modifications under the subcontracting plan threshold if modifications would cause the contract to exceed the plan threshold Requires prime contractors to assign North American Industry Classification System (NAICS) codes to subcontracts

Subcontracting Requires prime contracts with subcontracting plans on task and delivery order contracts to report order level subcontracting information after November 2017. On IDIQ contracts, the contracting officer may establish subcontracting goals at the order level (but not a new subcontracting plan).

Subcontracting A prime contractor that identifies a small business by name as a subcontractor in a proposal, offer, bid or subcontracting plan must notify those subcontractors in writing prior to identifying the concern in the proposal, bid, offer or subcontracting plan

Subcontracting – False Statements Anyone who has a reasonable basis to believe that a prime contractor or a subcontractor may have made a false statement to an employee or representative of the Federal Government, or to an employee or representative of the prime contractor, with respect to subcontracting plans must report the matter to the SBA Office of Inspector General. All other concerns as to whether a prime contractor or subcontractor has complied with SBA regulations or otherwise acted in bad faith may be reported to the Government Contracting Area Office where the firm is headquartered

Mentor Protégé Programs (MPP) Agencies (other than DOD) using their own MPPs Mandated review Notice sent out two weeks ago Documentation due by 8/25/17 SBA to determine if duplicate or unique SBA will approve/disapprove their proposal

NAICS New NAICS went into effect 1/1/17 Can’t be used until SBA sets size standards FAR 19.102(a)(2) - NAICS codes are updated by the Office of Management and Budget through its Economic Classification Policy Committee every five years. New NAICS codes are not available for use in Federal contracting until the Small Business Administration publishes corresponding industry size standards New Size Table: 10/1/17

Size Standards Size Standards 5 year review completed for FY 2016 Review of 2017 NAICS underway, publish by 10/1/2017

Size Standards Architect-Engineering, Design-Build or two- step sealed bidding procurements Firm must qualify as small as of the date it certifies it is small as part of initial bid or proposal Recertification - Merger, Sale or Acquisition Novation is not required, within 30 days Must recertify Small Business size status to procurement office; or, Inform procurement office it is other than small If after offer but prior to award, must recertify size to contracting officer prior to award

WOSB Set-Aside Program SBA completed study of industries where WOSBs are underrepresented (January 2017) Identified 445 6 digit NAICS where WOSB were underrepresented 80 EDWOSB NAICS; 365 WOSB NAICS Effective October 1, 2017 (Federal Register Notice should be out soon) WOSB Certification Sole Source

Questions??? Valerie J. Coleman Program Manager, Prime Contracts Program U. S. Small Business Administration Office of Government Contracting 281-245-4777 valerie.coleman@sba.gov