Teaming Arrangements Women Owned Small Business (WOSB) Conference June 21, 2011 Octavia Turner U.S. Small Business Administration Procurement Center Representative

What is SBA’s definition of a SB? Independently owned and operated Not dominant in its field of operations Depending on the industry, size standard eligibility is based on:  the average number of employees for the preceding 12-months -or-  average annual receipts for a three-year period.

What are some examples of teaming arrangements? Prime/Subcontractor Joint Venture (JV) Limited Liability Corporation (LLC) Mentor-Protégé Agreement Partnership

What are the advantages of teaming? Minimize risks Gain first hand experience Increase competitiveness Enhance capabilities Diversify Compete with large firms Compete for larger more technically complex contracts

Does the FAR recognize teaming? FAR “The Government will recognize the integrity and validity of contractor team arrangements; provided, the arrangements are identified and company relationships are fully disclosed in an offer or, for arrangements entered into after submission of an offer, before the arrangement becomes effective. The Government will not normally require or encourage the dissolution of contractor team arrangements.”

What types of teams does FAR recognize? FAR “Contractor team arrangement,” as used in this subpart, means an arrangement in which -- (1) Two or more companies form a partnership or joint venture to act as a potential prime contractor; or (2) 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.

What is a Joint Venture (JV)? - Joint Venture - A formal arrangement between two or more firms where a new contracting entity is created. A joint venture is an association of individuals and/or concerns with interests in any degree or proportion 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. ( 13 CFR (h) and Federal Acquisition Regulation )

What is a Joint Venture (JV)? – cont’d This means that a specific joint venture entity generally may not be awarded more than three contracts over a two year period, starting from the date of the award of the first contract, without the partners to the joint venture being deemed affiliated for all purposes. Once a joint venture receives one contract, SBA will determine compliance with the three awards in two years rule for future awards as of the date of initial offer including price. As such, an individual joint venture may be awarded more than three contracts without SBA finding general affiliation between the joint venture partners where the joint venture had received two or fewer contracts as of the date it submitted one or more additional offers which thereafter result in one or more additional contract awards. The same two (or more) entities may create additional joint ventures, and each new joint venture entity may be awarded up to three contracts in accordance with this section. For purposes of this provision and in order to facilitate tracking of the number of contract awards made to a joint venture, a joint venture must be in writing and must do business under its own name, and it may (but need not) be in the form of a separate legal entity, and if it is a separate legal entity it may (but need not) be populated ( i.e., have its own separate employees).

What is a Joint Venture (JV)? – cont’d Example 1 -- Joint Venture AB has received two contracts. On April 2, Joint Venture AB submits an offer for Solicitation 1. On June 6, Joint Venture AB submits an offer for Solicitation 2. On July 13, Joint Venture AB submits an offer for Solicitation 3. In September, Joint Venture AB is found to be the apparent successful offeror for all three solicitations. Even though the award of the three contracts would give Joint Venture AB a total of five contract awards, it could receive those awards without causing general affiliation between its joint venture partners because Joint Venture AB had not yet received three contract awards as of the dates of the offers for each of three solicitations at issue.

What is a Joint Venture (JV)? – cont’d Example 2 to paragraph (h) introductory text. Joint Venture XY receives a contract on December 19, year 1. It may receive two additional contracts through December 19, year 3. On August 6, year 2, XY receives a second contract. It receives no other contract awards through December 19, year 3 and has submitted no additional offers prior to December 19, year 3. Because two years have passed since the date of the first contract award, after December 19, year 3, XY cannot receive an additional contract award. The individual parties to XY must form a new joint venture if they want to seek and be awarded additional contracts as a joint venture.

Joint Venture = Affiliation The members of a joint venture or team are considered to be affiliated for size purposes. The size of each team member contributes to the total size of the joint venture or team. The joint venture or team is small only if the combined annual receipts or employees of all the firms in the JV meet the size standard for the procurement How do you determine the size of a JV?

What is the “exclusion from affiliation” rule for JVs? Apply size standard for the requirement to individual small business concerns not to the combined assets: For a procurement having a revenue-based size standard, the procurement exceeds half the size standard corresponding to the NAICS code assigned to the contract; or For a procurement having an employee-based size standard, the procurement exceeds $10 million or Bundled procurements

Is this JV considered a small business entity? Small Business Set-Aside – Size Standard for NAICS is $33.5M $20M estimated value of contract award Joint Venture Team: 1.WOSB – average annual receipts of $6M 2.Small Business – average annual receipts of $18M 3.8(a) – average annual receipts of $11M

Can this JV bid on a small busines set-aside? YES! This JV team can bid on this small business set- aside and still be considered small since the dollar value of the procurement ($20M) exceeds half the size standard (half of $33.5M) and each team member is small for the applicable NAICS code.

Is this JV considered a small business entity? Small Business Set-Aside – Size Standard for NAICS is $4.5M $20M estimated value of contract award Joint Venture Team: 1.SDVOSB – average annual receipts of $3M 2.Small Business – average annual receipts of $18M 3.EDWOSB – average annual receipts of $11M

Can this JV bid on a small business set-aside? NO! This JV team cannot bid on small business set-aside and still be considered small. Two team members are large for the applicable NAICS code.

Is this JV considered a small business entity? Small Business Set-Aside – Size Standard for NAICS is 500 employees $8M estimated value of contract award Joint Venture Team: 1.WOSB – 100 employee 2.Small Business – 400 employees 3.8(a) – 250 employees

Can this JV bid on a small business set-aside? NO! This JV team cannot bid on small business set-aside and still be considered small. The size standard for the applicable NAICS code is based on the number of employees. The procurement does not exceed $10M.

What is the performance of work requirement? Services Perform 50% of cost incurred for personnel with its own employees Supplies Perform 50% of manufacturing cost, excluding materials, with it own employees General Construction Perform 15% of cost of contract, excluding materials, with own employees Special Trade Construction Perform 25% of cost of contract, excluding materials, with own employees NOTE: Does not apply to unrestricted procurements!

How does the performance of work requirement affect the JV? Small Business Set-Aside for services:  Small Business A: can only do 25% of job with his own people  Small Business B: can only do 25% of job with his own people  Neither A nor B can bid the job alone.  However, if they form a Joint Venture, they can combine their efforts, doing 50% with their own people, and can bid the job.

What is required in a WOSB/ EDWOSB JV? 13 CFR § A joint venture may submit an offer on an EDWOSB or WOSB contract if the joint venture meets all of the following requirements: (a) Except as provided in § (h)(3) of this chapter, the combined annual receipts or employees of the concerns entering into the joint venture must meet the applicable size standard corresponding to the NAICS code assigned to the contract; (b) The EDWOSB or WOSB participant of the joint venture must be designated on the CCR and the ORCA as an EDWOSB or WOSB; (c) The parties to the joint venture must enter into a written joint venture agreement. The joint venture agreement must contain a provision: (1) Setting forth the purpose of the joint venture. (2) Designating an EDWOSB or WOSB as the managing venturer of the joint venture, and an employee of the managing venturer as the project manager responsible for the performance of the contract;

What is required in a WOSB/ EDWOSB JV? 13 CFR § (Continued) (c) (3) Stating that not less than 51 percent of the net profits earned by the joint venture will be distributed to the EDWOSB or WOSB; (4) Specifying the responsibilities of the parties with regard to contract performance, sources of labor, and negotiation of the EDWOSB or WOSB contract; and (5) Requiring the final original records be retained by the managing venturer upon completion of the EDWOSB or WOSB contract performed by the joint venture. (d) The joint venture must perform the applicable percentage of work required of the EDWOSB or WOSB offerors in accordance with §125.6 of this chapter (limitations on subcontracting rule); (e) The procuring activity will execute the contract in the name of the EDWOSB or WOSB or joint venture. (f) The WOSB or EDWOSB must provide a copy of the joint venture agreement to the contracting officer.

Remember!  Generally may not be awarded more than three contracts over a two year period  The performance of work requirements apply to the cooperative effort of the joint venture partners, not its individual members unless the JV falls under one of the exclusions.  Contract is executed in joint venture’s name  A large business cannot be a JV participant on a small business set-aside -- One exception: 8(a) Mentor-Protégé

What is a prime/subcontract team arrangement? FAR “Contractor team arrangement,” as used in this subpart, means an arrangement in which— 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.

What are the responsibilities of the prime contractor? Prime Contractor:  Agrees to furnish supplies or services and government agrees to pay  Responsible for adhering to terms and conditions of contract  Manages and controls the contract  Government has privity of contract only with the prime contractor  Relationships identified before offer is submitted

What are the responsibilities of the subcontractor? Subcontractor:  Agrees to furnish supplies or services and prime contractor agrees to pay  Responsible for adhering to terms and conditions of subcontract  Does not perform vital or primary parts of contract  Conveys terms and conditions to second-tier subcontractors  Subcontractor has privity of contract only with the prime contractor  Relationships can be defined before or after award

What is an ostensible subcontractor? 13 CFR (h)(4) A contractor and its ostensible subcontractor are treated as joint venturers, and therefore affiliates, for size determination purposes. An ostensible subcontractor is a subcontractor that performs primary and vital requirements of a contract, or of an order under a multiple award schedule contract, or a subcontractor upon which the prime contractor is unusually reliant…

What are indications of an ostensible subcontractor? All aspects of the prime/sub relationship are considered:  Joint bank accounts with joint signature requirements  Joint approvals on invoices  Joint authority required for most actions  Unusual reliance upon teaming partner (performance, financial, bonding, management) The relationship must be presented as a joint venture and subject to affiliation rules JV partners must meet performance of work requirements

JV and prime/subcontractor- Wrap Up Joint Venture  Entered into prior to award  Contract written in joint venture name  Temporary arrangement – 3 contracts in a 2 year period  Considered as new entity for federal contracting purposes Prime/Subcontractor  Entered into before or after award  Prime is responsible for completing the contract  Prime/subcontract relationship established for a specific contract

Teaming Tips  Selecting Teaming Partners – consider:  capabilities, financial, credit history, other resources  past performance  debarment/suspension  management styles, corporate cultures, strategic visions  past and current teaming history  Successful Teaming Qualities  compatible contractors  good teaming agreements in place

Where can I find teaming opportunities? 1. Federal Business Opportunity – SUBNet Dynamic Small Business Search – 4. Subcontracting – click on “Contracting” 5. Networking – conferences, workshops, training sessions

References 1.Code of Federal Regulations CFR 121 – SBA Size Regulation 13 CFR 127 – Women Owned Small Business Federal Contract Program 2.Federal Acquisition Regulation NAICS - farsite.hill.af.milfarsite.hill.af.mil 3.DoD Handbook for Facilitating Small Business Teaming Arrangements -