1. We Build Our Relationships …One Client at a Time Law Firm Joint Ventures Pros and Cons of Joint Ventures and Teaming Agreements David Rose Principal Attorney Rose Consulting Law Firm SAME National Industry Small Business Advocate of the Year Global International Magazine Government Contracts Law Firm of the Year

2. We Build Our Relationships …One Client at a Time Law Firm 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 size standard for the procurement.  Each North American Industrial Classification System (NAICS) Code has a small business size standard. 13 CFR 121.105

3. We Build Our Relationships …One Client at a Time Law Firm NAICS Codes and Size Standards  Sector 23 – Construction  Subsector 236 – Construction of Buildings  236115 New Single-Family Housing Construction (except Operative Builders) $33.5  236116 New Multifamily Housing Construction (except Operative Builders) $33.5  236117 New Housing Operative Builders $33.5  236118 Residential Remodelers $33.5  236210 Industrial Building Construction $33.5  236220 Commercial and Institutional Building Construction $33.5  Subsector 562 – Waste Management and Remediation Services  562111 Solid Waste Collection $12.5  562112 Hazardous Waste Collection $12.5  562119 Other Waste Collection $12.5  562211 Hazardous Waste Treatment and Disposal $12.5  562212 Solid Waste Landfill $12.5  562213 Solid Waste Combustors and Incinerators $12.5  562219 Other Nonhazardous Waste Treatment and Disposal $12.5  562910 Remediation Services $14.0  Except, Environmental Remediation Services500  562920 Materials Recovery Facilities $12.5  562991 Septic Tank and Related Services $7.0  562998 All Other Miscellaneous Waste Management Services $7.0

4. We Build Our Relationships …One Client at a Time Law Firm Engineering NAICS/Size Standards  Sector 54 – Professional, Scientific and Technical Services  Subsector 541 – Professional, Scientific and Technical Services  541110 Offices of Lawyers $10.0  541191 Title Abstract and Settlement Offices $10.0  541199 All Other Legal Services $10.0  541211 Offices of Certified Public Accountants $19.0  541213 Tax Preparation Services $19.0  541214 Payroll Services $19.0  541219 Other Accounting Services $19.0  541310 Architectural Services $7.0  541320 Landscape Architectural Services $7.0  541330 Engineering Services $14.0  Except, Military and Aerospace Equipment and Military Weapons $35.5  Except, Contracts and Subcontracts for Engineering Services Awarded Under the National Energy Policy Act of 1992 $35.5  Except, Marine Engineering and Naval Architecture $35.5  NAICS codes 221111, 221112, 221113, 221119, 221121, 221122 – A firm is small if, including its affiliates, it is primarily engaged in the generation, transmission, and/or distribution of electric energy for sale and its total electric output for the preceding fiscal year did not exceed 4 million megawatt hours.

5. We Build Our Relationships …One Client at a Time Law Firm 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)  Newly organized concerns  Joint Ventures 13 CFR 121.103

6. We Build Our Relationships …One Client at a Time Law Firm What other issues can create Affiliation?  The ownership Structure  Who are the other owner(s) besides the 51% owner?  Are they owner(s) of other companies?  Are they companies themselves?  Are they in the same or similar line of business?  Look at the Operating Agreement or By-Laws  Are there shared control arrangements?  Do managers in the LLC or board members (Inc.) share decision making?  What about negative control issues – Can a manager or board member block a quorum by not attending a meeting?  Does the firm unduly rely on another for materials or subcontracts (like an unofficial mentor)?  SBA uses a totality of the circumstances review, so generally no one  factor may determine affiliation although it can. 13 CFR 121.103

7. We Build Our Relationships …One Client at a Time Law Firm Average Annual Receipts  Use Federal Tax Returns  Average of last three completed fiscal years 13 CFR 121.104

8. We Build Our Relationships …One Client at a Time Law Firm 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). 13 CFR 121.106

9. We Build Our Relationships …One Client at a Time Law Firm Joint Ventures  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.  This means that the joint venture entity cannot have more than 3 contracts over a two year period, starting from the date of the submission of the first offer (3-in-2 rule). 13 CFR 121.103(h)

10. We Build Our Relationships …One Client at a Time Law Firm Joint Venture vs. Prime/Sub Relationship  SBA affiliation regulations purposely do not define “teams” or “teaming agreements”  Joint Ventures  Formal joint venture (Separate legal entity, such as LLC)  Informal (no new entity formed)  Prime Subcontractor Relationships

11. We Build Our Relationships …One Client at a Time Law Firm Teaming Arrangement: FAR 9.601 “Contractor Team Arrangement,” as used in this subpart, means an arrangement in which—  Two or more companies form a partnership or joint venture to act as a potential prime contractor.  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.  More about Teaming Agreements later

12. We Build Our Relationships …One Client at a Time Law Firm What are the Benefits?  General benefit for all concerns, both large and small:  The joint venture or team is able to compete for larger, more technically complex contracts by combining the capabilities and past performance of various team members. FAR 9.601

13. We Build Our Relationships …One Client at a Time Law Firm Joint Venture Exceptions to Affiliation  A joint venture is a small business concern, when the combined revenue/employees of all joint venture partners do not exceed the small business size standard.  Exception, a joint venture is considered small, when each joint venture partner is small and if:  The procurement is bundled; or  For a procurement having a receipts based size standard, the dollar value of the procurement exceeds ½ the size standard; or  For procurements having an employee based size standard, the dollar value of the procurement exceeds $10 million. 13 CFR 121.103(h)(3)

14. We Build Our Relationships …One Client at a Time Law Firm Points for Prime/Sub Relationships  Agencies may consider an offeror’s subcontractor’s capabilities and experience under relevant evaluation factors, where the RFP does not prohibit the consideration of a subcontractor’s experience in the evaluation of proposals (Roca Management Education & Training, Inc., January 15, 2004, GAO, B-293067).  The prime contractor is solely responsible for meeting all contract requirements, including the Limitations on Subcontracting percentage.  Must watch out for Ostensible Subcontractor relationship with its subcontractor(s).

15. We Build Our Relationships …One Client at a Time Law Firm What is an Ostensible Subcontractor?  An ostensible subcontractor is a subcontractor that performs primary and vital requirements, or a subcontractor upon which the prime contractor is unusually reliant.  A contractor and its ostensible subcontractor are treated as joint venturers, and therefore affiliates, for size determination purposes. 13 CFR 121.103(h)(4)

16. We Build Our Relationships …One Client at a Time Law Firm When is one Ostensible?  The SBA originally came up with what we refer to as the 7 factor test. Although they use the “Totality of the Circumstances” test now, we will see in decisions by the GAO, Claims Courts and others grappling with the Ostensible Subcontractor issue, the 7 factor test being frequently referred to. So, to give you some point of reference, I am going to list the 7 factors here.  (1) who will manage the contract  (2) which party possesses the background and expertise necessary for contract performance  (3) which party chased the contract  (4) the degree of collaboration in preparation and submission of the competitive proposal  (5) whether there are discrete tasks to be performed by each of the teaming partners, or whether there is instead commingling of personnel and resources  (6) the relative amount of work to be performed by each teaming partner  (7) which party will perform the more complex and costly contract functions. D.P. Associates, Inc., No. 2719, Aug. 7, 1987 These factors are not weighed equally, and not one of them is a conclusive test of unusual reliance.

17. We Build Our Relationships …One Client at a Time Law Firm Morris-Griffin v. C&L Service Corporation = Ostensible Subcontractor  Recent Case on Affiliation and Ostensible Subcontractors – http://www.roseconsultingllc.org/Summary_of_Morris- Griffin_v.pdf http://www.roseconsultingllc.org/Summary_of_Morris- Griffin_v.pdf  Morris ‐ Griffin v. C&L Service Corporation, 2010 WL 3221975 (E.D. Va)  Large HUD loan processing company teamed with janitorial 8(a) company to win 8(a) set-aside contract to process loans for HUD – found to have fraudulently circumvented the SBA rules by using a nominal 8(a) contractor.

18. We Build Our Relationships …One Client at a Time Law Firm Points for Joint Ventures  Do not violate the “3-in-2 rule” – three contracts won in a two year period, by the same joint venture entity.  If you violate the rule, general affiliation will be found.  13 CFR 124.513(a) requires formal approval by SBA of all joint ventures pursuing 8(a) contracts.  Performance of work requirements apply to cooperative efforts of the joint venture entity.

19. We Build Our Relationships …One Client at a Time Law Firm Formal 8(a) Joint Ventures  For competitive 8(a) procurements that meet 13 CFR 124.513(b)(1)(ii):  8(a) firm can joint venture with one or more other businesses and the joint venture is considered small, so long as each is small under the size standard for the procurement, and;  The size of at least one 8(a) member of the joint venture must be less than ½ the size standard for the procurement.

20. We Build Our Relationships …One Client at a Time Law Firm Formal 8(a) Joint Ventures (cont’d)  For joint venture between 8(a) protégé and SBA approved mentor:  The joint venture is considered small, so long as the 8(a) protégé is small for the procurement. 13 CFR 124.513(b)(3)  The joint venture may bid as a small business on any federal prime procurement. 13 CFR 121.103(h)(3)(iii)

21. We Build Our Relationships …One Client at a Time Law Firm Formal 8(a) Joint Ventures (cont’d)  For any 8(a) joint venture between 8(a) business and another firm to perform an 8(a):  If the JV is populated, then the 8(a) firm must perform 40% of the work of the JV and none of the work may be subcontracted out to JV members.  If unpopulated (other than admin personnel), then the 8(a) prime must perform 40% of the work performed by the total amount of work subcontracted to members of the JV. 13 CFR 124.513(d)  * This is separate from the Limitations in Subcontracting at 13 CFR 125.6, which can require the JV as a whole to perform 15, 25 or 50% of the work with its own employees.

22. We Build Our Relationships …One Client at a Time Law Firm Lets Talk about the VA  For anyone who has tried to re-verify or get a joint venture verified, this should not be surprising.  The average time to process a CVE package right now is 90 days – maybe. Understand how that is counted.  If you are going to put together a JV, the rules are similar to a JV for an SBA venture; however!!!  If you are going to pursue a Veteran’s First Procurement – there are some bad templates out there!  It must be verified by VA prior to submittal of the proposal  It does not have to be verified to pursue other than the VA but must still be properly drafted  The VA is very picky about ownership and control issues – even more so than the SBA and it is far more difficult to reach a human than it is with the SBA.  A verification, as of an interim final rule effective June 27, 2012, is good for 2 years.

23. We Build Our Relationships …One Client at a Time Law Firm Lets Talk about HUBZone JVs  A HUBZone can only joint venture with another HUBZone  You do not need to go through formalization of the HUBZone process for the JV  The same rules apply so far as size of each business  The aggregate of the HUBZone firms in the JV must meet the applicable Limitations on Subcontracting. 13 CFR §126.616

24. We Build Our Relationships …One Client at a Time Law Firm Lets Talk about WOSB JVs  51% of the net profits earned by the joint venture must go to the WOSB  Final Records to be retained by the WOSB  A copy of the JV must be provided to the CO.  WOSB partner must be managing member  Employee of WOSB must be the project manager  Specify the responsibilities of the Parties with respect to contract performance, sources of labor and contract negotiation  Meet applicable Limitations on Subcontracting 13 CFR § 127.506(c)

25. We Build Our Relationships …One Client at a Time Law Firm Lets Talk about Mentor Protege  There are 14-15 Mentor Protégé Programs in the Federal Government  SBA by far has the one with the greatest benefits but it is the toughest club to join  3 best parts of theirs:  Exemption from affiliation for JVs between the mentor and protégé for pursuit of any federal procurement  Mentor may own up to 40% equity investment in protégé  Mentor may bond the protégé’s jobs for them if written into the MP agreement  By and large the next best is DOD  DoD allows for reimbursement of some expenses of the mentor, or subcontracting credit and also sets aside some procurements for those in the program. The rest all contain provisions for extra small business credit in the Mentor’s small business plan for being a mentor, some have reimbursement of expenses to some extent for assisting a protégé, etc. Warning – Only SBA’s mentor protégé program has an affiliation exemption and allows for a JV to exist between a large and small business.

26. We Build Our Relationships …One Client at a Time Law Firm The NDAA of 2013  Passed on January 3, 2013  This date is very important as will become clear  Significant legislation affects small businesses in many areas  Over 250 pages of the NDAA changes the Small Business Act  Very common way of changing law – using stronger legislation to push the change

27. We Build Our Relationships …One Client at a Time Law Firm The new Mentor Protégé Program  Or Is It!  The Administrator is authorized to establish a mentor-protege program for all small business concerns.  The mentor-protege program established under paragraph (1) shall be identical to the mentor-protege program of the Administration for small business concerns that participate in the program under section 8(a)  except that the Administrator may modify the program to the extent necessary given the types of small business concerns included as proteges.  REGULATIONS- Not later than 270 days after publ.

28. We Build Our Relationships …One Client at a Time Law Firm The New Mentor Protégé Program  270 days after this act is passed the Administrator shall:  issue, subject to notice and comment, regulations with respect to mentor- protégé programs  which shall address, at a minimum, the following (A) Eligibility criteria for program participants, including any restrictions on the number of mentor-protégé relationships permitted for each participant. (B) The types of developmental assistance to be provided by mentors, including how the assistance provided shall improve the competitive viability of the protégés. (C) Whether any developmental assistance provided by a mentor may affect the status of a program participant as a small business concern due to affiliation. (D) The length of mentor-protégé relationships. (E) The effect of mentor-protégé relationships on contracting. (F) Benefits that may accrue to a mentor as a result of program participation.

29. We Build Our Relationships …One Client at a Time Law Firm The New Mentor Protégé Program  What does all this mean?  The NDAA further expands the mentor-protégé program by permitting all small business concerns to qualify for protégé status. This newly-expanded program must function identically to the program established for the 8(a) companies. While the SBA has not yet issued regulations on the mentor- protégé program created in the Jobs Act, the NDAA directs the SBA to issue, subject to notice and comment, regulations pursuant to the even broader mandate of section 1641 within 270 days from the enactment of the NDAA.  It’s the “Exception” language that may allow the Mentor Protégé Program for other businesses to differ  How much remains to be see but it will be a fight

30. We Build Our Relationships …One Client at a Time Law Firm Teaming Agreements  Unlike Joint Ventures, a Teaming Agreements (TA) requires one company (or entity) to act as a Prime contractor and all other members of the team are subcontractors.  What does this mean legally?  The prime is the only one who has privity (is on the hook) with the client.  The subcontractors do not have a Federal contract but have a commercial subcontract with the Prime – if the Prime opts to award one once the contract is awarded – only to the Prime  So there is a great deal of risk to the Team if the TA is poorly drafted, is unenforceable, or is not clear in what is expected from the Parties.

31. We Build Our Relationships …One Client at a Time Law Firm Teaming Agreements  So how do we obtain equity (share the pain) with the Prime in our Teaming Agreement (TA) in a Federal Contract?  First – Be aware of the FAR Flow-down Clauses. Note: FAR flow downs will vary with type of contract There are mandatory flow-down clauses  Clearly define roles of the Parties – who leads, who assembles proposals, contacts with client  Clearly identify the project  Clearly identify what each member of the team will get if you win – Attachment “A”

32. We Build Our Relationships …One Client at a Time Law Firm Teaming Agreements  If proprietary information is to be furnished for the proposal to the prime, and they are normally a competitor, state it will be provided in a sealed or confidential manner, not to be opened. Protect yourself.  Do you desire exclusivity?  If orals are to be given, does the sub(s) wish/need to participate?  State whether costs of proposal preparation are borne by each Party or will be charged against the team should the proposal be successful (not normally done)  Make sure there is some agreement on how a subcontract will be negotiated/awarded to sub(s)

33. We Build Our Relationships …One Client at a Time Law Firm Teaming Agreements  What are the agreements regarding news releases/publicity among the team members?  Non-Disclosure/Confidentiality provisions  Events that terminate the Agreement (do not want this thing hanging out there if we lose or decide not to work together)  What provisions shall survive the termination of the agreement (e.g. confidentiality)  Man this is dry AND boring isn’t it!!!  Where will notices be sent to for each party – ensure adequate communications – keep any debates at a minimum

34. We Build Our Relationships …One Client at a Time Law Firm Teaming Agreements  In order to assist in avoiding charges of affiliation insert a comment stating this agreement is not intended to form a joint venture …  Non-assignment clause  Do not restrict the right of a Party to negotiate with the client on unrelated or pre-existing matters (careful drafting required)  No Poaching of employees ***Understand that provisions in TAs between two sophisticated Parties (large businesses) can be much more onerous than between a large and small business

35. We Build Our Relationships …One Client at a Time Law Firm Where Can I Find the CFR? Federal Regulations (CFR) on-line:  http://ecfr.gpoaccess.gov http://ecfr.gpoaccess.gov Size regulations -- 13 CFR Part 121 8(a) & SDB regulations -- 13 CFR Part 124 Government Contracting Programs – 13 CFR Part 125.6 HUBZone Program – 13 CFR Part 126 Service Disabled Veteran Program – 13 CFR 125 Women-Owned Small Business Program-13 CFR 127

36. We Build Our Relationships …One Client at a Time Law Firm David A. Rose drose@roseconsultinglawfirm.com Principal Attorney (678) 854-0222 Rose Consulting Law Firm http://www.roseconsultinglawfirm.com If you have additional questions, please contact Dave directly: SAME National Industry Small Business Advocate of the Year Global International Magazine Government Contracts Law Firm of the Year (GA)