A recent GAO decision demonstrates the critical importance of timely submitting and following-up with the Small Business Administration (SBA) on your Joint Venture Agreement (JVA) application if you want to obtain a competitive joint venture (JV) award under SBA’s 8(a) business development program. FedServ-RBS JV, LLC, B-411790, Oct. 26, 2015. In this instance, an 8(a)’s failure to pay attention to details in submitting its proposed JVA, and timely opening, reading & responding to its mail, cost the JV a contract as well as a fruitless GAO bid protest.
SBA Regs permit an 8(a) program participant to enter into a JV with other companies under specified circumstances, and the JV to compete for 8(a) contracts. The JVA must be in writing, and must comply with SBA’s requirements. Importantly, in situations involving an 8(a) contract, the JVA must be approved by SBA before award can be made to the JV. The 8(a) participant therefore must submit its proposed JVA to the 8(a)’s SBA District Office in time for SBA to review and approve the JV before award can be made. Absent SBA approval, the agency cannot award to the JV. However, SBA’s Regs do not specifically require the District Office to start reviewing the JVA until receiving the agency’s letter notifying SBA of the JV’s preliminary award selection.
In the instant case, an 8(a) waited until one week after proposals were due to submit its proposed JVA to the SBA District Office, and its proposal was sloppy and incomplete. The District Office promptly reviewed the proposed JVA, and sent a letter back to the 8(a) notifying them of various deficiencies in their submission. These deficiencies included failing to (1) establish a special bank account in the JV’s name, (2) itemize the equipment to be supplied by the 8(a) participant, and (3) provide a copy of the JV’s Operating Agreement.
The 8(a) then compounded its problems by failing to open and review the mail while the CEO was out of the office. SBA’s letter therefore sat unopened on the CEO’s desk for 10 days. It then took the company another five days to submit the completed JV application to the District Office. At that point, the 8(a) committed its third error by mailing the completed application (instead of sending it by email or fax). The 8(a) also apparently failed to call and let the District Office know that the completed application was en route.
Meanwhile, the procuring agency completed its proposal evaluation and determined that the JV’s proposal offered the best value. In compliance with SBA’s Regulations, the procuring agency sent a letter to the District Office inquiring as to the JV’s 8(a) eligibility. SBA’s Regs provide that SBA “will determine” the proposed awardee’s 8(a) eligibility within five working days after receipt of such an inquiry. Here, in the absence of having received the completed JVA, the District Office notified the agency on July 1st – the day the 8(a) mailed the completed application, but one day before the District Office received the same by mail – that the JV was not an approved 8(a) JV as of that date, and thus was not eligible for award.
Under SBA’s Regs, once the agency is notified that the initial proposed awardee is ineligible, the agency is supposed to move on and notify SBA as to the next offeror in line, and so on, until an eligible awardee is identified and accepted by SBA. The agency did that here, and promptly contacted the SBA’s serving District Office in Maryland as to the eligibility of the next-in-line offeror. The agency awarded to that company the same day the agency received SBA’s “okay”, and notified the unsuccessful offerors, including the initial proposed JV awardee, of the award.
The initially-proposed awardee promptly protested to GAO, arguing that the agency did not follow required procedures, and specifically that the agency did not allow sufficient time for SBA’s consideration and approval. Obviously, there are a number of problems with this argument, not the least of which is that there simply was no pending application or ongoing SBA review at the time of SBA’s issuance and the agency’s receipt of SBA’s ineligibility determination. GAO, predictably, made short shrift of and denied the protest, noting simply that there is nothing in SBA’s Regs that requires an agency to stay a proposed award to permit SBA to complete reviewing the JVA. While the JV made a number of creative arguments, in an attempt to divert attention from its own obvious mistakes and delays, GAO firmly rejected such arguments. GAO held, among other things, that, in the absence of any regulatory requirement, (i) the agency is not required to inquire as to the grounds for SBA’s ineligibility determination, and the status of any pending JVA, and (ii) SBA is not required to explain its determination or provide the status of any JVA review.
The bottom line and clear message here is that an 8(a) program participant needs to (1) timely submit a proposed JVA to the SBA for approval (preferably long before proposal submission), (2) ensure that the initial JVA application is complete and includes, among other things, a copy of the JV’s operating agreement, and (3) stay in close and continuous contact with the SBA District Office as to (i) receipt and processing of the JVA application, and (ii) procurement status and award timetable. As to the degree of required JVA specificity, see our recent blog article here. The importance of these requirements will only increase with the pending changes to SBA’s joint venture rules, which will substantially increase SBA’s workload without any commensurate funding increase.
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