The Small Business Administration (“SBA”) recently issued a favorable decision on behalf of a firm client in a size determination case, and we wanted to share information from that decision with you. While the decision is unpublished, it serves as a reminder of an important exception to the small business contracting rules relating to joint ventures and set aside contracts.
In July of 2015, the U.S. Army Corps of Engineers (“USACE”) issued a solicitation for building repairs that was set aside for small business. The size standard assigned to the project was $36.5 million. The firm’s client, an unpopulated joint venture (the “JV”) consisting of two companies, was the low bidder. However, a day after bid opening, an unsuccessful bidder initiated a size protest claiming that the JV exceeded the size standard applicable to the procurement. The unsuccessful bidder claimed that because the joint venture partners had indicated in the System for Award Management (“SAM”) that they were “not small” under two specific NAICS codes, that this fact automatically meant that the combined annual revenue of the partners exceeded the size standard for this procurement. As we successfully argued, that is not true.
When a joint venture submits an offer or a bid on a procurement, the companies forming the joint venture are considered affiliates in connection with that procurement. For joint ventures interested in small business set asides, the general rule is that as affiliates, the sizes of the joint venture partners are aggregated in order to determine if the joint venture is small. However, there is an important exception to this rule. When the dollar value of the procurement, including options, is greater than one half of the small business size standard for the NAICS code selected for that procurement, a joint venture is small so long as each joint venture partner is small under the size standard.
In the size protest here, the value of USACE’s procurement was $22,405,001, and the accompanying small business size standard was $36.5 million. Therefore, the value of the procurement was greater than one half of the size standard for the procurement ($18.25 million). Because of this, the proper method of determining the JV’s size was not by aggregating the revenues of the joint venture partners, but rather by determining if the average annual receipts of each joint venture partner was greater than $36.5 million. Neither of the joint venture partners’ average annual receipts exceeded that amount in this case. As such, the SBA found that the JV was considered a small business for the procurement, defeating the size protest.
For companies considering the use of a joint venture to obtain small business set aside contracts, keep the above in mind and call your attorney if you have any questions.
Edward T. DeLisle is Co-Chair of the Federal Contracting Practice Group. Ed frequently advises contractors on federal contracting matters including bid protests, claims and appeals, procurement issues, small business issues and dispute resolution.
Jacqueline J. Ryan is an Associate in the Federal Contracting Practice Group and focuses her practice on government contracts and construction litigation. She assists the Firm’s federal construction clients in matters involving contracts, bid protests, claim drafting and litigation in the federal courts.