SDVOSB Joint Venture Certification: Engage Strategically or Not At All. Government Contractors Assistance & Resource Line LLC

Transcription

1 SDVOSB Joint Venture Certification: Engage Strategically or Not At All

2 INTRODUCTION 2

3 Panelists Carl A. Gebo is the President and Founder of the Government Contractors Assistance & Resource Line LLC (GCARL) and a partner at the Gebo Law Group, a Government Contracts Law Firm. Roderick N. Hagen is a Senior Project Engineer with Lockheed Martin Space Systems Company at Cape Canaveral Air Force Station, Florida and a GCARL Contributor. Rod has experience as an owner and program manager for multiple SDVOSBs, WOSBs, HUBZone SBs, and 8(a) SBs 3

4 Our Discussion 1) Reasons for a JV 2) VA Specific Requirements and Guidance 3) Review of JV Agreement including: Required elements Suggested elements Operational considerations 4) CVE Verification (and/or denial) 5) Lessons-Learned 4

5 Reasons for a JV Joint Venture Definition - 38 CFR 74.1 An association of two or more small business concerns to engage in and carry out a single, specific business venture for joint profit, for which purpose they combine their efforts, property, money, skill, or knowledge, but not on a continuing or permanent basis for conducting business generally. 5

6 Reasons for a JV Enables companies lacking capacity or diversity to compete for contracts Enables non-sdvosbs to participate in SDVOSB set-aside contracts Potential for SDVOSB to gain key management and/or technical experience Ability to combine financial resources (bonding capacity), technical capabilities, and management Establishment of and entry into new markets Development of new product lines Transfer Limitations on Subcontracting requirement to JV Enhanced Past Performance record of JV partners. Most importantly YOUR Reason!!! 6

7 VA Specific Requirements and Guidance 7

8 VA Specific Requirements and Guidance 1) JV must be a separate legal entity 2) JV must be controlled by a SDVOSB concern 3) JV must be separately CVE verified 4) SDVOSB(s) must earn at least 51% of the profits of the JV 5) At least one of the venturers must be a CVE verified SDVOSB 6) A CVE verified SDVOSB must be the managing venturer and have control over all decisions of the JV 7) A JV agreement must contain specific previsions (13 CFR (b)(2)) 8

9 VA Specific Requirements and Guidance 7) A JV agreement must contain specific previsions (13 CFR (b)(2)) i. Setting forth the purpose of the JV ii. Designating a SDVOSB as the managing venturer AND an employee of the managing venturer as the project manager iii. Stating that not less than 51% of the net profits earned by the joint venture will be distributed to the SDVOSB iv. Specifying the responsibilities of the parties regarding contract performance, source of labor, and negotiation of the SDVOSB contract v. Obligating all parties to the JV to ensure performance of the SDVOSB contract and to complete performance despite the withdrawal of any member vi. Requiring final original records be retained by the managing venturer upon completion of the SDVOSB contract performed by the JV. 9

10 VA Specific Requirements and Guidance 8) Other requirements - 13 CFR (b)(1) Size Considerations i. IF A. The procurement exceeds HALF the size standard corresponding to the assigned NAICS code, or B. The procurement exceeds $10 million if assigned a NAICS code with an employee-based sized standard ii. THEN The JV can be considered Small so long as EACH concern is Small under the applicable NAICS code. iii. OTHERWISE The venturers are considered affiliated for size purposes and the COMBINED annual receipts or employees (as applicable) must meet the size standard of the applicable NAICS code. 10

11 VA Specific Requirements and Guidance 9) Other requirements - 13 CFR (b)(3) Performance of Work i. JV must perform the applicable percentage of work required by 13 CFR (13 CFR 125.6) A. Services 50% B. Manufacturing 50% C. Construction 15% D. Trade Contractors 25% ii. Requirement applies to JV, not the individual venturers 11

12 Sample JV Agreement 12

13 Road Runner Catchers, LLC A Joint Venture between Wile E. Coyote Enterprises, Inc. and The ACME Corporation Suggestion Introducing the venturers, identifying the SDVOSB member Requirement Setting forth the purpose of the JV. If possible, be specific to solicitation(s) Demonstrates it is a non-permanent relationship SBA 3 in 2 rule may still apply 13

14 Road Runner Catchers, LLC Requirement Designating a SDVOSB as the managing venturer of the JV Requirement Designating an employee (be specific) of the managing venturer as the project manager responsible for the performance of the SDVOSB contract Requirement Stating that not less than 51% of the net profits earned by the joint venture will be distributed to the SDVOSB 14

15 Road Runner Catchers, LLC Suggestion Identify managing venturer as responsible for submitting the final proposal to the government and responsible for its content Requirement Specifying the responsibilities of the parties regarding contract performance Suggestion Identify the responsibilities of the project manager 15

16 Road Runner Catchers, LLC Requirement (continued) source of labor, and negotiation of the SDVOSB contract Suggestion Identify contributions of the respective venturers (in this case, equipment) Requirement All venturers commit to performance of the SDVOSB contract even after withdrawal of other venturer(s), for any reason 16

17 Road Runner Catchers, LLC Requirement Confirmation that the records of the JV will be maintained by the SDVOSB managing venturer Suggestion Confidentiality agreement, adjusted to specific circumstances to protect trade secrets, intellectual property, proprietary data, etc., of the venturers 17

18 Road Runner Catchers, LLC Suggestion Address termination of the JV Suggestion Integration and Authority clauses Suggestion Two signatures per venturer, if possible. Also, include proposed project manager as signatory 18

19 Operational Considerations 19

20 Operational Considerations 1) Reminder, JV must be a separate legal entity (e.g., LLC) Other agreements may be required (e.g., LLC Operating Agreement) 2) SDVOSB Venturer must have ultimate control requiring a high business level of trust 3) Populated vs. Unpopulated 4) Subcontracts from JV to individual venturers? 5) 51% of profits to SDVOSB venturer(s) irrespective of proportion of work performance 6) Management issues Member-managed vs. managermanaged (LLC) Committees or boards? Check for control issues 20

21 Operational Considerations 6) Management Issues (continued) Voting rights (check for control ) Termination/withdrawal of one or more venturers Termination/dissolution of the LLC. 7) Financial Issues Capital contributions Additional contributions Return of capital Distributions Terms and lending agreements Restrictions on sale. 21

22 CVE Certification 22

23 CVE Verification 1) Reminder, JV must be a separate legal entity 2) JV must be CVE-verified! Emphasizes importance of intelligencemarketing Schedule risk (especially if rejected/appealed) Get it right the first time! 3) Required documents (LLC example) 23

24 CVE Verification 3) Required documents (LLC example) Application Documents (documents for LLCs per License Not Applicable. 1.2 Resume Not Applicable. This is a non-populated JV. Members consist of the venturer companies. 2.1 Tax 1040 Not Applicable. Applicant is a joint venture owned by the venturer companies. 2.3 K-1 Not Applicable. This is a new entity, no prior K-1s exist. 2.5 Payroll Not Applicable. This is a new entity and a non-populated JV. 2.6 Signature cards Bank Signature Card (equivalent) is included for review. 2.7 Contracts Not Applicable. This is a new entity. 3.1 Management Agreements Not Applicable. 3.2 Operating Agreement A copy of the JV LLC Operating Agreement is included for review. 4.1 Voting Not Applicable. 4.3 Shareholder Agreement Not Applicable. 4.4 Formation Not Applicable (See 3.2 for Operating Agreement and 4.7 for Articles of Organization). 4.5 Minutes Not Applicable. This is a new entity based on the agreements provided. No formal meetings have occurred as of application. 4.6 Bylaws Not Applicable for LLC, see 3.2 Operating Agreement. 4.7 Articles of Organization A copy of the Articles of Organization are included for review. 4.9 Stock Although stock certificates have not been issued (not required for LLCs), a copy of the Membership Ledger (LLC equivalent of a stock ledger) is included for review Joint Venture Agreement A copy of the Joint Venture Agreement is included for review Mentor Protégé Agreement Not Applicable. 24

25 CVE Verification 4) Required documents (LLC example, follow-up No. 1) Application Documents (documents for LLCs per License VA requested license documents for the venturers. Also responded with city/county business tax receipts (occupational licenses) for the JV. 1.2 Resume VA requested resumes for managers of the venturers. 2.1 Tax 1040 Not Applicable. Applicant is a joint venture owned by the venturer companies. 2.3 K-1 / 1120 VA asked for 3-years of prior taxes for the venturers 2.5 Payroll Not Applicable. This is a new entity and a non-populated JV. 2.6 Signature cards VA asked for copies of cancelled checks 2.7 Contracts Not Applicable. This is a new entity. 3.1 Management Agreements Not Applicable. 3.2 Operating Agreement A copy of the JV LLC Operating Agreement is included for review. 4.1 Voting Not Applicable. 4.3 Shareholder Agreement Not Applicable. 4.4 Formation Not Applicable (See 3.2 for Operating Agreement and 4.7 for Articles of Organization). 4.5 Minutes Not Applicable. This is a new entity based on the agreements provided. No formal meetings have occurred as of application. 4.6 Bylaws Not Applicable for LLC, see 3.2 Operating Agreement. 4.7 Articles of Organization A copy of the Articles of Organization are included for review. 4.9 Stock Although stock certificates have not been issued (not required for LLCs in Florida), a copy of the Membership Ledger (LLC equivalent of a stock ledger) is included for review Joint Venture Agreement A copy of the Joint Venture Agreement is included for review Mentor Protégé Agreement Not Applicable. 25

26 CVE Verification 5) Required documents (LLC example, follow-up No. 2) Application Documents (documents for LLCs per License VA requested license documents for the venturers, also responded with city/county business tax receipt (occupational licenses). 1.2 Resume VA requested resumes for managers of the venturers. 2.1 Tax 1040 Not Applicable. Applicant is a joint venture owned by the venturer companies. 2.3 K-1 / 1120 VA asked for K-1s for one of the venturers. Responded with letter confirming that they were not an S-Corp and, thus K-1s are not applicable, previously submitted 1120s 2.5 Payroll Not Applicable. This is a new entity and a non-populated JV. 2.6 Signature cards VA asked for copies of cancelled checks 2.7 Contracts Not Applicable. This is a new entity. 3.1 Management Agreements Not Applicable. 3.2 Operating Agreement A copy of the JV LLC Operating Agreement is included for review. 4.1 Voting Not Applicable. 4.3 Shareholder Agreement Not Applicable. 4.4 Formation Not Applicable (See 3.2 for Operating Agreement and 4.7 for Articles of Organization). 4.5 Minutes Not Applicable. This is a new entity based on the agreements provided. No formal meetings have occurred as of application. 4.6 Bylaws Not Applicable for LLC, see 3.2 Operating Agreement. 4.7 Articles of Organization A copy of the Articles of Organization are included for review. 4.9 Stock Although stock certificates have not been issued (not required for LLCs in Florida), a copy of the Membership Ledger (LLC equivalent of a stock ledger) is included for review Joint Venture Agreement A copy of the Joint Venture Agreement is included for review Mentor Protégé Agreement Not Applicable. 26

27 Lessons-Learned 27

28 Lessons-Learned 1) JV Verification Send license, tax, and resume information relating to the venturers, not just the JV 2) Reasons for denial Management and control Voting arrangements Management structure Board of Directors/Members/Committees SDVOSB venturer not verified 28

29 Lessons-Learned 3) Relationship is critical 4) Not familiar with FAR, Gov work, security clearances, background checks, compliance requirements 5) Think about who you are climbing into bed with 29

30 Lessons-Learned 6) Reference Protest Decisions - HANA-JV, SBA No. VET-227 (2012) affirms Area Office rejection of joint venture agreement because it gave both parties equal control and failed to name the SDVOSB concern s employee serving as the project manager. Rush-Link One Joint Venture, SBA No. VET-228 (2012) interpreting the project manager requirement to mean that the joint venture agreement must identify a specific individual employed by the SDVOSB concern as the project manager. Also, conflict between JV agreement and proposal. KRR Partners Joint Venture, SBA No. VET-239 (2013) affirms determination that JV was not qualified SDVOSB because joint venture agreement did not specify the parties' contract responsibilities. 30

31 UPDATE!!! 31

32 UPDATE!!! VA Proposed Rule Changes (posted 06 Nov 2015) - Incorporates COFC rulings (RE: Ownership restrictions) to accept certain reasonable commercial contract conditions Increases waiting period after denial of verification to 12 Months Attempts to eliminate community property issues of some states A lot of administrative changes for consistency Still some discrepancy between the SBA and VA programs Comments due to the VA by 05 Jan

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34 CONTACT US Government Contractors Assistance & Resource Line LLC 1201 Peachtree Street 400 Colony Square, Suite 200 Atlanta, Georgia (404) Government Contractors Assistance & Resource Line LLC 34