This is a guest post from attorneys Maria L. Panichelli and Edward T. DeLisle of the law firm Cohen Seglias Pallas Greenhall & Furman PC.
Welcome to the first installment of our three-part series, Key Considerations in Small Business Teaming: How to Form a Productive Partnership While Safeguarding your Interests and Protecting your Small Business Eligibility. Today, we will be focusing on the differences between teaming arrangements and joint ventures. Check back soon for our next two installments, which will address: (1) avoiding the common pitfalls of teaming; and (2) how to draft an enforceable teaming agreement that will protect your interests.
In today’s Federal contracting market, a growing number of government contracts are set-aside for various types of small businesses. It’s no surprise that, in this highly competitive environment, cooperative contractor relationships – including teaming and joint-venturing – are increasingly popular among small and large businesses alike.
Small business contractors like these type of relationships because it allows them to break into the federal contracting arena – an arena in which past performance, experienced performance, and large-scale technical capabilities can prove critical to securing a contract. At the same time, larger contractors like cooperative relationships because these relationships give large businesses access to set-aside contracts for which they would otherwise be ineligible. In short, whether you are a small business looking to expand your capabilities, or a large business looking for access to set-aside contracts, teaming or joint venturing can greatly expand your Federal contracting opportunities. In this article, we’ll explain some of the differences between teaming and joint venturing, and how to decide which type of relationship is best for you.
What is the Difference Between Teaming and Forming a Joint Venture?
Many people confuse teaming (sometimes referred to as a “Contractor Teaming Agreement” or “CTA”) and joint venturing. In truth, these two types of partnerships have some major differences, and raise different types of compliance concerns.
“Teaming” is really just a special kind of subcontracting, where (in the small business set-aside context) a small-business that fulfills a certain procurement’s set-aside requirements serves as the prime contractor, and subcontracts a substantial portion of the work to another (often larger) business. The “team” is set up before the bidding/proposal process, the contractors work together on the bid/proposal, and the procuring agency is made aware of the “team” prior to the source selection process. The teaming agreement is customarily submitted as part of the bid/proposal itself.
In comparison, joint venturing is when two companies (in the small business set-aside context, usually one large and one small) form a third, joint venture or “JV” entity. If the JV is formed and structured appropriately, the JV itself will be eligible to compete as a “small” business.
By now you might be asking, “how do companies know whether teaming or JVing is better for them?” The answer is that they have to consider a multitude of issues, including those set forth below.
CTAs v. JVs: Leveraging Your Assets with Your Target Opportunities in Mind
First, businesses need to determine which type of relationship – teaming or JVing – allows them to best leverage their strengths and maximizes their chance at securing a contract award. Oftentimes, when business wish to for a CTA or JV, it is with a specific procurement opportunity in mind. In such a case, the terms of the solicitation issued for that procurement should be closely examined, as they will impact which type of cooperative relationship – CTA or JV – will be best.
Oftentimes, a teaming partner’s past performance may be considered by a procuring agency when determining which offeror presents the “best value.” However, there are exceptions; sometimes a solicitation will prohibit the consideration of a subcontractor/teaming partner’s past performance or experience. In such cases, an agency might still be able to consider the past performance of each member of a JV. Other times, the applicable solicitation might state that it will consider the past experience of the managing member of a JV only; or that it will accept examples of past performance completed by the JV itself, but not either of the JV members individually. To determine whether teaming or JVing is a better fit for you, take a look at the specific provisions of your solicitation and determine which type of arrangement will allow you to play up your combined strengths.
For example, if a solicitation prohibits the consideration of teaming members’ experience, and you are a small business hoping to rely on your large business teaming partner’s experience, teaming is likely not a fit. A JV might be a better option, to the extent that the solicitation allows the agency to consider both JV partners’ past experience. Conversely, if the solicitation prohibits the consideration of a minority JV partner’s individual experience, but allows for consideration of a subcontractor’s/teaming partner’s past performance, teaming might be preferable to forming a joint venture. Be sure to review all the terms of your solicitation before completing your analysis.
What if you aren’t looking to team or JV on just one project? As a threshold matter, you will want to examine whether a multi-project partnership could lead to affiliation (covered in more detail below, and in-depth in our next installment) or control issues. Decide what you want your relationship going forward to look like, and determine which option (if any) would allow you to partner on numerous jobs but remain in compliance with the applicable SBA/VA regulations. If after that analysis you are still unsure, the above rationale applies: Look to the terms of the solicitation. If you are hoping to partner on jobs that have not yet been advertised, this can be a little harder. But, with a little detective work, it is not impossible.
Usually businesses wishing to form a CTA or JV have a specific group or “family” of procurements in mind. For instance, you might be targeting SDVOSB set-aside contracts involving VA Medical Center renovations in Central Pennsylvania, or maybe HUBZone set-aside contracts in Salt Lake City. Try and predict what type of terms the upcoming solicitations might include by examining the terms of the recent solicitations put out by your target agency in your target area. It’s not foolproof, but it will give you a good idea of what type of terms are likely. From there, you can decide whether a CTA or JV would be better for you.
CTAs v. JVs: The Affiliation Question
A second important consideration is the potential impact of affiliation, and its effect on a small business’ size. We will talk about size and affiliation more in our second installment. But for our purposes today, we will cover the basics of size and affiliation below.
To determine whether a contractor qualifies as a “small business” for the purposes of a given contract, the contractor must locate the North American Industry Classification System (“NAICS”) code assigned to that contract (usually found in the solicitation itself), and refer to the “size standard” associated with that code. A size standard is measured either in revenue or employees. To qualify as “small,” a concern must not exceed the dollar threshold or number of employees designated for a particular code. When two companies are found to be “affiliated,” their respective sizes (determined by either revenue or number of employees) are added together. The total is what is evaluated when determining whether the company is actually “small” based upon the SBA’s “size standards.” If the sizes of the two businesses, added together, exceed the applicable size standard, neither can be considered “small.” Accordingly, a finding of “affiliation” is something small businesses generally want to avoid.
When two parties form a JV, the JVs members are usually considered per se affiliated for purposes of whatever procurement is at issue by virtue of the JV relationship itself. There are certain limited exceptions, most notably: 1) when each individual member of the JV is individually “small”; or 2) if the members of the JV are part of an approved Mentor-Protégé relationship (for more information on this, stay tuned for our upcoming piece on the new “All Small” Mentor Protégé program!). If you can satisfy the requirements for one of the affiliation exceptions, then JVing might be a good option. If not – and most potential large/small business partnerships cannot fulfill the requirements without significant advance planning – teaming is likely a better choice, at least for a single project. If you wish to team for a number of projects, the risk of running into affiliation and control issues increases. If you and your partner wish to work together on numerous projects, it is a good idea to talk to someone with specific expertise analyzing affiliation and control issues. They can help you sort out which option is best for you and your partner both in the short term, and in the long term.
CTA v. JV: Other Considerations
Though the two concerns outlined above are important factors when comparing the relative benefits of teaming or joint venturing, they are not the only two considerations contractors should take into account. Contractors must also consider the structure of each individual company, the degree of control each company wishes to have over the partnership and the projects it performs, and the specific business terms each company finds acceptable. Each of these inquiries is heavily fact dependent, and can implicate other issues and concerns described herein, and in our upcoming installments. If you are confused about which option is best for you, consult a legal professional who can help walk you through all of the possibilities.
Maria L. Panichelli
Maria is an experienced government contracting attorney, whose practice focuses on federal construction contracting and small business procurement. Her practice spans a variety of federal contracting matters, including bid protests, REAs, contract claims, and appeals. She has represented clients before numerous Federal agencies, the Government Accountability Office, and various Federal and state courts, and has litigated cases covering a wide range of construction-related issues such as defective designs, defective specifications, differing site conditions, changes, suspensions, delays, and contract terminations. Maria also counsels clients in all aspects of small business procurement. Maria has successfully challenged negative agency findings with regard to clients’ SDVOSB and 8(a) eligibility, and successfully defeated size and status related bid protests brought by competitors. She has considerable experience drafting teaming and joint venture agreements, and advising small business clients with regard to potential affiliation problems and subcontracting requirements. Her small business practice also involves drafting corporate governance documents that will comply with small business program eligibility requirements.
Maria is active in a number of federal contracting- and/or construction-related professional associations, and is a frequent contributor to the Firm’s Federal Construction Contracting Blog. She works closely with several Procurement Technical Assistance Centers, providing educational content for a variety of government contractors. Maria is also a community partner at Govology, a legal content contributor to VetLikeMe, Targetgov, and Onvia, and a faculty member at the Government Contracting Institute.
To read Maria’s full biography, visit the Cohen Seglias website.
Edward T. DeLisle
Ed is Co-Chair of the Federal Contracting Group at Cohen Seglias Pallas Greenhall & Furman PC. He concentrates his practice in the areas of federal contracting, construction law, construction litigation, and small business procurement and litigation. He has drafted and negotiated construction contracts, teaming agreements and joint venture agreements for subcontractors, contractors, developers and owners. Ed regularly counsels clients in all aspects of small business procurement. He has assisted clients in obtaining certification as small, and small disadvantaged, businesses at the municipal, state and federal level. He has participated in bid protests involving Service-Disabled, Veteran-Owned, HUBZone and 8(a) set-aside contracts and regularly assists with responding to best-value procurements at the state and federal level. Ed also assists companies, both foreign and domestic, in international disputes involving the United States Government. He is currently representing clients in Iraq, Afghanistan, Israel and other areas around the world.
Ed has been a frequent lecturer and author on issues of concern to the construction and federal contracting industries. He has presented at the National 8(a) Association Conferences in Anchorage, Alaska and in Orlando, FL as well as at the AGC Federal Contractors Conference in Washington, DC. Ed has spoken at AGC of America’s national conference, where he discussed hot topics in federal government contracts. He has also lectured on how to appropriately team on federal projects, the SDVOSB verification process, changes in the SBA’s small business programs, effective project documentation, strategies to obtain payment on construction projects and the legal protections provided by the bond and lien laws.
To read Ed’s full biography, visit the Cohen Seglias website.