Partnering for Partnering for SuccessSuccess

SHERRY ROSESHERRY ROSE

Procurement Technical Assistance Center

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Presents

Presents

ALLIANCE FOR BUSINESS CONFERENCEMARCH 10, 2010

ALLIANCE FOR BUSINESS CONFERENCEMARCH 10, 2010

JOINT VENTURES, TEAMING

ARRANGEMENTS, ETC.

JOINT VENTURES, TEAMING

ARRANGEMENTS, ETC.

Partnering for SuccessPartnering for Success

Why Partner?Why Partner?

1) Increase Competitive Edge1) Increase Competitive Edge

2) Enhance Capabilities2) Enhance Capabilities

3) Diversify3) Diversify

4) Compete with Large Firms4) Compete with Large Firms

General General Affiliation:Affiliation:

How does SBA determine affiliation?How does SBA determine affiliation? Concerns and entities are affiliates of each Concerns and entities are affiliates of each

other when one controls or has the power to other when one controls or has the power to control the other, or a third party (or parties) control the other, or a third party (or parties) controls or has the power to control bothcontrols or has the power to control both

It does not matter whether control is It does not matter whether control is exercised, so long as the power to control exercised, so long as the power to control existsexists

Factors: ownership, management, previous Factors: ownership, management, previous relationships or ties; contractual relationships.relationships or ties; contractual relationships.

Control may be positive or negative (e.g., Control may be positive or negative (e.g., negative control where shareholder has ability negative control where shareholder has ability to prevent quorum or otherwise block actions to prevent quorum or otherwise block actions of board or directors)of board or directors)

Totality of circumstances, even though one Totality of circumstances, even though one single factor is insufficient for finding of single factor is insufficient for finding of control.control.

In determining size, SBA counts the receipts or In determining size, SBA counts the receipts or employees of the concern and all of its employees of the concern and all of its domestic and foreign affiliates, regardless of domestic and foreign affiliates, regardless of whether organized for profit.whether organized for profit.

Affiliation

Some General Principles of Affiliation Some General Principles of Affiliation

(13 CFR 121.103)(13 CFR 121.103)

Power to Control Common Managers Common Stockholders Identical Business Interests Contractual Relationships Joint Venture Arrangements

What is a Joint Venture?

AA joint venture joint venture is… is…an association of an association of individuals and/or concerns with interests in individuals and/or concerns with interests in any degree or proportion by way of contract, any degree or proportion by way of contract, express or implied, consorting to engage in and express or implied, consorting to engage in and carry out no more than three specific or carry out no more than three specific or limited-purpose business ventures for joint limited-purpose business ventures for joint profit over a two-year period, for which purpose profit over a two-year period, for which purpose they combine their efforts, property, money, they combine their efforts, property, money, skill, or knowledge, but not on a continuing or skill, or knowledge, but not on a continuing or permanent basis for conducting business permanent basis for conducting business generally.generally.

What is a Joint Venture?This means that…This means that…

The joint venture entity cannot submit more than three The joint venture entity cannot submit more than three offers over a two-year period, starting from the date offers over a two-year period, starting from the date of the submission of the first offer.of the submission of the first offer.

A joint venture may or may not be in the form of a A joint venture may or may not be in the form of a separateseparatelegal entity. legal entity.

The joint venture is viewed as a business entity in The joint venture is viewed as a business entity in determining power to control its management. determining power to control its management.

SBA may also determine that the relationship between SBA may also determine that the relationship between a prime contractor and its subcontractor is a joint a prime contractor and its subcontractor is a joint venture, and that affiliation between the two exists.venture, and that affiliation between the two exists.

AffiliatioAffiliationn

Parties to a Joint Venture are considered to be affiliates if submitting offers on a particular procurement.

AffiliatiAffiliationon

SBA may also determine that the relationship between a prime

contractor and its subcontractor is a joint venture, and that affiliation

between the two exists.

A contractor and subcontractor are treated as joint A contractor and subcontractor are treated as joint

venturers if venturers if the ostensible subcontractorthe ostensible subcontractor will perform primary and vital requirements of a will perform primary and vital requirements of a contract or if the prime contractor is unusually contract or if the prime contractor is unusually reliant upon the ostensible subcontractor. reliant upon the ostensible subcontractor.

All requirements of the contract are considered in All requirements of the contract are considered in reviewing such relationship, including contract reviewing such relationship, including contract management, technical responsibilities, and the management, technical responsibilities, and the percentage of subcontracted work.percentage of subcontracted work.

Ostensible Subcontracting: 13 CFR 121.103 (h)(4)Ostensible Subcontracting: 13 CFR 121.103 (h)(4)

What is Ostensible What is Ostensible Subcontracting?Subcontracting?

1.1. Which party chased the contract?Which party chased the contract?

2.2. What degree of collaboration was there What degree of collaboration was there between the prime contractor and between the prime contractor and subcontractor on the proposal?subcontractor on the proposal?

3.3. Which party possesses the requisite Which party possesses the requisite background and expertise to carry out the background and expertise to carry out the contract?contract?

4.4. Who will manage the contract?Who will manage the contract?

Seven-Factors TestSeven-Factors Test

5.5. Are there discrete tasks to be performed by Are there discrete tasks to be performed by each party, or is there commingling of each party, or is there commingling of personnel and materials?personnel and materials?

6.6. What is the amount of work to be performed What is the amount of work to be performed by each party?by each party?

7.7. Which party performs the more complex and Which party performs the more complex and costly contract functions?costly contract functions?

Seven-Factors TestSeven-Factors Test

The “seven factors” testThe “seven factors” test is only one tool used by is only one tool used by SBA to evaluate whether the relationship is a true SBA to evaluate whether the relationship is a true prime/subcontractor relationship or a joint venture prime/subcontractor relationship or a joint venture under the ostensible subcontractor regulations. under the ostensible subcontractor regulations.

It is not the exclusive test of the presence of unusual It is not the exclusive test of the presence of unusual reliance. Ultimately, reliance. Ultimately, a finding of unusual a finding of unusual reliance, which rises to the level of a joint reliance, which rises to the level of a joint venture affiliation, must be a reasonable venture affiliation, must be a reasonable conclusion based on the totality of the conclusion based on the totality of the circumstancescircumstances..

Seven-Factors Seven-Factors TestTest

Decisions made by the Office of Hearings Decisions made by the Office of Hearings and Appeals (OHA) in Washington can and Appeals (OHA) in Washington can provide insight on “ostensible provide insight on “ostensible subcontracting.” If you’re concerned, subcontracting.” If you’re concerned, go to: go to: www.sba.gov/ohawww.sba.gov/oha and then “search and then “search decisions.”decisions.”

Search using key words such as Search using key words such as “ostensible subcontracting” or “totality of “ostensible subcontracting” or “totality of the circumstances” or “joint venture.”the circumstances” or “joint venture.”

To learn To learn moremore

AffiliatiAffiliationon

Know how to advise a firm to form a Joint Venture without becoming affiliated with its partner!

Affiliation with another partner could result in a finding that a firm is no longer

a small business.

AffiliatiAffiliationon

There is an Exception to Every Rule!

Exclusion from Affiliation

A joint venture arrangement of two or more business concerns may submit an offer as a small business for a Federal procurement without regard to affiliation provided…

ExclusioExclusionsns

1) Each concern is small under the size standard corresponding to the NAICS code assigned to the contract, provided:

A) The procurement qualifies as a “bundled” requirement, at any dollar value; or…

Exclusions

B)B) The procurement is other than The procurement is other than a “bundled” requirement and:a “bundled” requirement and:

For a procurement having a revenue-For a procurement having a revenue-based size standard, the dollar value based size standard, the dollar value or the procurement, including options, or the procurement, including options, exceeds half the size standard exceeds half the size standard corresponding to the NAICS code corresponding to the NAICS code assigned to the contract…or…assigned to the contract…or…

Exclusions

For a procurement having an For a procurement having an employee-based size standard, the employee-based size standard, the dollar value of the procurement, dollar value of the procurement, including options, exceeds $10 million.including options, exceeds $10 million.

Bundled requirement or bundlingBundled requirement or bundling refers to the consolidation of two or more refers to the consolidation of two or more procurement requirements for goods or procurement requirements for goods or services previously provided or performed services previously provided or performed under separate smaller contracts into a under separate smaller contracts into a solicitation of offers for a single contract solicitation of offers for a single contract that is likely to be unsuitable for award to a that is likely to be unsuitable for award to a small business.small business.

What is a Bundled What is a Bundled Requirement?Requirement?

Mentor - Mentor - ProtégéProtégé

Two firms approved by SBA to be a mentor and protégé under 13 CFR 124.520 may joint venture as a small business for any Federal Government procurement, provided…

…the protégé qualifies as small for the size standard corresponding to the NAICS code assigned to the procurement,

…and, for purposes of 8(a) sole source requirements, has not reached the dollar limit set forth in 13 CFR 124.519.

8(a) BD 8(a) BD ParticipantsParticipants

A joint venture or teaming A joint venture or teaming arrangement ofarrangement of at least one at least one 8(a) Participant and one 8(a) Participant and one or more other business or more other business concernsconcerns may submit an offer may submit an offer for a competitive 8(a) for a competitive 8(a) procurement without regard to procurement without regard to affiliation so long as the affiliation so long as the requirements of 13 CFR requirements of 13 CFR 124.513(b)(1) are met.124.513(b)(1) are met.

Requirements of 13 CFR 124.513(b)

(1)The requirements of 13 CFR 124.513(b)(1) include the following:

A joint venture of at least one 8(a) Participant and one or more other business concerns may submit an offer as a small business for a competitive 8(a) procurement so long as each concern is small under the size standard corresponding to the NAICS code assigned to the contract, provided…

1) The size of at least one 8(a) Participant to the 1) The size of at least one 8(a) Participant to the joint venture is less than one half the size joint venture is less than one half the size standard corresponding to the NAICS assigned to standard corresponding to the NAICS assigned to the contract; andthe contract; and

(a) For a procurement having a revenue-(a) For a procurement having a revenue-based size standard, the procurement exceeds based size standard, the procurement exceeds one half the size standard corresponding to the one half the size standard corresponding to the NAICS code assigned to the contract; orNAICS code assigned to the contract; or

(b) For a procurement having an (b) For a procurement having an employee-based size standard, the procurement employee-based size standard, the procurement exceeds $10 million;exceeds $10 million;

Requirements of

13 CFR 124.513(b)(1)

Service Disabled Service Disabled Veteran-OwnedVeteran-Owned

13 CFR 125.15 (b)13 CFR 125.15 (b) An An SDVOSBSDVOSB may enter into a joint venture may enter into a joint venture

agreement with one or more other small businesses agreement with one or more other small businesses for the purpose of performing an SDVOSB contract –for the purpose of performing an SDVOSB contract – Joint venture of at least one SDVOSB and one or more other Joint venture of at least one SDVOSB and one or more other

business concerns may submit an offer for a competitive business concerns may submit an offer for a competitive SDVOSB procurement so long as SDVOSB procurement so long as eacheach concern is small under concern is small under the applicable NAICS code and size standard, provided:the applicable NAICS code and size standard, provided:

- For a revenue-based size standard, the procurement exceeds For a revenue-based size standard, the procurement exceeds half the size standard corresponding to the applicable NAICS half the size standard corresponding to the applicable NAICS code;code;

-For an employee-based size standard, the procurement -For an employee-based size standard, the procurement exceeds $10 million.exceeds $10 million.

- - The joint venture must contain provisions set forth in the The joint venture must contain provisions set forth in the regulations.regulations.

-For sole source and competitive SDVOSB -For sole source and competitive SDVOSB procurements that do not exceed dollar procurements that do not exceed dollar levels, an SDVOSB entering into a joint levels, an SDVOSB entering into a joint venture agreement with another concern venture agreement with another concern is considered to be affiliated with respect is considered to be affiliated with respect to performance of the SDVOSB contract to performance of the SDVOSB contract (annual receipts or employees must meet (annual receipts or employees must meet applicable size standard). SDVOSB applicable size standard). SDVOSB mustmust Be managing partner of jv and project Be managing partner of jv and project

managermanager Receive at least 51% of net profits of jvReceive at least 51% of net profits of jv The jv must perform applicable percentage of The jv must perform applicable percentage of

workwork

Prime Contractor Performance Prime Contractor Performance RequirementsRequirements

(Limitations On Subcontracting) (Limitations On Subcontracting) ((13 CFR 125.6)13 CFR 125.6)

In order to be awarded a full or partial small business set-aside In order to be awarded a full or partial small business set-aside contract, 8(a) contract, or an unrestricted procurement where firm contract, 8(a) contract, or an unrestricted procurement where firm claims 10% SDB price evaluation preference, a small business claims 10% SDB price evaluation preference, a small business concern must:concern must:

In the case of a contract for services (except construction), perform at In the case of a contract for services (except construction), perform at least 50 percent of the least 50 percent of the cost incurred for personnelcost incurred for personnel with its own employees with its own employees

In the case of a contract for supplies or products (In the case of a contract for supplies or products (other than other than procurement from a non-manufacturer of such supplies or procurement from a non-manufacturer of such supplies or products), products), perform at least 50 percent of the cost of manufacturing the perform at least 50 percent of the cost of manufacturing the supplies or products (not including the cost of materials)supplies or products (not including the cost of materials)

In the case of a contract for general construction, perform at least 15 In the case of a contract for general construction, perform at least 15 percent of the cost of the contract with its own employees (not including percent of the cost of the contract with its own employees (not including cost of materials)cost of materials)

In the case of a contract for construction by special trade contractors, In the case of a contract for construction by special trade contractors, perform at least 25 percent of the cost of the contract with its own perform at least 25 percent of the cost of the contract with its own employees (not including cost of materials)employees (not including cost of materials)

An An SDVOSBSDVOSB – same percentages apply, – same percentages apply, exceptexcept percentages may be met by percentages may be met by the SDVOSB prime contractor or the employees of other SDVOSB’s.the SDVOSB prime contractor or the employees of other SDVOSB’s.

A A HUBZoneHUBZone small business – same percentages; however, service and small business – same percentages; however, service and manufacturing percentages may be met by one or more qualified HUBZone manufacturing percentages may be met by one or more qualified HUBZone small businesses.small businesses.

Supply of Supply of Manufactured Manufactured

Products (13 CFR Products (13 CFR 121.406)121.406)

On a small business set-aside or 8(a) On a small business set-aside or 8(a) contract, a small business must –contract, a small business must – Be the manufacturer of the end item being Be the manufacturer of the end item being

procured (end item must be manufactured in procured (end item must be manufactured in the U.S), or –the U.S), or –

Qualify as a non-manufacturer, kit assembler, Qualify as a non-manufacturer, kit assembler, or supplier under Simplified Acquisition or supplier under Simplified Acquisition Procedures.Procedures.

Non-Non-ManufacturerManufacturer

Does not exceed 500 employeesDoes not exceed 500 employees Is primarily engaged in retail or wholesale Is primarily engaged in retail or wholesale

trade and normally sells type of item being trade and normally sells type of item being suppliedsupplied

Will supply the end item of a small Will supply the end item of a small business manufacturer or processor made business manufacturer or processor made in the United States (unless a waiver has in the United States (unless a waiver has been granted by SBA)been granted by SBA)

NOTE: THERE ARE NO WAIVERS TO NOTE: THERE ARE NO WAIVERS TO THE NON-MANUFACTURING RULE FOR THE NON-MANUFACTURING RULE FOR HUBZONE CONTRACTS (13 CFR HUBZONE CONTRACTS (13 CFR 126.601(e)(1))126.601(e)(1))

Kit Kit AssemblerAssembler

Where the manufactured item is a kit of supplies Where the manufactured item is a kit of supplies or other goods provided for a special purpose, the or other goods provided for a special purpose, the small business offeror must –small business offeror must – Have fewer than 500 employees, ANDHave fewer than 500 employees, AND

50 percent of the total value of the components of the 50 percent of the total value of the components of the kit must be manufactured by U.S. small businesses kit must be manufactured by U.S. small businesses under the size standard for the applicable NAICS codeunder the size standard for the applicable NAICS code

The offeror need not itself be the manufacturer of any of The offeror need not itself be the manufacturer of any of the items assembledthe items assembled

If the Government has specified an item for the kit which If the Government has specified an item for the kit which is not produced by U.S. small business concerns, such is not produced by U.S. small business concerns, such item shall be excluded for calculation of total value.item shall be excluded for calculation of total value.

Simplified Simplified Acquisition Acquisition ProceduresProcedures Where the procurement for a manufactured Where the procurement for a manufactured

item is processed under Simplified item is processed under Simplified Acquisition Procedures (13.101 of FAR – 48 Acquisition Procedures (13.101 of FAR – 48 CFR 1301) and where the anticipated CFR 1301) and where the anticipated contract cost will not exceed $25,000, contract cost will not exceed $25,000, offeror need not supply end product of a offeror need not supply end product of a small business concern as long as the small business concern as long as the product is manufactured or produced in the product is manufactured or produced in the U.S. and the offeror has fewer than 500 U.S. and the offeror has fewer than 500 employees.employees. Offeror need not be manufacturerOfferor need not be manufacturer Does not apply to subcontractors.Does not apply to subcontractors.

What is a What is a Manufacturer?Manufacturer?

There can be only one manufacturer of the end There can be only one manufacturer of the end item being acquireditem being acquired With its own facilities, performs the primary activities in With its own facilities, performs the primary activities in

transforming inorganic or organic substances, including the transforming inorganic or organic substances, including the assembly of parts and components, into the end item assembly of parts and components, into the end item being acquired.being acquired.

End item must possess characteristics which, as a result of End item must possess characteristics which, as a result of mechanical, chemical or human action, it did not possess mechanical, chemical or human action, it did not possess before original substances, parts or components were before original substances, parts or components were assembled or transformed.assembled or transformed.

Firms that add substances, parts or components to an Firms that add substances, parts or components to an existing end item to modify its performance will NOT be existing end item to modify its performance will NOT be considered end item manufacturer where those identical considered end item manufacturer where those identical modifications can be performed by and are available from modifications can be performed by and are available from manufacturer.manufacturer.

What are the What are the Evaluation Factors?Evaluation Factors? Evaluation factors:Evaluation factors:

Proportion of total value added by efforts of the Proportion of total value added by efforts of the concern, excluding costs of overhead, testing, concern, excluding costs of overhead, testing, quality control, and profit;quality control, and profit;

Importance of the elements added to the Importance of the elements added to the function of the end item, regardless of relative function of the end item, regardless of relative value;value;

Concern’s technical capabilities; plant, facilities Concern’s technical capabilities; plant, facilities and equipment; production or assembly line and equipment; production or assembly line processes; packaging and boxing operations; processes; packaging and boxing operations; labeling of products; and product warranties.labeling of products; and product warranties.

Computer Computer AssemblersAssemblers

Firms that provide computer and other Firms that provide computer and other information technology equipment primarily information technology equipment primarily consisting of components parts (such as consisting of components parts (such as motherboards, video cards, network cards, motherboards, video cards, network cards, memory power supplies, storage devices, memory power supplies, storage devices, and similar items) who install components and similar items) who install components totaling less than 50% of the value of the totaling less than 50% of the value of the end item are generally NOT considered the end item are generally NOT considered the manufacturer of the end item.manufacturer of the end item.

1535 Bacharach Blvd.1535 Bacharach Blvd.Atlantic City, NJ 08401Atlantic City, NJ 08401

Phone 609-343-4845Phone 609-343-4845 Fax: 609-343-4710 Fax: 609-343-4710

SHERRY ROSE

Procurement Technical Assistance Center

E-mail: srose@adm.njit.edu