Partnering Opportunities for SDVOSBs/VOSBs

Presented by Sarah Schauerte Legal Meets Practical, LLC legalmeetspractical.com

Teaming Generally

• Under FAR 9.601, “contractor team arrangement” means: – Two or more companies form a partnership or

joint venture to act as a potential prime contractor (vertical teaming arrangement); or

– A potential prime contractor agrees with one or more companies to have them act as its subcontractors under a Solicitation/Contract (horizontal teaming arrangement)

What’s the Point?

• FAR 9.602(a) notes that teams may be desirable from the Government’s standpoint because they: – Enable companies to complement each other’s

unique capabilities; and – Enable companies to offer the Government the

best combination of performance, cost, and delivery

Big Picture Differences

• Prime/Sub Team – Prime has sole interest/responsibility – Team controlled by subcontracts and TAs – Prime only has privity of contract – Profits and losses dictated by subcontracts

• Joint Venture – Separate legal entity with “members” with proportionate

“interests” – Serves “special purpose” – Joint and several liability – Profits and losses shared proportionately

So you want to team up…

• Options: – Prime Contractor – Subcontractor – Member of Joint Venture

Prime Contractor Overview

• Generally team as prime contractor when set-aside opportunity – SBA – Must be an SDVOSB as listed in SAM.gov – VA – Must be a verified VOSB/SDVOSB as listed in

the VetBiz registry

Prime Contractor Advantages

• “Interested party” for bid protests• Control over contract management• Control over distribution of labor • Branding • Use SDVOSB/VOSB status (set-asides)

Prime Contractor Disadvantages

• On the hook – Responsible for federal rule violations– Responsible for subcontractor actions

• Remember to flow down FAR clauses • Can’t negotiate terms of prime contract with

government

Forming a Prime Contract Relationship

• Step #1: Vet your partners • Step #2: Execute non-disclosure agreement• Step #3: Execute teaming agreement • Step #4: Prepare proposal • Step #5: Execute Subcontract

Step #1: Vet Your Partners

• The dating rules• Ask for references • Internet research • Prior dealings

Step #2: Execute Non-Disclosure Agreements

• During proposal/negotiation phase, may exchange confidential or proprietary information

• Will protect information for specified period of time

• Internet NDAs usually ok

Step #3: Execute Teaming Agreement

• Topics covered: – Relationship of parties– Procurement activities – Termination of TA/award of subcontract – Confidentiality – Notices – OCI– Disputes (including governing law and venue)

Step #4: Prepare Proposal

• Prime contractor’s responsibility • Scrutinize solicitation requirements (see

Sections L and M in particular) • Timely submission!

Step #5: Execute Subcontract

• After a win • Ensure clear division of responsibilities • Important provisions: – Payment – Disputes – Confidentiality– Termination

Set-Aside Requirements

• Must meet certain requirements if submit offer on set-aside contract (13 CFR §125.15). – Represent is SDVOSB– Represent is small under NAICS code– Represent will meet performance of work reqts.

• Performance of Work Reqts. (13 CFR §125.6)– Services: 50% (with own employees)– Supplies: 50% (cost)– General construction: 15% (cost, own employees)

Subcontractor Overview

• Big primes LIKE to team with SDVOSBs/VOSBs: – Proposal evaluation credit – Credit under subcontracting plan (FAR §52.219-9)

Subcontractor Advantages

• Lower risk (prime bears brunt) • Less responsibility (prime manages) • Evaluation purposes – Bigger company might need to be prime because

government agency does not consider past performance of subs. HK Consulting, Inc., B-408443 (September 18, 2013).

Subcontractor Disadvantages

• Less control over how work completed • (Generally) less control over subcontract terms• Oftentimes no guaranteed workshare/prime

contractor not penalized for not honoring teaming agreement: – Cyberlock Consulting, Inc. v. Information Experts, Inc.,

2013 WL 1395742 (E.D. Va., April 3, 2013), EDVA held that a TA’s terms regarding the parties’ “agreement to agree” to future “good faith” negotiations of a subcontract, did not constitute an enforceable contract.

How the TA Can Protect Subcontractors

To prevent a prime contractor from successfully arguing that a TA is a mere “agreement to agree,” follow these tips (handout):

• Tip #1: Specify that parties “shall” enter into a subcontract

• Tip #2: Include details on pricing • Tip #3: Specify subcontractor’s workshare

TA Tips Continued…

• Tip #4: Include subcontractor’s name in proposal

• Tip #5: Try for exclusivity • Tip #6: Limit termination rights • Tip #7 Include remedies for failing to enter

into subcontract. However, you have to get your prime to agree

to these terms! (Can be difficult).

Joint Venture Overview

• Joint Venture Definition • Why JV? (Advantages and Disadvantages) • Starting a Joint Venture – Step One. Find the right partner – Step Two. Read up on set-aside regulations – Step Three. Paperwork (legal form and registrations)– Step Four. Determine management structure/labor– Step Five. Draft the joint venture agreement

What is a Joint Venture?

• A “joint venture” is:

An association of individuals and/or concerns to combine property, capital, efforts, skills and knowledge to carry out no more than three specific of limited-purpose business ventures for joint profit over a two-year period.” 13 C.F.R. §121.103(h)

*Note – “three in two” rule

Why Form a JV?

• The contracting agency can look to the resources of two (or more) companies to perform the work.

• Alleviation of responsibility – Legal requirements under contract – Partner rather than manager or subordinate

Eligibility/ability to perform larger contract • Ability to stay small for longer

Why Not?

• More difficult to form• Give up control as prime contractor • In informal legal structures (ie, partnership),

jointly and severally liable to third parties • Complications – Government issues with points of contact – Government questions with contract performance

and satisfying subcontract limitations More difficult to terminate

Step #1: Find the Right Partner

• Vet your partner! (references, past dealings, in-person meeting)

• Complementary offerings – Technical capabilities – Positive name recognition

• Know what you both want

Step #2: Ensure the JV Meets Set-Aside Requirements

• Keep in mind the size rules– JV partners as affiliated (with exceptions) – Aggregate rule

• JV must meet applicable performance of work requirements (see 13 CFR 125.15)

• Populated versus Unpopulated

Step #2: Set-Aside Requirements

• SDVOSB must be managing partner • SDVOSB employee must be project manager (and also

named in JV agreement) • SDVOSB must receive 51% of net profits • JV Agreement must specifically describe both parties’

roles in contract performance and how SDVOSB will manage the project

• Unique VA requirements: – The JV must be a separate legal entity – CVE must verify the JV prior to award

Step #3: Choose a Legal Form

• Limited liability company (preferred) • Partnership (informal, joint & several liability) • Corporation (double taxation, rare)

Step #4: Determine Mgmt. Structure & Labor

• How will the parties manage the joint venture? • Which party will be responsible for negotiating

contracts and subcontracts? • How will you communicate with the customer? • What are the sources of labor to be employed? • How do the parties envision the division of

labor on contracts? • Populated or unpopulated?

Step #5: Drafting the JV Agreement

• Common Terms (13 CFR §125.15(b)(2))– Purpose of JV – Designation of SDVOSB as managing partner – 51% of net profits distributed to SDVOSB– Responsibilities of parties – Both parties must ensure performance of the prime contract,

even if the other party withdraws from the JV – Designation that accounting/administrative records are kept by

managing venturer and requirement that managing venturer retain records of contracts completed by JV

– Performance of work requirements – Disputes

Questions?

Thank you for joining me today! If you would like to speak with me further

about teaming arrangements, please reach out:

Sarah Schauerte scs@legalmeetspractical.com

(703) 552-3220

Website and blog at: legalmeetspractical.com