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THE INS AND OUTS OFJOINT VENTURE AGREEMENTS
PilieroMazza Breakfast SeminarApril 15, 2010
An ton io R . F rancoSteven J . K opr in ce
PilieroMazza PLLC 2010
888 17th St. NW, 11th Flr.
Washington, DC 20006
Tel: 202.857.1000
Fax 202.857.0200
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WHAT I S A JOI NT VENTURE?
A j oint vent ure is: A j oint venture is an associat ion ofindividuals and/ or concerns w it h int erest s inany degree or proport ion by w ay of cont ract ,
express or im plied, consort ing t o engage inand carry out no more than three specific orlim it ed-purpose business ventures for j ointprofit over a tw o year period, for w hich
purpose they combine their effort s, propert y,money, ski ll, or know ledge, but not on acont inuing or perm anent basis for conduct ingbusiness generally.
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TEAMI NG AGREEMENT v s .JOI NT VENTURE
Liability JV part ners joint ly r esponsible for cont ract performance, and
except in LLC, joint ly and severally liable
Subcontractor only responsible for port ion of w ork itperform s, l imit ed l iabil ity
Control Shared by JV part ners
Prim e Cont ractor has cont rol over teaming relat ionship
Bonding JVs t ypically able to obt ain bonding based on combinat ion of
all partners
Prim e/ sub may w ork also, but likely requires agreement of allpart ies to be bound and collateral from ow ners
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ADVANTAGES OFA JOI NT VENTURE?
a. The Government can look t o t he resources of tw o (ormore) companies t o perform the work;
b. A minor i ty joint venture member can exert morecont rol over cont ract performance to prot ect it s
int erest s t han in a t radit ional prime-sub relat ionship;c. The j oint venture part ies receive favorable
part nership income tax t reatment ;
d. Part icipat ing in a joint venture may al low a company
to avoid any perceived st igma associated w it h beinga subcont ractor t o it s compet it ors; and
e. Al low s f i rms to stay smal ler longer.
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DI SADVANTAGES OFA JOI NT VENTURE?
a. Lead Contractor gives up substantial cont rol;
b. The part icipat ing contractors become joint andseverally liable t o third part ies for t he act s of t heir
j oint venture par tners, including cr im inal act s;
c. The Government may view the JV as lacking a clearpoint of contact , t hus raising concerns regardingcont rol, aut horit y, and accountabilit y;
d. Terminat ing a JV may be more dif f icul t than
term inat ing a subcontract agreement w hile the primecont ract is being performed; and
e. Compet itors may raise past performance quest ions.
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TI MI NG OF JOI NT VENTURERELATI ONS
1. Joint Ventures should normally be formedbefore the offer is submit t ed.
2. Agreement should provide for performance
of the contract avoid agreement t o form aj oint venture .
3. FAR requires that nature of the j oint venturebe ful ly disclosed in t he proposal.
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ABOUT JOI NT VENTURES
A. Main Character ist ics:1. Co-m anagem ent
2. Shar ing prof it s and losses
3. Lim it ed durat ion
B. Compet ing as a jo int venture:1. Joint ventures should be formed before submit t ing of fer
2. Agreement should provide for contract performance
3. FAR requires disclosure in the proposal
C. Forms of Joint Venture:1. Part nership
2 . Limi ted Liab ili t y Company
3. Corporat ion (more formal it ies)
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STRUCTURI NG A JOI NT VENTURE
Form of Joint Venture Tradit ional Joint Vent ure (partnership)
Can be inform ative
No employees for JV it self
Legal Risk Alternative
Limit ed liabilit y company
Advantages easy to form ; l imit ed l iabil ity for
partners Disadvant ages requires capitalizat ion and
operat ion as separate ent it y
Corporat ion (m ore formalit ies)
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STRUCTURI NG AJOI NT VENTURE (cont d)
Corporation
The format ion of a corporat ion requiresthe most formalit ies including, meet ing
requirement s, state fil ing requirement s,etc.
Other considerat ions:
1. Populated v. unpopulated j oint ventures
2. Limit at ions on Subcont ract ing
3. Avoiding general af f i l iat ion
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JOI NT VENTURE: MANAGEMENTSTRUCTURE AND LABOR
What w ill be t he management st ructure of theJoint Venture?
Management Comm it t ee?
Proj ect Manager?
Which part y w ill be responsible for negot iat ingcontracts?
Which part y w ill be responsible for negot iat ingsubcont ract s w it h subcont ract ors?
What are t he sources of labor t o be employed?
How do the part ies envision t he division of laboron cont ract s?
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GENERAL PROVI SI ONS THAT MUST BE I NCLUDEDI N MOST JOI NT VENTURE AGREEMENTS
Purpose of t he Joint Venture.
Designat ion of SBC as managing vent urer.
Not less t han 51 % of net profit s earned by Joint Venture w il lbe dist ribut ed to t he SBC part icipant .
Responsibilit ies of t he part ies.
Obliging part ies t o Joint Ventu re t o ensure performance ofgovernment contract .
Designat ion that account ing/ administrative records are kept
by managing venturer and requirement t hat m anagingventurer retain records of cont racts completed by JointVenture.
Perform ance of Work .
I nspection of Records.
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POPULATED JOI NT VENTURES
PROS:
1. One seamless ent it y per formswork.
2. Reduces possible confusion inevaluating proposal.
3. The Joint Vent ur esubcontracts direct ly w it hsubcontractors.
CONS:
1. SBAs JV regulat ions are notconsist ent w it h populated JointVentur e St ructu re.
2 . I f approval of Joint Venture
Agreement is required, it m aybe delayed by proposedstructure.
3 . The Minor ity Joint Venturepart ner (49% ) may not be able
to exercise contr ol overw orkforce under PM-managedpopulated Joint Venture.
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UNPOPULATED JOI NT VENTURE
PROS:1. Each Joint Venturer per forms
w ork independently assubcontractor t o Joint Venture.
2. Easier t o explain st r ucture t o
SBA for approval of JointVenture Agreement .
3. Joint Vent ur e may char gehandling fee at prim e Cont ractlevel for w ork subcont racted to
subcontractor.
CONS:1. May increase price i f each Joint
Venturer uses a subcont ractorw hich in t urn subcontract s t othe 2nd t ier subcont ractors.
2. Procur ing Agency may notunderstand who is perform ingw ork if Joint Venture isunpopulated.
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LI MI TED LI ABI LI TY COMPANY
PROS:1. Liabil it y Members not liable
(beyond capital contributions) tothird parties for actions of theLLC.
2. Taxes May be treated aspartnership (or like an S Corp) fortax purposes.
3. SBA - recognizes LLC as structurethrough which to operate joint
venture.
CONS:1. Liabil it y individual members
remain responsible to governmentfor performance of contract underSBA regulations.
2. Document at ion Articles ofOrganization and OperatingAgreement need to be drafted.
3. Past Performance - no pastperformance record of its own
unless the solicitation allowsmembers past performance historyto be considered.
4. SBA the regulations do notcontemplate LLC structure, makingit difficult to operate within
regulations.
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JOI NT VENTURE PARTNERSHI P
PROS:1. Taxes Treated as a partnership
(or like an S Corp) for taxpurposes.
2. Bid and Proposal Cost s
recoverable by individualmembers.
3. SBA Structure with which theSBA is most familiar, making thereview process less time
consuming.
CONS:1. Liabilit y Partners are jointly and
severally liable on debts of thepartnership.
2. Documentat ion Joint Venture
Agreement necessary for 8(a)purposes; serves as partnershipagreement.
3. Past Performance no pastperformance record of its own
unless the solicitation allowsmembers past performance historyto be considered.
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JOI NT VENTURES:SMALL BUSI NESS SET ASI DES
A. The Joint Venture may bid on up to threeproposals w it hin 2 years
B. Government can aw ard to JV i f cont ract :
1. Exceeds of revenue-based sizestandard
2. Exceeds $10M (employee-based size
standard)3. All part ners must be small, except for
SBA-approved Ment or-protgrelationship
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JOI NT VENTURES:8(a) SET ASI DES
A. Government can aw ard 8(a) contracts to JV i f :
1. One f i rm is 8(a) cer t i f ied and the size standard
2. All part ners are SBs, unless in Ment or-Protg
B. The SBA must approve the JV agreement
1. 8(a) fi rm must manage
2. 8(a) f i rm must furn ish project m anager
3. 8(a) f i rm must receive at least 51% prof i ts
C. Compet ing as a JV best pract ices
1. JV should be formed before submit t ing of fer
2. Agreement should provide for contract performance
3. FAR requires proposal to disclose nature of j oint venture
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JOI NT VENTURES:HUBZONE CONTRACTS
A. All part ners must be HUBZone.
B. Al l part ners must be smal l.
C. The contract must m eet certain sizerequirements.
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JOI NT VENTURES:SDVOSB CONTRACTS
A. Managing part ner must be SDVOSB.
B. Al l part ners must be smal l.
C. 51% or more of prof it s must go toSDVOSB.
D. LLC opt ion quest ionable
OHA Decision
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SUBCONTRACT LI MI TATI ONS
Performance of w ork under j oint vent ures.
Work of j oint venture counts t owardssubcont ract ing limit at ions.
Division of w ork w ithin j oint venture.
Subcont ract ing t o members.
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PROPOSED NEW REGULATI ONS
Three and Tw o: JVs eligible for threeaw ards, rather t hen t hree offers.
Populat ed JV LLCs only.
Significant port ion defined as 40% (8(a)JVs).
8(a) JV regulat ion apply t o non 8(a) JVs.
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A N Y QUESTION S?