ins and outs of joint venture agreements - 4-15-10

8/2/2019 Ins and Outs of Joint Venture Agreements - 4-15-10

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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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PilieroMazza PLLC 2010 2

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?

ins and outs of joint venture agreements - 4-15-10

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