Although many of us have canceled vacations during this (unusual) year, summer is nevertheless upon us. While we wholeheartedly recommend firing up the grill and enjoying the sunshine in the coming months, companies planning to enter into joint venture (JV) agreements to compete for Government contracts should first make sure that they set aside some time to consider the impacts of proposed changes coming to the Federal Acquisition Regulation (FAR). These changes have the potential to create significant opportunities for both veteran Government contractors and new entrants to the federal marketplace who might consider competing for procurements through JV agreements.
In a Proposed Rule published on June 5, 2020, the FAR Council proposes to amend the FAR in six ways:
- Revising the definition of “small business concern”;
- Clarifying the consideration of past performance of parties to a JV;
- Addressing how a JV may qualify as a small business concern or under the Small Business Administration’s (SBA) socioeconomic programs;
- Removing instructions for contractors in FAR Subpart 19.7 that already exist in the clause at FAR 52.219–8, Utilization of Small Business Concerns;
- Amending FAR Subpart 19.8, Contracting with the Small Business Administration (the 8(a) Program), to clarify that at least one party to the JV must be certified as an 8(a) Program participant at the time of proposal submission (and that the 8(a) JV agreement must be approved prior to contract award); and
- Amending several contract clauses to add the requirement that certain small business or socioeconomic parties to a joint venture perform at least 40 percent of the work to be performed by that joint venture (and that is beyond mere “administrative functions.”)
While the changes place particular focus on JVs, the modification to the definition of “small business concern” proposed by the FAR Council should not be overlooked. The Proposed Rule removes “extraneous material” concerning how to determine whether a small business concern is “not dominant in its field of operation,” correctly noting that this determination is made by the SBA and is addressed in SBA regulations codified at 13 CFR 121.102(b). The existing definition of “small business concern” in FAR 2.101 references the criteria and size standards in 13 CFR Part 121 but then supplements the basic definition by specifying what factors should be considered “in determining whether dominance exists.” This existing language invites inappropriate ad hoc interpretations of a contractor’s status as a small business concern. The Proposed Rule eliminates this explanatory language from the definition of “small business concern” entirely, which may in turn eliminate inconsistent, episodic interpretations by agencies. However, absent an explicit reference to the fact that the SBA, specifically, makes the determination, the proposed change still presents an opportunity for overzealous agencies to apply their own subjective and differing analyses as to whether a small business concern is “dominant in its field of operation.” Thus, the proposed change to the definition, while a step in the right direction, may not go far enough toward eliminating competing analyses of a small business concern’s “dominance” in a particular field, and could cause headaches for small businesses of all categories.
Potential joint venturers of all sizes should take particular note of—and relief in—the proposed additions to FAR Part 9 and FAR Part 15, which would provide in part that “[i]f the joint venture does not demonstrate past performance for award, the contracting officer shall consider the past performance of each party to the joint venture.” Not only do these changes provide an opportunity for experienced Government contractors to expand their offerings to the Government, but they also have the potential to open the door to new entrants to the Government supply chain.
For small business joint venturers, the Proposed Rule also clears up an existing misunderstanding as to when 8(a) joint ventures must be certified in order to be eligible to compete for and receive Government contracts. The confusion stems in large part from the language in FAR 52.219-18(a), Notification of Competition Limited to Eligible 8(a) Participants, which currently provides, in pertinent part, that “[o]ffers are solicited only from small business concerns expressly certified by the Small Business Administration (SBA) for participation in the SBA’s 8(a) Program and which meet the following criteria at the time of submission of offer…” (emphasis added). As one might expect, agencies have interpreted this to mean that 8(a) joint ventures that submit an offer for an 8(a) contract must be certified by the SBA at the time they submit their offer for that contract. However, this makes little sense, as 8(a) joint ventures are newly formed and are not “certified” into the 8(a) Program at the time of submission of an offer. Instead, 8(a) joint venture agreements need only be approved by the SBA prior to contract award. See 13 CFR 124.503, 13 CFR 124.507. This proposed and necessary change is intended to prevent the “improper elimination of 8(a) joint venture proposals” from award consideration based on a misunderstanding of the eligibility requirements. That said, we fully expect that even after implementation, 8(a) JVs will need to be prepared to educate contracting officers about this change and will need to challenge inappropriate eliminations of their proposals through the bid protest process.
Finally, the Proposed Rule would amend several contract clauses to add the requirement that certain small business or socioeconomic parties to a joint venture “perform 40 percent of the work performed by the joint venture and that the work performed must be more than administrative functions.” Presumably, these JVs were already required to comply with this requirement, as it was already a part of the SBA regulations to which these FAR changes are meant to conform. Nevertheless, we expect that this addition may result in marked changes to the way many small businesses and their partners construct proposals. If these changes are implemented, we expect to see a wave of challenges to JVs on the grounds that the small business partner is performing only “administrative functions” and that the JV therefore should not have been approved and/or awarded a particular contract. A more precise definition of what types of activities constitute the performance of “administrative functions” would certainly help eliminate the inevitable pool of confusion in which contractors and contracting officers alike will be swimming if the Rule is adopted without clarifying this issue.
With the haze and daze of a COVID-19 summer upon us, contractors of all sizes should not miss this opportunity to reexamine their contracting strategy and comment on the Proposed Rule to ensure that the Final Rule provides changes that help, not hinder, a contractor’s ability to receive future awards as part of a JV. Remaining socially distant does not mean companies can’t consider how best to team in pursuit of lucrative business opportunities. Comments on the Proposed Rule are due on August 4, 2020, so contractors have some time to consider how these changes might impact their business. We recommend that these considerations take place in a backyard with music playing and masks off—and a cold beverage of choice in hand.