Steven Koprince Legal Aspects of Federal Contract JVs & Teams: The Big Picture Alliance Texas Conference April; 26, 2016

Steven Koprince Joint Ventures vs. Teams

Steven Koprince Joint Ventures vs. Teams Joint Ventures Both parties perform at the prime contract level Parties usually split profits and losses Parties may form a new legal entity Subcontracting limits apply to JV as a whole Both parties responsible for entire prime contract Joint Ventures Both parties perform at the prime contract level Parties usually split profits and losses Parties may form a new legal entity Subcontracting limits apply to JV as a whole Both parties responsible for entire prime contract Teams Only one party performs at the prime contract level Subcontractor usually paid on a pre-determined basis No new legal entity created Subcontracting limits apply to prime only Only prime responsible for entire prime contract Teams Only one party performs at the prime contract level Subcontractor usually paid on a pre-determined basis No new legal entity created Subcontracting limits apply to prime only Only prime responsible for entire prime contract

Steven Koprince Joint Ventures v. Teams EXAMPLE SmallCo LLC and BigCorp Inc. form a new entity, BigSmall LLC. The new legal entity will submit a bid, in its own name, under a federal government solicitation. Result: BigSmall LLC is a joint venture. EXAMPLE SmallCo LLC and BigCorp Inc. form a new entity, BigSmall LLC. The new legal entity will submit a bid, in its own name, under a federal government solicitation. Result: BigSmall LLC is a joint venture.

Steven Koprince Joint Ventures v. Teams EXAMPLE QuickDri LLC intends to submit a bid on a government contract for dry cleaning services. QuickDri agrees to subcontract laundry pick up to Trucks R’ Us, Inc. Result: QuickDri and Trucks R’ Us have established a prime/subcontractor team. EXAMPLE QuickDri LLC intends to submit a bid on a government contract for dry cleaning services. QuickDri agrees to subcontract laundry pick up to Trucks R’ Us, Inc. Result: QuickDri and Trucks R’ Us have established a prime/subcontractor team.

Steven Koprince Joint Ventures

Steven Koprince Joint Ventures – Size Size Requirements: – Ordinarily, the sizes of joint venture partners are added together to determine the JV’s size. – If the sizes added together would exceed the size standard for a set-aside contract, the JV is ineligible. Size Requirements: – Ordinarily, the sizes of joint venture partners are added together to determine the JV’s size. – If the sizes added together would exceed the size standard for a set-aside contract, the JV is ineligible.

Steven Koprince Joint Ventures EXAMPLE BigSmall LLC is a joint venture between SmallCo LLC (a $5 million business) and BigCorp Inc. (a $20 million business). The JV wishes to submit an offer on a small business set- aside designated with a $24 million size standard. The estimated contract value is $5 million. Result: The JV is ineligible for award. EXAMPLE BigSmall LLC is a joint venture between SmallCo LLC (a $5 million business) and BigCorp Inc. (a $20 million business). The JV wishes to submit an offer on a small business set- aside designated with a $24 million size standard. The estimated contract value is $5 million. Result: The JV is ineligible for award.

Steven Koprince Joint Ventures – Size Joint venture may take advantage of “individual size treatment” rule when: The procurement exceeds 50% of a revenue-based size standard, or For an employee-based size standard, the procurement exceeds $10 million SBA proposing to expand this rule to apply to all set- asides—but proposal isn’t final yet. Exception for approved SBA 8(a) mentor-protégé JVs. SBA has proposed exception for “universal” mentor- protégé program JVs (perhaps effective Fall 2016). Joint venture may take advantage of “individual size treatment” rule when: The procurement exceeds 50% of a revenue-based size standard, or For an employee-based size standard, the procurement exceeds $10 million SBA proposing to expand this rule to apply to all set- asides—but proposal isn’t final yet. Exception for approved SBA 8(a) mentor-protégé JVs. SBA has proposed exception for “universal” mentor- protégé program JVs (perhaps effective Fall 2016).

Steven Koprince Joint Ventures – Size EXAMPLE BigSmall LLC is a joint venture between SmallCo LLC (a $5 million business) and BigCorp Inc. (a $20 million business). The JV wishes to submit an offer on a small business set- aside designated with a $24 million size standard. The estimated contract value is $50 million. Result: The JV is eligible for award. EXAMPLE BigSmall LLC is a joint venture between SmallCo LLC (a $5 million business) and BigCorp Inc. (a $20 million business). The JV wishes to submit an offer on a small business set- aside designated with a $24 million size standard. The estimated contract value is $50 million. Result: The JV is eligible for award.

Steven Koprince Joint Ventures – Socioeconomic 8(a), SDVOSB, & WOSB JV Agreements must contain a number of required provisions from SBA’s regulations, such as: Description of purpose of JV Naming socioeconomic participant as managing venturer Naming employee of socioeconomic as project manager Profit distribution requirements JV ownership requirements Several Others 8(a), SDVOSB, & WOSB JV Agreements must contain a number of required provisions from SBA’s regulations, such as: Description of purpose of JV Naming socioeconomic participant as managing venturer Naming employee of socioeconomic as project manager Profit distribution requirements JV ownership requirements Several Others

Steven Koprince Joint Ventures - Subcontracting The JV itself, as prime contractor, is subject to the subcontracting limits Where the JV is unpopulated, the “legal fiction” applies the subcontracting limits to the JV parties For most JVs, no rule regarding work split among JV members – The 8(a) participant must perform at least 40% of the JV’s work in an unpopulated 8(a) JV The JV itself, as prime contractor, is subject to the subcontracting limits Where the JV is unpopulated, the “legal fiction” applies the subcontracting limits to the JV parties For most JVs, no rule regarding work split among JV members – The 8(a) participant must perform at least 40% of the JV’s work in an unpopulated 8(a) JV

Steven Koprince Prime/Subcontractor Teams

Steven Koprince Teaming Agreements Teaming Agreement: binding agreement to pursue a specific government contract as a prime/sub team. FAR does not require a teaming agreement – Procuring agencies sometimes require them – Proposed SBA rules would require teaming agreements in certain settings Prime/sub teams usually may be formed without formal teaming agreements Teaming Agreement: binding agreement to pursue a specific government contract as a prime/sub team. FAR does not require a teaming agreement – Procuring agencies sometimes require them – Proposed SBA rules would require teaming agreements in certain settings Prime/sub teams usually may be formed without formal teaming agreements

Steven Koprince Subcontracts Subcontract supersedes/replaces the teaming agreement Much more detailed than teaming agreement Must include mandatory FAR provisions (flow- downs) – Essentially required (can’t flow down terms orally or by handshake) Subcontract supersedes/replaces the teaming agreement Much more detailed than teaming agreement Must include mandatory FAR provisions (flow- downs) – Essentially required (can’t flow down terms orally or by handshake)

Steven Koprince Limitations on Subcontracting Every set-aside contract contains limits on the amount that the small prime may subcontract Limits sometimes expressed as a “performance of work” requirement at the prime level (e.g., prime must perform 50%) Specialty trade construction: 25% of cost of the contract (excluding materials) Not revised in 2013 NDAA or SBA proposal General construction: 15% of the cost of the contract (excluding materials) Not revised in 2013 NDAA or SBA proposal Every set-aside contract contains limits on the amount that the small prime may subcontract Limits sometimes expressed as a “performance of work” requirement at the prime level (e.g., prime must perform 50%) Specialty trade construction: 25% of cost of the contract (excluding materials) Not revised in 2013 NDAA or SBA proposal General construction: 15% of the cost of the contract (excluding materials) Not revised in 2013 NDAA or SBA proposal

Steven Koprince Limitations on Subcontracting For construction contracts that are not set-aside, the agency may still require that the prime perform a certain percentage of the work with its own forces. – Look in solicitation/contract for FAR (Performance of Work by the Contractor) – Default minimum is 12%, but may be adjusted by the agency 15%-20% is common For construction contracts that are not set-aside, the agency may still require that the prime perform a certain percentage of the work with its own forces. – Look in solicitation/contract for FAR (Performance of Work by the Contractor) – Default minimum is 12%, but may be adjusted by the agency 15%-20% is common

Steven Koprince Limitations on Subcontracting Current Regulations Service contracts: prime must perform at least 50% of cost of contract incurred for personnel Supply contracts: (except procurements from nonmanufacturers): prime must perform 50% of cost of manufacturing, less costs of materials All SB, 8(a) & WOSB set-aside contracts: prime must meet requirements with its own forces Proposed Regulations Service contracts: no more than 50% of amount paid by government may be paid to entities that are not similarly situated Supply contracts: (except procurements from nonmanufacturers): no more than 50% of the amount paid to prime may be paid to entities that are not similarly situated All set-aside contracts: prime may meet requirements through use of similarly situated entities

Steven Koprince Ostensible Subcontractor Affiliation What is it? – SBA considers a small prime contractor affiliated with its subcontractor for purposes of a set-aside contract where: The prime is “unusually reliant” upon the sub, and/or The sub will perform the primary and vital portions of the contract – Why does it matter? If sizes of prime and sub, combined, exceed size standard, prime is ineligible for award What is it? – SBA considers a small prime contractor affiliated with its subcontractor for purposes of a set-aside contract where: The prime is “unusually reliant” upon the sub, and/or The sub will perform the primary and vital portions of the contract – Why does it matter? If sizes of prime and sub, combined, exceed size standard, prime is ineligible for award

Steven Koprince Questions? Thank you! Questions? Thank you! Questions?

Steven Koprince For More Information Steven J. Koprince Managing Partner Koprince Law LLC (785) Visit to sign up for our free monthly electronic newsletterwww.smallgovcon.com Steven J. Koprince Managing Partner Koprince Law LLC (785) Visit to sign up for our free monthly electronic newsletterwww.smallgovcon.com