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 § )

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 (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 (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. § (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 ) 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 (703) Website and blog at: legalmeetspractical.com