A Small Business Perspective on Joint Ventures: a flexible option for teaming Presented by: Harry L. Boston August 12, 2015

When Teaming is Required to Demonstrate Capabilities and Past Performance: What are my options for teaming? How will the client evaluate the team? Scope / CapabilitiesCompany 1Company 2Company 3Together Design Construction ES&H Groundwater Maintenance Property Mgmt. Project Mgmt. ISO 9001 Small Business Perspective on Joint Ventures

What is a Joint Venture? A Joint Venture is: An association of individuals and/or concerns to combine their property, capital, efforts, skills, and knowledge to carry out no more than three specific or limited-purpose business ventures for joint profit over a two-year period… 13 C.F.R. § (h) Two or more businesses come together to form a new entity with the combined capabilities of the members 3Small Business Perspective on Joint Ventures

Advice and Disclaimer “I get expert advice, and I take it.” Thurgood Marshall Harry’s Disclaimer: The following are my opinions, based on my business experiences. I encourage you to seek expert advice when making business decisions Small Business Perspective on Joint Ventures4

Key Features of Joint Ventures New business entity with co-management and sharing of profits and losses Formed for a single purpose, or up to three contracts over a two year period (avoids affiliation beyond the JV) Structured as a simple partnership or LLC JV can be staffed by JV employees (populated) or by the employees of the partners (unpopulated) 5Small Business Perspective on Joint Ventures

Advantages of Joint Ventures Allows the partners/members to use their combined capabilities to perform larger more complex scopes – Unlike a prime-sub relation, in a JV the resources and capabilities of the partners are evaluated as a single entity Jointly responsible for performing the work The minority partner(s) retain more control than with a prime-sub relation (they have skin in the game) – Control over performance, business interest, decision making For small businesses, the revenues are attributed to the partners based on their share of the JV, so the majority partner can “stay in a small size standard” longer, it’s a partnership for tax purposes. 6Small Business Perspective on Joint Ventures

Disadvantages of Joint Ventures Forming a new business entity, with requirements for formation, registration, accounting, management, reporting, etc. – Cost and complexity Majority owner gives up some of the control they would have in a simple prime-sub relationship – Once established, the terms are set Client may not be comfortable working with a JV structure Powerful tool, but not to be taken lightly! 7Small Business Perspective on Joint Ventures

Qualifying for Small Business Opportunities JV partners are considered to be “affiliated” for the contract - so size matters Generally the combined three year average revenue of the firms must be less than the size standard. For example for a $15M size std. opportunity: – Firm A ($8M) plus Firm B ($5M) = $13M combined revenue is OK For some opportunities that are bundled or large relative to the size standard, then each member of the JV must meet the size standard: – Firm A ($8M) plus Firm B ($10M) = $18M combined revenue is OK for $15M size standard bid …… always check with SBA and the client! An unique exception – 8(a) Joint Venture under an approved SBA Mentor-Protégé relationship, allows the JV to carry the size standard of the 8(a) firm 8Small Business Perspective on Joint Ventures

JV Requirements for Set-Aside Contracts For JV to be designated as 8(a), SDVOSB, WOSB, or EDWOSB, the qualified member: – Must be the managing partner – Must get 51% of the profit – Must benefit from the JV Size standard rules still apply HUBZone rules are different (check with SBA) and the rules can differ by agency 8(a) Mentor-Protégé rules are different (check with SBA) The rules are changing to allow new categories of Mentor-Protégé relationships – check with SBA 9Small Business Perspective on Joint Ventures

10 Flexibility of JVs Form as Partnership (simple to set up, but partners are liable) Form as LLC (limits liability, but adds formality of registrations, annual filings, records, etc.) Un-Populated: Employees of Firms A and B perform the work as subcontractors to the JV – The JV has no (or few) employees Populated: The JV has employees who perform the work of the JV. – One entity with consistent employee benefits – Requires more effort to set up and run (HR, payroll, etc.) – Allows a new labor rate structure (competitive pricing) – Partners earn only their share of profits – The JV gets credit for past performance – Often used by large businesses as LLCs Small Business Perspective on Joint Ventures

11 Decisions for JVs To Populate or not to Populate – Populate if a seamless team is essential (e.g. when you have an incumbent work force or co-located workers) – Populate to create a new entity with competitive pricing – Either way when the division of labor is clear (two sets of resources can perform separate components of the scope) Choosing the Structure (Partnership or LLC) – Partnership for jobs with separate roles for each firm – LLC to limit liability and for populated JVs Small Business Perspective on Joint Ventures

12 Decisions for JVs (cont.) How to manage the JV (Members, Committee, Project Manager) – Be aware of set aside requirements – Minority partner should be sure that key terms require unanimous consent Be clear on responsibilities for communication and execution Small Business Perspective on Joint Ventures

Recommendations for Teaming Match the team structure (Prime/sub, JV) to the opportunity – Weigh the strengths, weakness and pitfalls of each model – When is a JV better than a prime/sub? Keep it simple – Add only those partners you need to fill the gaps, and show the capacity to perform Select partners with cultures compatible with yours – Business approaches are compatible (e.g., pricing and staffing) – Similar management styles (decision making and authorities) – Client relations style (transactional or strategic) Understanding the client – Comfortable with JV? – Comfortable with new LLC? 13Small Business Perspective on Joint Ventures

In Closing The Joint Venture is a flexible and powerful tool for teaming and competing Start early to match the team structure to the opportunity (at the sources sought stage) – Respond to the sources sought to preserve the small business opportunity – Have time to put the JV in place – must be in place (and submitted to SBA) when the bid/offer is submitted Get expert advice, and take it! 14Small Business Perspective on Joint Ventures

QUESTIONS? 15Small Business Perspective on Joint Ventures