In the matter of EKCG LLC, the Small Business Administration (SBA) Office of Hearing and Appeals (OHA) found no merit to the argument that an 8(a) mentor-protégé joint venture is exempt from the program-specific requirements for Service-disabled Veteran-Owned Small Business (SDVOSB) joint ventures.
EKCG submitted a timely proposal, self-certifying as an SDVOSB where the agency had set aside a procurement entirely for SDVOSBs and assigned North American Industry Classification System (NAICS) code 541519, Other Computer Related Services. The corresponding size standard is $27.5M average annual receipts.
On November 2, 2015, EKCG was selected for award.
One of the other offerors filed a protest challenging EKCG’s status as an SDVOSB. They alleged that EKCG was in violation of FAR 52.219-27, Notice of Service-Disabled Veteran-Owned Small Business Set-Aside, and 13 CFR 125.15(b), which requires each party to a SDVOSB joint venture to be small under the applicable size standard. The protest stated that one of the parties to the joint venture was “an acknowledged large business” exceeding the $27.5M size standard.
EKCG responded that the two other companies (who would be subcontractors) were parties to an SBA-approved mentor-protégé agreement and that those type joint ventures are eligible to bid on any set-aside procurement. According to EKCG, the only requirement for a mentor-protégé JV to be eligible to bid on an SDVOSB set-aside is that the protégé concern must re-qualify as an SDVOSB. EKCG requested dismissal of the protest.
On February 3,2016, the OHA issued their determination that EKCG is not an eligible SDVOSB. This decision was based on the fact that EKCG was not a party to the joint venture agreement between the other two companies and that EKCG failed to meet three of the requirements for SDVOSB JV at 13 CFR 125.15(b).
- SBA states that the SDVOSB must be the managing venture and an employee of the SDVOSB must serve as the project manager. The JV agreement named an employee of one of the other companies as the project manager.
- SBA requires the JV to show that at least 51% of net profits must be distributed to the protégé company. In this joint venture agreement, only 40% of the net profits would go to the protégé company.
- SBA states a JV may perform a contract set aside for SDVOSBs if all participating concerns are small under the applicable size standard. Since one of the parties to the JV agreement, who would be acting as a subcontractor, was a large business, EKCG fails this requirement.
EKCG filed an appeal of the decision but ultimately the OHA maintained their determination that EKCG was not eligible to receive this award.
If you are using subcontractors that are parties in a JV agreement when preparing a proposal, be sure you know the exact terms of that JV agreement. It’s important that the terms of the agreement follow the JV rules for the specific socio-economic set-aside, not just the rules of the socio-economic category itself.