Thinking about a Joint Venture for Government Contracting?

Government Contractors creating Joint Ventures has steadily increased in popularity over the last few years. The exact reasons vary: need for greater capability in the prime entity, local registration requirements for DCS in foreign jurisdictions, pursuit of set-aside contracts under the disadvantaged status of the key partner, past performance credit attributable to a key partner, facilities or intellectual property provided by a key partner, bundled contracts with greater scope requirements, etc. The fundamental driver is the Joint Venture enables the government contractor to be more competitive, and in many instances simply qualified to compete. The Government recognizes Contract Team Arrangements, where two or more companies form a partnership or joint venture to act as a potential prime contractor. (FAR 9.6) However, assembling the joint venture has many different features to consider. Following is an initial checklist of items we offer for consideration:

  • Type of JV – Formal or Informal
    • If Formal, a limited liability company is usually advantageous, but in some instances a general partnership or corporate is appropriate
    • State of domicile
    • Limited purpose
    • Limitations on liability
  • Populated or Unpopulated
    • If Unpopulated, who performs G&A; consider Intercompany work orders and subcontracts with partners
    • If Populated, must build business infrastructure
  • Management and Control
    • Board of Managers / Executive Council
    • Program Team
    • Officers
    • Powers to borrower money, sign contracts, etc.
    • Minority partner protections / Entrenched Management
    • Control and work share requirements of the Small Business Administration or Veteran Affairs
  • Functionality/Operations
    • Subcontracts to key partners
    • Subsubcontracts to teammates
    • Intercompany Work Orders for G&A
    • Tax Filings and Corporate Compliance
    • Books and Records
    • Public Company concerns
    • Termination
  • Asset Ownership and Protections
    • Pre-deal Technology / IP
    • Developed Technology/IP
    • Non-Disclosures and Non-solicitations
    • Distributions upon dissolution
    • Exclusivity
    • Breach
  • Capital
    • Contributions of Cash vs. Services (mandatory vs. discretionary)
    • Debt
    • Distributions of profit not absorbed by subcontracts
    • Tax liabilities

In addition, small businesses must be careful to consider the overlay requirements of the Small Business Administration and/or Veterans Affairs. The JV can easily run afoul of the Affiliation Rules (13 CFR 121.103) and Limitation on Subcontracting (FAR 52.219-14) if not traveling under an exemption. In subsequent blog articles, we will explore the particularities of Joint Venturing with an Alaskan Native Corporation, 8(a), SDVO, Small Disadvantaged Businesses and others. These matters incorporate legal issues from both the corporate and government contracts worlds. Potential JV Partners are encouraged to consult consider these issues when considering a JV.


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