SmallGovCon: Picking Your Teams: Joint Ventures Versus Prime/Subcontractor Teams (Part One, Workshare)

“For any set-aside government work, both types of teams are subject to certain limitations on subcontracting, which you can read more about here. The SBA rule requires any prime contractor awarded ‘a full or partial small business set-aside contract with a value greater than the simplified acquisition threshold’ or an 8(a), VOSB/SDVOSB, HUBZone, or WOSB/EDWOSB contract to perform a certain percentage of the contracted work. For example, for services contracts, the prime shall ‘not pay more than 50% of the amount paid by the government to it to firms that are not similarly situated’ (which simply means, to firms that are not also small businesses or carry the same socioeconomic designation that the contract is set aside for). Check out the SBA rule for the limitations applicable to other types of contracts, including construction, specialty trade, supplies, and mixed contracts…”

“Let’s say that Peach Royalty, LLC, is a WOSB prime contractor on a government services contract 100% set aside for WOSBs. Peach Royalty will subcontract to its one small business contractor, Mario Transport, LLC, to perform work under this government contract. The limitation on subcontracting here would require that Peach Royalty receive at least 50% of the total amount paid by the government on this WOSB services contract. Thus, if Peach Royalty wanted to maximize its subcontracting to Mario Transport, the parties could split the work (and thus the amount paid by the government) 50/50 here…”

“But unlike the prime/subcontractor relationship, the work share requirements for most joint venture relationships do not stop there. In addition to the limitations on subcontracting, most joint ventures seeking set-aside government work (except for those between only small businesses seeking only small business set-asides) are also subject to certain performance of work requirements that require the qualifying venturer to perform a minimum of 40% of the work that the joint venture itself will perform…”

“Now, if you have just one small business team member, then your decision between joint venturing–versus teaming up as prime/subcontractor–to maximize your team member’s work share should (first and foremost) consider what type of contract you will be performing. For the services contracts we have focused on in this article, joint venturing would be your best avenue, as that would allow the team member to perform up to 60% of the contracted work (instead of the 50% allowed under the limitation on subcontracting rules for services contracts). But if your contract is general construction or specialty trade construction, then the much greater limitations on subcontracting applicable to those contracts (85% and 75% respectively) would provide the avenue to maximize team member participation you are looking for…” Read the full article here.

Source: Picking Your Teams: Joint Ventures Versus Prime/Subcontractor Teams (Part One, Workshare) – By Nicole Pottroff, October 18, 2021. SmallGovCon.

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