Middle-market companies looking to become involved in the federal procurement arena are “shut out” of bidding on small business set-aside contracts because they are “large” by federal small business standards. However, they can pursue teaming arrangements with small businesses as a gateway to the federal marketplace if they take the proper steps, said Steven Reed, a partner in Smith, Currie & Hancock's Atlanta and Washington, DC, offices.
Teaming and mentor-protégé agreements and joint ventures will be the topics of Reed's presentation during the
Nov. 12 and 13 educational conferences being held in Washington, DC, by Smith, Currie & Hancock and the National Association of Surety Bond Producers.
Reed's presentation will examine those agreements, as well as traditional arrangements involving a prime contractor and subcontractor, and how they can be combined to suit a range of business purposes, he said. It will provide opportunities for dialogue with the audience as well as answering audience questions, he said.
Teaming with a small firm tends to be a better strategy than trying to compete against “mega-firms,” but you have to be careful to limit connections with a small company to avoid a finding of affiliation, Reed said. The definition of “affiliation” is generally objective, although the regulations also call for the Small Business Administration (SBA) to consider “the totality of the circumstances.” That subjective standard could result in a finding of affiliation even when a company has complied with all objective requirements, he said.
Middle-market companies can also face challenges because they likely are accustomed to being a general contractor, and their role will be more limited in a teaming agreement, Reed said. Such firms must “look holistically at connections or lack thereof” with the other proposed teaming-agreement or joint-venture participants—or even the other prime-subcontractor agreement participants—to ensure that the smaller firm isn't improperly dependent on subcontracting with the larger company to continue functioning, he said.
Mentor-protégé arrangements can help smaller businesses compete for federal contracts by demonstrating to the procurement agency that they are teaming with a company that offers the financial, managerial, technical and other experience necessary to complete a particular project, Reed said. The larger participating firm, however, must be cautious of excessively providing resources to avoid actually controlling the smaller firm or even appearing to do so, he said.“It’s a process of getting as much assistance from them as you're allowed, but not crossing that line,” he said.
The SBA 8(a) Business Development Mentor-Protégé Program is the “gold standard,” because if a larger firm successfully enters such an arrangement with a company that meets 8(a) criteria, it is exempt from almost all affiliation rules, Reed said.
But a middle-market company should keep in mind that it must be able to commit the resources to mentor a small firm as outlined in an SBA-approved mentor-protégé agreement, such as ensuring accounting is handled properly. A small business, meanwhile, needs to consider whether the potential mentor's business philosophy is compatible with its own, he said.
Regarding joint ventures, attorneys providing conservative advice would recommend entering into a teaming or a mentor-protégé arrangement instead, because many people will presume that a joint-venture with another company is a partnership and therefore affiliated, Reed said.
The most prominent rule when undertaking a joint venture is the “three-in-two rule,” which allows a maximum of three government contracts awarded to a joint venture within two years, Reed said. That can be problematic toward the end of the fiscal year, when the federal government is awarding a high number of contracts and the likelihood of landing more projects can be higher, he said.
But companies can form another joint venture and gain the ability to take on an additional three contracts, although the rule says that “at some point” the firms become affiliated, and how that point is identified is “somewhat subjective,” he said.
A joint venture is most likely to be successful between two companies that are “truly small and have capabilities that complement the other,” whereas a large business in such an arrangement could push the small business or joint venture toward the point of affiliation and lead to a costly defense against a protest of the joint venture, Reed said.
Special discounted rates are available for attending both days of the November conferences and for registering with a colleague. The hotel deadline is Friday, October 17. For more information and to register for the conferences,
visit NASBP.org.