Appeal challenging the SBA’s determination that a joint venture is not an eligible SDVOSB for the procurement is denied, where the JV agreement was drafted for the 8(a) program; did not reference the procurement at issue; did not establish that at least 51 percent of the net profits would be distributed to an SDVOSB; did not specify the responsibilities of the parties for contract performance; and appeared to give the non-SDBOSB partner the ability to control the JV’s contracts and task orders.
ASIRTek Federal Services LLC appealed the determination of the SBA acting director of government contracting that appellant is not an eligible service-disabled veteran-owned small business, because its joint venture agreement did not meet SBA’s standards.
When ASIRTek was identified as the apparent awardee of an Air Force contract for engineering, management, and technical support services, unsuccessful offeror Cyber Protection Technologies LLC challenged its size and SDVOSB status. CyProTech argued that one of the joint venture partners—FEDITC LLC—was not a small business, and that FEDITC controlled ASIRTek. The protester noted that the other JV partner, ITI Solutions Inc., which was the purported JV majority owner and basis for its SDVOSB status, had never awarded a contract under the NAICS code for the procurement, while FEDITC had won more than $43 million under the relevant code.
CyProTech argued that ITI Solutions would be heavily dependent on FEDITC for performance, given the size and scope of the contract, and that this arrangement did not appear to meet the “managerial control” standard. In contrast, CyProTech argued that FEDITC needed only ITI’s SDVOSB certification, and that ITI was merely a “storefront” for the JV.
The AD/GC concluded that ASIRTek did not qualify as an eligible SDVOSB, because the JV agreement did not comply with SBA regulations. The JVA described ASIRTek as a corporation rather than the LLC it is; referenced a significantly different, multiple-award contract rather than the single-award contract at issue; and addressed the 8(a) program rather than the SDVOSB program. Thus, the JVA failed to meet SDVOSB program requirements, including the requirement that it be “for the purpose of performing an SDVO contract.”
Further, the JVA did not establish that at least 51 percent of the profits would be distributed to an SDVOSB and did not adequately specify the responsibilities of the parties for contract performance, source of labor, and negotiation of the SDVO set-aside contract. SBA also found the JVA gave FEDITC authority to exercise control over the joint venture contracts if it identified and pursued task orders under the contract. While an addendum to the JVA identified ITI as the party responsible for contract performance and sources of labor, SBA decline to consider it, because it was not signed until after ASIRTek’s initial offer for the procurement.
On appeal, ASIRTek raised four arguments contesting SBA’s determination. The appellant argued that CyProTech’s protest did not raise specific protestable issues, but only allegations that could be raised by any protester against any joint venture. ASIRTek argued that JV partners are allowed to combine capabilities, and that neither SBA nor the Department of Veterans Affairs requires the disadvantaged owner to have specific technical experience if s/he has sufficient managerial experience. ASIRTek also noted that none of the allegations about FEDITC’s ability to control the JV reflected the relevant regulatory definitions, and that ITI’s experience under the relevant NAICS code is irrelevant to the issue of control.
Second, ASIRTek argued that SBA erred in finding that the JVA did not meet the requirement that at least 51 percent of net profits be distributed to ITI, the SDVOSB partner. The appellant noted that the JVA allocates net operating income and net operating loss between the joint venturers in proportion to their respective ownership interests. While the JVA established that ITI would perform at least 40 percent of the work, ASIRTek explained this was written to comply with 8(a) program requirements, and that the amount of profit would not be commensurate with the amount of labor performed.
Third, ASIRTek disputed SBA’s finding that the JVA did not specify the responsibilities of the parties for contract performance, source of labor, and negotiation of the SDVO contract. ASIRTek explained that due to the ID/IQ structure of the procurement, it would be impossible for the parties to include more specificity in the JVA until task orders are awarded. Further, the contract in contention is for services only, the exact mix of which is yet to be known, and the JVA did state that neither venturer anticipated providing facilities or equipment.
Finally, ASIRTek argued that SBA erred in determining that FEDITC could control ASIRTek’s contracts. The AD/GC relied on a provision in the JVA stating that task orders would be manage by the JV partner primarily responsible for developing the winning proposal or who has first identified an opportunity for pursuit prior to RFP release. ASIRTek explained that this language was drafted before the RFP was issued, and would not apply to the procurement because ASIRTek is the sole awardee, and thus will not compete with other contractors for task orders. Further, even if FEDITC were to manage a task order, the JVA vests ITI as ASIRTek’s managing venturer, in charge of its business affairs, as well as program manager.
OHA denied the appeal, finding that ASIRTek’s JVA failed to comply with SBA requirements, as it did not address the procurement at issue, or indeed any SDVOSB procurement. Rather, the JVA was dated more than a year before the RFP was issued. Although the JVA did include some discussion of “the contract,” this discussion referred to an unrelated 8(a) procurement conducted by a different office, not the procurement in question. Accordingly, the JVA plainly did not meet the regulatory requirement to specify the responsibilities of the parties for contract performance, source of labor and negotiation of the SDVO contract.
OHA also rejected ASIRTek’s argument that it could not have included the requisite level of detail given the undefined nature of the underlying IDIQ contract. OHA noted the RFP provided detailed appendices, including technical requirements and labor estimates, which ASIRTek might have used to describe the types of work each joint venture partner would perform, and the labor each partner would contribute. Further, OHA explained that SBA regulations provide for no exceptions to this requirement.
OHA also rejected the JVA addendum, as it was not signed until more than five months after ASIRTek self-certified for the procurement. Further, even if it were appropriate to consider the addendum, it contained no substantive information about the respective roles and responsibilities of ITI and FEDITC.
Regarding ASIRTek’s assertions about profit distribution and control, OHA again noted that the JVA did not address the current procurement at all, and was not drafted for purposes of any SDVOSB procurement. While the JVA stated that the partners would receive profits commensurate with the work performed, the work to be performed was not defined in the JVA. As a result, SBA reasonably concluded that ITI would not be guaranteed at least 51 percent of net profits. Further, ASIRTek acknowledged that the JVA language regarding tasks orders was intended for a different procurement where it would have competed with other contractors for task orders.
ASIRTek Federal Services LLC is represented by Jeffery M. Chiow, Patricia A. Meagher, and Stephen L. Bacon of Rogers Joseph O’Donnell. Cyber Protection Technologies LLC is represented by Andrew R. Newell, Whitcomb, Selinsky, McAuliffe PC. The government is represented by Sam Q. Le, Office of General Counsel, Small Business Administration.
