Appeal of SBA’s rejection of a joint venture agreement and conclusion that the JV was not an eligible small business is denied, where SBA reasonably found the agreement contained contradictory information regarding the JV’s status as populated or unpopulated, and failed to adequately describe the sub-contracting vehicle that will split performance between the entity members.
Senter LLC, a joint venture, filed a post-award bid protest challenging the Small Business Administration’s determination that it was ineligible to obtain a set-aside contract to provide certain services to the Coast Guard. Senter argued that SBA unreasonably determined that Senter failed to show that it was an unpopulated joint venture within the meaning of the agency’s regulations.
Prior to the issuance of the solictation, one of Senter’s members, Sylvain Analytics Inc., sent SBA a proposed JV agreement stating that the Senter JV would have two members: Sylvain, owning 51 percent of the JV, and Entereza Inc., owning the remaining 49 percent. The agreement described Senter as a populated JV and stated that its purpose was to bid on the Coast Guard contract. Senter later submitted revised agreements with contradictory statements regarding whether or not it would be populated.
SBA’s regulations include detailed specifications by which a JV may be awarded a set-aside contract. One of these requirements prohibits the JV entity itself from employing the individuals intended to perform contracts awarded to the joint venture. Therefore, for a JV to be eligible for a set-aside contract, the employees performing substantive work on the contract must be employed by the JV’s members, not the JV entity. Such a JV is considered unpopulated. Populated JVs are not eligible for set-aside awards.
The SBA business opportunity specialist recommended approval of the JV agreement, but the approval memorandum focused almost entirely on Sylvain’s and Entereza’s sizes, without mentioning the JV’s status as populated or unpopulated. The agreement was later approved.
When the Coast Guard identified Senter—the incumbent—as the apparent awardee of the follow-on contract, the agency asked SBA for an eligibility determination. At this point, SBA determined that Senter had not filed a necessary addendum to its JV agreement. Because the Coast Guard contract would be the second contract awarded to Senter, Senter was required to file an addendum setting forth the performance requirements on that second contract.
SBA sent Senter a checklist including several boilerplate provisions indicating information Senter needed to provide. See id. One of these provisions required Senter to attest that it was an unpopulated joint venture. The plaintiff also was required to identify areas of its original agreement that had been revised. When Senter returned it agreement addendum, it included the boilerplate statement that the JV is an unpopulated separate entity joint venture. However, in the “Purpose” portion of the addendum, Senter did not insert the language that had appeared in the purpose section of the approved JV agreement, which had stated that Senter was unpopulated. Instead, it inserted the language that had appeared in the original proposed JV agreement—i.e., the agreement submitted in April 2016—which included two references to Senter as populated.
SBA asked Senter for additional information and clarifications, but the JV agreement retained the contradictory statements regarding staffing. SBA conclude the agreement did not meet the requirements for an unpopulated joint venture and declined to approve the agreement. SBA found that the initial agreement involved a populated JV and that a new joint venture was not proposed. Without an approved JV agreement, Senter was deemed ineligible for the set-aside award.
After receiving SBA’s denial, Senter disputed the agency’s finding, arguing that it was an approved unpopulated JV and that it should have been grandfathered into SBA’s revised regulations for populated JVs, which went into effect after Senter submitted its initial agreement. Despite continued challenges from Senter, SBA stood by its decision. This action followed.
Senter argued that its original approved JV agreement established that it was an unpopulated joint venture and therefore SBA’s determination was unreasonable.
COFC disagreed, finding that Senter’s documents contained numerous inconsistencies and ambiguities pertinent to its status as a populated or unpopulated JV. Rather than clarifying its status, the revised addendum submitted to SBA after the Coast Guard identified Senter as the apparent awardee had only compounded the confusion. The addendum’s “Purpose” section twice described Senter as populated, despite SBA’s direct instruction to take out a line to that effect. Further, because the addendum revised the original agreement, it actually removed the agreement’s sole express reference to Senter as unpopulated. Along with other examples, these revisions obscured Senter’s employment structure, rather than making it clearer that Senter itself would not employ any individuals performing substantive work on the contract.
COFC also found Senter had not demonstrated that SBA had properly approved an unpopulated JV agreement. The court found nothing in the original memorandum of approval showing SBA had considered whether Senter was populated or unpopulated. Further, COFC found no contemporary correspondence between Senter and SBA regarding the reasons Senter submitted the revised JV agreement and then the approved JV agreement in the run-up to t
he SBA’s approval. Further, even assuming that one SBA office approved the JV as unpopulated, SBA was not foreclosed from revisiting that determination at a later date, particularly given the submission of the agreement addendum.
Finally, the court noted SBA had other issues with the agreement, including its failure to adequately describe the sub-contracting vehicle that will split performance between the entity members. According to COFC, those grounds alone provided sufficient grounds to uphold SBA’s denial decision.
Senter LLC is represented by R. Thomas Dawe of Gallagher, Casados & Mann, P.C. The government is represented by Alexis J. Echols, Trial Attorney, Commercial Litigation Branch, Civil Division, Department of Justice, with whom were Franklin E. White, Jr., Assistant Director, Robert E. Kirschman, Jr., Director, and Chad A. Readler, Acting Assistant Attorney General, for Defendant; and Beverly E. Hazelwood, Trial Attorney, Office of General Counsel, Small Business Administration; and William H. Butterfield, Office of General Counsel, U.S. Coast Guard, Of Counsel.
