It is no secret there is much more work available for 8(a) and disadvantaged businesses. Since 1969, Federal contracts were viewed as an effective means to stimulate the growth of the minority business community. According to the U.S. Small Business Administration, Section 8(a) of the Small Business Investment Act of 1958 was determined to be the best practice for awarding those contracts by improving and stimulating the national economy and the small-business segment, as well as allowing the flow of private equity capital and long-term loan funds. This provides financing, growth, expansion, and modernization which are not available in adequate supply.
One of the major challenges facing 8(a) contractors is that many do not qualify for larger jobs due to a lack of resources, or they cannot get the bonding for the project. Two programs that can help overcome these challenges are the Joint Venture Agreement and the Mentor Protégé Program.
The government is wary of large contractors that solely have an 8(a) Business Development Program as the paper principal of contract. Therefore, a Joint Venture Agreement must be pre-approved by the Small Business Administration to be considered legal.
An 8(a) joint venture arrangement will only be permitted under the following conditions:
• The 8(a) contractor lacks the necessary capacity to perform the contract on its own
• The joint venture agreement is fair and equitable
• The venture is of substantial benefit to the 8(a) contractor
• The 8(a) contractor contributes substantial resources or expertise to the joint venture
To meet requirements of the Business Development Program, the 8(a) must perform at least 40% of the contract. In addition, the project contract must be in the name of the joint venture.
There are silent joint ventures as well for purposes of bonding. This is where a surety provides third-party indemnity to the lesser qualified contractor in order to get a bond. The concern in these situations is that the indemnitor is not a party to the prime contract and has no defense should something go wrong. Should the indemnitor try to assert rights, they could be considered a joint venture de facto and the qualification rules would apply. In conclusion, to help avoid complications, 8(a) joint ventures should be met with due diligence and follow SBA standards.