Understanding State Law Requirements for Joint Ventures
As highlighted by PilieroMazza, small business joint ventures (JVs) aiming for set-aside work must adhere not only to Small Business Administration (SBA) JV regulations but also to relevant state laws. A recent ruling by the SBA’s Office of Hearing and Appeals (OHA) underlines the critical importance of this dual compliance. In the case of SysCom, Inc., SBA No. SIZ-6195 (March 7, 2023), OHA reversed a decision that had found SNI United, LLC—a JV between an 8(a) participant and a small business—eligible for an 8(a) contract award. The reversal was due to SNI’s failure to comply with Michigan state laws and its bylaws, which allowed its non-8(a) member to exert undue control over the JV.
Specifically, Michigan law requires a designated manager in a JV’s operating agreement or articles of organization, which SNI lacked. Furthermore, SNI’s bylaws necessitated both JV members to be present at board meetings to achieve a quorum, thus enabling the non-8(a) member to block actions by simply not attending. This setup contradicted SBA regulations, which mandate that an 8(a) participant manage the JV.
Managing Board Structure to Comply with SBA and State Regulations
The takeaway: for a JV to qualify as a small business under SBA set-aside contracts, it must not only fulfill SBA JV regulations but also ensure strict adherence to the state laws where it is organized. This requires careful documentation of the JV’s management structure in its organizational documents. Failure to comply with state laws can render a JV ineligible for contract awards, despite meeting all SBA requirements. (Original blog referenced from: www.nasbp.org)
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