A recent Small Business Administration (SBA) Office of Hearings and Appeals (OHA) decision in the Size Appeal of DecisionPoint-Agile Defense JV, LLC, SIZ-6336 (Feb. 12, 2025) highlights the critical role of a thorough SBA review in small business size determinations. OHA overturned an adverse size determination after finding the SBA Area Office improperly refused to consider the mentor protégé joint venture’s (JV) operating agreement (OA) simply because it was not expressly incorporated into the joint venture agreement (JVA). This decision reinforces that a well-drafted operating agreement can be just as critical as the joint venture agreement in proving small business eligibility.
The Case
The appellant was initially found ineligible for small business status after the SBA Area Office determined that it was affiliated with its mentor, the minority, non-managing JV venturer, because its JVA failed to comply with several requirements of SBA’s JV regulations. The Area Office’s analysis focused solely on the JVA and disregarded the OA, reasoning that because it was not explicitly incorporated into the JVA, it was irrelevant to the size determination.
On appeal, the appellant argued that this approach was incorrect, as the OA contained key provisions demonstrating that the JV satisfied the regulatory requirements. OHA agreed, explaining that whether the OA was explicitly incorporated into the JVA was irrelevant. OHA explained that as a fundamental governing document of a limited liability company, the OA is always relevant when analyzing the entity’s organization. OHA found that the OA demonstrated the JV’s compliance with the regulatory requirements. As a result, OHA granted the appeal and reversed the SBA’s size determination, concluding that the appellant was an eligible small business for the procurement.
Key Takeaways for Government Contractors
- Size Determinations Must Consider Relevant Documents: A size determination should be based on information supplied by the protestor (or the entity requesting the size determination) and the concern whose size status is at issue. In the context of a JV, this means SBA must consider the concern’s OA, assuming one was executed prior to the date of final proposal submission and is provided by the protested concern. Other organizational documents do not need to be incorporated into a JVA to be relevant to SBA’s review.
- Flexible Interpretation of SBA’s Regulations: Despite SBA’s JV regulations stating that—for mentor protégé JV’s and JV’s pursuing socioeconomic set asides—all mandatory provisions must be included in the JV agreement itself, OHA found that the JV’s compliance could be satisfied by reading the JV agreement in conjunction with the OA. This highlights the importance of ensuring that all required elements are clearly documented across JV formation documents — even if not consolidated in a single agreement — and provides helpful insight for contractors navigating SBA’s sometimes rigid regulatory framework.
- Legal Review Is Essential: Contractors forming joint ventures should engage experienced counsel to ensure that all agreements align with SBA regulations and that the proper documents are considered in any size protest. This case serves as a reminder that joint venture partners must carefully structure their agreements to avoid pitfalls that could lead to an adverse size determination. A compliant JVA alone is not enough—operating agreements must also be drafted in a way that ensures the concern qualifies as a small business.
Before finalizing any joint venture, contractors should work with experienced government contracts lawyers to conduct a thorough review of all governing documents. Proactively addressing these issues can help mitigate risks, protect small business status, and ensure eligibility for valuable set-aside contracts.
If you need assistance drafting a joint venture agreement or operating agreement, or would like to discuss how to navigate SBA requirements, please contact the author of this blog, Sam Finnerty, or another member of PilieroMazza’s Government Contracts or Bid Protests practice groups.
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