The GovCon Bulletin™
SBA Clarifies How Joint Venture Partners Determine Business Size
On January 5, 2022, the U.S. Small Business Administration (SBA) issued a clarification for how a joint venture partner should count joint venture employees and revenues for purposes of determining its own business size. This clarification was made in the form of a correction to the SBA’s earlier October 2020 Final Rule, which merged the All Small Mentor-Protégé Program and the 8(a) Business Development (BD) Mentor-Protégé Program.
The October 2020 Final Rule provided that a joint venture partner must include its share of joint venture receipts and joint venture employees when it counts all of its employees and revenues for purposes of determining its business size. The appropriate share of the joint venture's receipts is calculated by applying the percentage share of the joint venture’s work that is performed by the joint venture partner. The appropriate share of the joint venture's employees is calculated by applying the percentage share of a joint venture partner’s ownership in the joint venture to the total number of individuals employed by the joint venture, after first subtracting any joint venture employee that is already accounted for in the employee count of one of the joint venture partners.
The SBA's rules do not permit a joint venture to be populated with its own employees for purposes of performing under a small business set-aside contract. In the aftermath of the October 2020 Final Rule, some observers and practitioners mistakenly surmised that a joint venture partner of a populated joint venture does not have to include its share of the populated joint venture's receipts or employees in its own employee and revenue count. The SBA’s January 5 clarification, however, now makes clear that a joint venture partner must include its share of joint venture employees and receipts in its employee and revenue count, regardless of whether the joint venture is populated or unpopulated.