The Government Accountability Office (GAO) recently released a decision in
the matter of FedServ-RBS JV, LLC, B-411790, October 26, 2015, that offers
little assurance for small companies seeking to form SBA-approved joint ventures
in pursuit of government business. Though consistent with GAO precedent and
apparently in concert with Small Business Association (SBA) regulatory guidance,
the decision puts significant cost risk on aspiring joint venture partners and
forces contracting agencies to award to second-place bidders if the SBA fails to
timely approve a joint venture request.
On May 29, 2015, the Army Corps of Engineers received five timely proposals
for a competitive 8a set aside contract. One of the proposals was from the
protester, FedServ-RBS JV. FedServ, an 8a participant, and RBS, a non-8a small
business, formed the joint venture in advance of the proposal and submitted
their JV application to the SBA on June 4, 2015. On June 16, the SBA responded
with a deficiency letter setting forth certain apparently curable missing items
from the application. FedServ-RBS unfortunately did not respond to the letter
immediately, and provided an updated JV application that the SBA received on
The Corps of Engineers, meanwhile, had already completed its evaluation
process and had determined that the JV’s proposal offered the best value to the
government. On June 25, the Corps notified the SBA that the JV was the apparent
awardee and sought a formal determination of the JV’s eligibility. On July 1,
one day before receiving the updated and corrected JV application from
FedServ-RBS, the SBA notified the Corps that the JV was not eligible for award.
After receiving this determination, the Corps reevaluated the remaining
proposals and ultimately selected another bidder, to whom it awarded the
contract on July 9. FedServ-RBS timely protested.
GAO rules and precedent allow for protests of certain SBA actions, but only
in limited circumstances and generally only when it is alleged that the SBA
violated or misapplied regulations. Here, though such misapplication of
regulation was alleged, the GAO ultimately found that SBA had acted in
accordance with regulations and that the Corps was not obligated to wait longer
than the five-day notice-of-intent-to-award period for the SBA to complete its
review of the joint venture application. GAO denied the protest.
Under SBA regulations, there exists no requirement that SBA review joint
venture applications until SBA is notified that the joint venture has been
selected for award. Furthermore, the regulations require that SBA notify the
procuring agency of the ineligibility of the joint venture within five working
days of the notification of apparent awardee status if SBA has not then approved
the joint venture. So the GAO’s decision seems completely correct, if
The result, of course, is that FedServ and RBS spent a lot of money forming a
joint venture and submitting a proposal with no assurance of eligibility, and
the Corps was denied the ability to contract with the company that submitted the
best proposal. And the SBA is left seemingly with two bad options – reviewing
dozens or hundreds of joint venture applications in advance, knowing that a vast
majority of the applicants will not be selected for award anyway, or negatively
impacting small businesses’ opportunities to win contracts because five days is
insufficient time to adequately review and approve a joint venture agreement.
The SBA can, and often does, begin review of joint venture applications in
advance. In fact, it appears that they did so in this case, and that the joint
venture did not respond promptly to the SBA’s deficiency letter. But such an ad
hoc approach that is primarily dependent upon resources and workload should be
considered for regulatory reform to give contractors some assurance of eventual
eligibility and to give procuring agencies comfort that proposals they evaluate
and select for award will be able to accept the contract.
If you have questions or would like specific information about the GAO
decision discussed in this issue of GovCon Now, please contact the author, Ron Fouse.
If you would like additional information about McGuireWoods’ government
contracts group, please contact any of the attorneys listed.