Chamber Insider Blog

Leveraging and Protecting your HubZone Small Business In the SBA’s New Environment

Thank you to Dean Daisy, of Daisy & Collins LLP for this article
For more information about the GovCon Initiative, click here.

Around this time last year, the SBA announced sweeping changes including the SBA Mentor-Protégé Program and new HUBZone Joint Venture opportunities.  Is your HUBZone business taking advantage of these changes?   Are you ready to dip your toes in the pool but you are unsure of where to start?  Don’t worry, you are not alone!  Let’s discuss the benefits and the requirements inherent in charting this new territory.

History:

Previously, HUBZone regulations only allowed for a joint venture between two qualified HUBZone entities and there was limited application or need for such strategic agreements.  Under today’s regulations, these opportunities have been greatly expanded to allow a HUBZone small business to “enter into a joint venture agreement with one or more” small businesses.  This is coupled with an ability to also do so with an approved mentor under the concurrently adopted new SBA mentor-protégé regulations.  Properly constructed, the new regulatory scheme allows a compliant joint venture or mentor-protégé to submit an offer on a HUBZone contract without the joint venture itself needing to be certified as a qualified HUBZone small business. There are also 8(a) opportunities, but that is a different discussion for a different time!

Factors to Consider:

Size:  Size is still of paramount importance under the new regulations and different tests apply to differing relationships.  For a joint venture that includes at least one qualified HUBZone small business and one or more other business concerns, the joint venture “may submit an offer as a small business for any HUBZone procurement or sale so long as each concern is small under the size standard corresponding to the NAICS code assigned to the procurement.”  This is a factor that must be considered at the outset of any discussions involving strategic partnering.  In the alternative, for a joint venture between a protégé and its approved mentor to qualify, the joint venture will be deemed small if the protégé qualifies as small under the solicitation’s operative size standard.  This factor, coupled with a removal of the limit of active contracts that applies to standard joint ventures may make the mentor-protégé relationship very attractive in certain circumstances. 

Requirements:  In the past, there was no need to have regulations protecting HubZone entities in joint venture scenarios because the only parties involved were other HUBZone entities.  With those walls broken down, the SBA has included significant requirements for any joint venture agreement to protect the HUBZone partner.  Whether the relationship is a standard joint venture or one under the mentor-protégé program, the SBA has made it clear that the HUBZone entity’s control and benefit from the relationship must be guaranteed.  This is accomplished through strict ownership, management, work share, and financial requirements, among others, to be included in all agreements.  Navigating these requirements, both today and as they develop, will be essential to your HUBZone entity’s continued  success in these new endeavors.

Compliance: The existence of the proper documents is not enough however.  The new regulations require self-certification prior to the performance of any HUBZone contract including a clear and unequivocal statement that both parties have a fully compliant joint venture agreement and that the parties will perform the contract in compliance with the joint venture agreement and in compliance with the required work shares and limits on subcontracting contained within the regulations.

Past Performance and Experience:  Herein lies the greatest advantage to HUBZone small business entities under the new regulations.  When evaluating the past performance and experience of an entity submitting an offer for a HUBZone contract as a joint venture established pursuant to the new regulations, the procuring party is required to consider the work done individually by each partner to the joint venture as well as any work done by the joint venture itself previously.  This will allow a HUBZone entity with little, relevant, past performance to find a partner who can bring that to the table and further expand the opportunities available to both concerns through the joint venture.

Summary:

With these new regulations in place for just under a year, it is difficult to determine how successful these new avenues will be and where any landmines may exist.  What is certain is that they do greatly expand the opportunities for HUBZone entities to compete for and win business that may previously have been out of reach.  As these areas continue to develop, it is likely that we will see significant competition in this new marketplace.  To survive and thrive, knowledge and relationships will be the key.  If a solid foundation is set through due diligence with prospective partners, proper planning of the relationship and opportunities, and ensured compliance with the new joint venture agreement requirement, new opportunities should be opening up to your HUBZone business at every turn. 

Thank you to Dean Daisy, of Daisy & Collins LLP for this article
For more information about the GovCon Initiative, click here.

Join us at our upcoming GovCon Initiative event, Wednesday, August 30, 2017 at Telos.
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