Adapting JV Proposal Strategies after GAO Downgrade Ruling
A recent U.S. Government Accountability Office decision involving a Small Business Administration-approved small business joint venture, or JV, suggests that JVs between large and small firms should adjust their proposal strategies to avoid downgrades on past performance when the small business JV member, and the JV itself, lack relevant past performance.
Background
Proposing on a set-aside contract as an SBA-approved JV between a small and large business has been an effective strategy for many years. A basic assumption of this approach — and a primary motivation for using a JV structure — has been that an agency evaluating the JV's past performance would normally look at the combined past performance of the JV members.
In many respects, this evaluation assumption has been a main motivation for using the JV structure, in contrast to a prime-subcontractor structure.
Typically, the large business JV member will have greater and more relevant past performance than the small business. The thinking had been that the JV structure would allow both members to leverage the large JV partner's past performance for evaluation purposes by imputing the large business' past performance to the JV.
However, the recent GAO bid protest decision in ProSecure LLC [1] calls this assumption into doubt, suggesting the need for adjustments to proposal strategies for large and small firms in JVs or that plan to use JVs.
The ProSecure Protest
ProSecure involved a U.S. Department of Homeland Security set-aside contract for federal security guard services in Alaska. The best value-based DHS solicitation established relevant past performance as the most important evaluation factor, followed by management approach and price. Past performance was more important than management approach, and the nonprice factors, when combined, were more important than price.
The protester, ProSecure, was an SBA-approved, mentor-protégé JV between the small business protégé, Meritus Solutions Group LLC, and a large business mentor, American Eagle Protection Services Corp.
ProSecure's proposal reflected that the JV had been recently formed and that Meritus was its managing partner. The proposal also reflected that American Eagle had significant past performance, but Meritus and the JV had no past performance references.
In the evaluation, despite American Eagle's strong past performance, the agency assigned ProSecure a rating of only acceptable for past performance, largely due to the lack of past performance references for Meritus and the JV. The agency found that the competitor, CDA Inc., deserved a higher past performance rating.
Although ProSecure offered a lower price than CDA, in the best value trade-off, the agency elected to pay the price premium and awarded the contract to CDA.
ProSecure protested, arguing along with other issues that the JV should have been given a higher past performance rating based on American Eagle's strong past performance. The agency responded that the lack of past performance by Meritus and the JV presented increased risk, justifying the lower rating.
In denying ProSecure's protest, the GAO concluded that it was reasonable for the agency to find that an award to ProSecure presented increased risk due to Meritus and the JV's lack of relevant past performance. While the GAO also cited other aspects of the evaluation in denying the protest, the JV findings stood out.
The GAO's analysis on past performance effectively disregards the JV entity and ignores the large business' record. Also, in citing the newly formed JV's lack of past performance, the decision undermines a primary purpose of using a JV structure.
Proposal Strategy Implications
Small and large firms already in, or planning to form, JVs to bid on federal set-aside projects should consider the following implications of ProSecure in their proposal strategies.
- Forming a JV on the eve of a specific bidding opportunity may present an evaluation risk. While constraints exist on the number of set-aside contracts that can be pursued by a JV, creating positive past performance at the JV level, if possible in the available time frame, is clearly helpful.
- If the JV will be downgraded for lack of past performance, small and large firms would be better off forming strategic, multi-opportunity JVs than JVs focused on one solicitation; but care must be observed in avoiding affiliation.
- If the solicitation is silent on how past performance for JVs will be evaluated, it may be advisable to issue questions in the Q&A phase to clarify or lay the foundation for changes to the evaluation analysis.
- Absent clear solicitation language, it may be inadvisable to assume that the past performance of all JV members will be imputed to the JV in the evaluation. If both JV members do not have some relevant past performance in the subject matter, it may be prudent to look at transferring key employees to the less experienced entity.
- JV proposal language should emphasize the relevant past performance of all members to the fullest extent possible.
- Apply for SBA approval of a JV Agreement as early as possible in relation to proposal submission dates. This can take some time. ProSecure did not obtain SBA approval of its JV until 30 days before the proposal date.
- Small and large firms planning on proposing as JVs should scrutinize the solicitation language for ambiguity on how JVs will be evaluated. Note that the ProSecure rationale could also be applied to a technical experience factor and may not be limited to past performance.
- If the solicitation language on JV evaluations puts your entity at a competitive disadvantage, promptly use the open and frank discussions mechanism at Federal Acquisition Regulation 33.103(b) to try to elicit more favorable language. If the issue is critical and not quickly resolved, consider filing a solicitation protest. Ensure that the protest is timely filed under the GAO bid protest regulations.
“Adapting JV Proposal Strategies after GAO Downgrade Ruling,” by Albert B. Krachman was published in Law360 on June 17, 2020.
[1] ProSecure LLC, B-418397 (April 15, 2020).