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How to Start a Joint Venture and Bid on Government Contracts?

How to Start a Joint Venture and Bid on Government Contracts
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How to start a joint venture is a question that has haunted many businesses aspiring to secure large government contracts. It’s no surprise that the government contracting space is fiercely competitive which makes strategic partnerships compelling solutions. Joint ventures are advantageous because businesses can combine their resources and expertise to stand out in the eyes of government agencies.

What Are Joint Ventures?

 

A joint venture involves two or more businesses agreeing to invest and operate a single business together. It’s usually formed to enhance the value of each party’s investment by sharing the risks and rewards of running an organization. 

Partners may be private individuals or entities coming from different business structures such as limited liability companies (LLC), corporations, partnerships, and other entities. Moreover, it is a contractual agreement formed by companies that end on a specific date as soon as the project is completed.

 

Six Ways to Start a Joint Venture

6 Ways to Start a Joint Venture
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Joint ventures are one of the common ways to get started in business especially for small business owners. It’s important to note that 80% of joint ventures eventually end up dissolved or sold to their parent company. However, if you are genuinely determined, here are ways for you to get started:

1. Find the Right Partner

The first step is to find venture partners depending on the size of the business partnership. They should be able to provide wide distribution channels for your new products or services to reach new markets. Assess your potential partners’ financial resources and expectations from the joint venture arrangement. Be prepared for negotiations, including sharing customer lists, production schedules, and proprietary information with trust.

2. Decide on the Joint Venture Type

Once a partnership is formed, the next thing to do is choose the right business structure. Businesses can start forming a separate entity for the joint venture. It can either be a limited liability company or a corporation which tends to be expensive and complex. Any of these come with responsibilities like filing and paying business taxes. 

Nevertheless, take it as an advantage because it has more legal protection that can be helpful moving forward. Now, if you choose to work the other way, you can operate under a joint venture agreement called an unincorporated joint venture, which is simpler and inexpensive. It also doesn’t require profit reporting and is not tied to tax responsibilities.

3. Create a Joint Venture Agreement Draft

Creating a joint venture agreement draft is important regardless of the joint venture type you agreed upon because this will dictate the partnership’s direction. It’s best to hire an attorney for assistance if both parties have no experience in the drafting process. The following information should be included in the written agreement:

  • The joint venture type (whether it’s a separate business entity or unincorporated joint venture)
  • The purpose
  • Both contributions of the parties, whether equal or unequal
  • Profit and loss allocations of parties
  • Party’s voting rights
  • Meeting schedules
  • End date of joint venture partnership

4. Pay Taxes

The tax amount will be based on the formed entity. If it’s a separate legal entity, like a C corporation, it should pay 21% of the flat income tax rate based on business profits. Shareholders then pay taxes on dividends. For LLCs or unincorporated joint ventures, taxes are treated as pass-through entities wherein income tax is based on the owners’ earnings and based on business income.

5. Follow Government Business Regulations

You must follow all applicable government business regulations which may vary by state or country. So, checking with your local authorities before starting any business relationship is important. In the case of cross-border joint ventures, there will be a separate set of international regulations to comply with.

6. Know the Requirements and Guidelines for VOSB/SDVOSB Joint Ventures

An SBA certification is not required when qualifying for a VOSB/SDVOSB joint venture. Each VOSB/SDVOSB in the venture should have SBA certification and other entities involved must be small businesses under the NAICS code. Additionally, a joint venture with an SBA-approved mentor and a certified VOSB/SDVOSB protégé can get contracts restricted to VOSB/SDVOSB offerors.

Joint venture agreements must meet the rule, with the VOSB/SDVOSB owning 51%+. Finally, at post-award, each certified VOSB/SDVOSB must submit reports showing compliance with the work requirements to the SBA and contracting officer.

 

How to Bid on Government Contracts using a Joint Venture Partnership

How to Bid on Government Contracts using a Joint Venture Partnership
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Joint ventures are essential when bidding on government contracts because they allow companies to combine their complementary skills and resources on large-scale projects. This makes them more effective while sharing resources and knowledge to meet their goals.

 

Understanding the 3-in-2 Rule for Joint Ventures

The “3-in-2 rule” is a regulation for joint ventures. It states that a specific joint venture cannot be awarded more than three contracts within two years, starting from the award date of the first contract. This rule is applicable outside of the 8(a) Program. Notably, the count of contracts applies from the actual date of the initial offer, including the price. Under certain circumstances, a joint venture may be awarded over three contracts without risking affiliation.

This is possible if the joint venture submits multiple proposals before its third contract award and has already won two or more contracts on the date it submitted one or more additional offers that result in other contract awards. Additionally, a joint venture may establish new entities, each of which can be awarded up to three contracts individually.

SBA Regulations and Agreement Structures for Joint Ventures

Small Business Administration (SBA) regulations for federal contracts offer flexibility to joint venture agreements. This allows them to be either informal or formal as dictated by the intent of the new regulations. However, failure to have a written agreement would violate affiliation rules. 

The joint venture must not populate the entity with contract-performing employees. Forming an unpopulated joint venture can allow small businesses in a mentor-protégé arrangement to gain experience and past performance.

Registration and Membership in Joint Ventures

All joint ventures must be separately registered in SAM (System for Award Management). In addition to using its name, a joint venture should have a unique entity identifier (UEID) and a commercial and government entity (CAGE) code in SAM.

Members of the joint venture should be small businesses as per SBA standards. However, exemptions to this rule apply when a company enrolled in the mentor-protégé program starts a joint venture as a prime contractor.

In such cases, the mentor can be a large business, while the protégé must own 51% of the specific project as a management team member, and the mentor should own 40% of the protégé.

Operational Aspects of Joint Ventures

The joint venture agreement should delineate the responsibilities of each member in terms of contract negotiation, work requirement performance, and labor distribution.

Furthermore, ongoing reporting and recordkeeping of all facilities, resources, and equipment each JV party utilizes should be ongoing. Lastly, joint venture members must fulfill and complete the contractual agreement even after the withdrawal of other members.

 

What Are the Pros and Cons of Forming a Joint Venture?

What Are the Pros and Cons of Forming a Joint Venture
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Here are the pros and cons of being a qualified joint venture

Pros

1. Access new markets and distribution channels

When a business entity partners with another company, both can access their facilities and resources to sell their products or services in the market where they are located. In 2017, McDonald’s partnered with UberEats to increase customers’ convenience in food delivery service, where the chain’s McDelivery with UberEATS platform expanded to 13 countries and 4,200 restaurants.

2. Increased capacity

When a company decides to outsource, this may allow room for expansion within their own business because there is less work for employees at their facility. Apple partnered with Foxconn to outsource the production of iPhone devices, where Foxconn was reported to produce about 500,000 iPhones per day.

3. Leverage on government contracts

It’s usually difficult for small businesses to compete with larger companies when bidding for government contracts. However, if two firms join forces and bid together, they may have a better chance of winning bids and getting work done by combining their experience and expertise to win the contract.

4. Share risks and costs with a partner

When companies form a joint venture, both will take on the financial risk involved in the project. In 2017, Mazda and Toyota partnered to set up a manufacturing plant worth $1.6 billion, where they split the cost equally.

5. Create long-lasting business relationships

Joint ventures can be used as a strategy to create long-lasting business relationships and strengthen the competitive position of an organization. Further, they can build commonality between companies, make them work better together, and help both parties learn from each other to be more successful.

Cons

1. Difficulty in finding the right partner

Finding a fitting partner can be difficult because a party needs someone who shares their company’s vision and wants to grow the business together. However, this doesn’t always happen, especially when two companies vary in size and scope.

2. Partners may lack support and devotion

The other party might not fully understand the project objectives or become distracted by other pursuits and projects. The venture may fail because they are unwilling to invest their time and money.

3. Possibility for unequal contributions

Joint venture partners contribute a certain amount of initial capital, typically with a 50/50 distribution of profits. The more experienced party can be the lead partner and contribute 60 to 70%. This leads to an imbalance of assets and investments because different companies work together. 

Furthermore, unequal contributions can be disadvantageous. When one partner contributes more than the other, it results in unfair profits or losses for all the parties involved.

 

Notable Joint Ventures in Government Contracting

Notable Joint Ventures in Government Contracting
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Once you have started a joint venture, you must choose an industry to enter and assess the current market state. Below are the best industries to choose from and the factors to consider for a successful joint venture. But first, see how you fare on these aspects:

  1. Industry attractiveness: Is this an area with lots of growth potential?
  2. Competitors: Who are your competitors? What are their strengths and weaknesses? How can you differentiate yourself from them?
  3. Legal and cultural hurdles: Does the country have laws restricting foreign investment or requiring joint ventures with a local partnership agreement? Could language or cultural barriers cause difficulties with your business partner? Cultural mismatches can lead to poor integration, while good partnerships can increase productivity.

RQ and DPR Construction’s Joint Venture – RQ–DPR

The RQ–DPR Construction joint venture is a provider of construction, repair, and renovation services for medical treatment facilities in several government installations. California. The company accepts a contract for work for hospitals, dental and medical clinics, ambulatory care centers, and research laboratories. Since then, government contracts have flowed steadily, including the Marine Corps’ Construction Project of Hurricane Florence Recovery Package 2 Headquarters.

Skanska–Traylor Bros’ Joint Venture

The Skanska–Traylor Bros’ Joint Venture is a partnership between two construction companies in the U.S. Their projects include large-scale infrastructure projects, such as highways, bridges, tunnels, and rail systems. In 2021, the joint venture won a $1.6 billion contract from New Jersey Transit to replace the Portal North Bridge as a part of the Upper Gateway Program. 

Leidos Integrated Technology, Parsons Government Services, and Centerra Group Joint Venture – Hanford Mission Integration Solutions

Hanford Mission Integration Solutions provides Hanford Site support services, including adequate and reliable water, power, road maintenance, information technology, safeguards and security, sitewide safety standards, training and other deliverables across the Hanford Site. One of its notable government contracts is the nuclear site cleanup and restoration contract award worth $4 billion from the U.S. Department of Energy’s Office of Environmental Management.

 

Akima and Amentum’s Joint Venture – Akima Range Readiness Operations (ARRO)

NANA Development Corporation subsidiary Akima, is an Alaska Native Corporation, and provides a wide range of services, including facilities management, IT, and logistics. Amentum, on the other hand, is a global technical and engineering services firm. The Akima Range Readiness Operations (ARRO) joint venture provides a range of readiness operations related to facilities management, logistics, or technical services on testing ranges or similar facilities. Learn more about other contracts won by Akima here.

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