SDVO Joint Ventures: SBA’s OHA Overturns Prior Decisions

Washington, D.C. law firm, PilieroMazza, reported an important victory for Service-Disabled Veteran-Owned (SDVO) firms interested in forming joint ventures for SDVO set-aside contracts. The U.S. Small Business Administration’s (SBA) Office of Hearings and Appeals (OHA) issued a decision on March 31, 2011, permitting SDVO firms to form joint ventures as limited liability companies (LLCs) and corporations.

Because of two former OHA rulings, SDVO firms have been unable to take advantage of the protections in an LLC or corporation when forming a joint venture – thus rendering joint ventures an undesirable option for SDVO firms pursuing federal contracts set-aside for service-disabled veteran-owned small businesses (SDVOSBs). The previous decisions turned on the requirement in the SDVO regulations that legal entities, such as LLCs, must be directly owned by a service-disabled veteran (SDV). When two firms form a joint venture as an LLC, the two firms, rather than the SDV, owns the LLC. OHA’s determination was that a joint venture LLC does not satisfy the direct SDV ownerships requirements and is not eligible for SDVO set-aside contracts.

PilieroMazza had a strong, longstanding belief that these cases were wrongly decided and recently had an opportunity challenge the decisions on appeal to OHA. In the March 31 decision, OHA agreed with PilieroMazza’s arguments and granted their appeal. The new ruling reversed OHA’s prior holdings in the two former cases.

SBA can no longer find that an SDVO joint venture is ineligible for an SDVO contract simply because the joint venture is an LLC or a corporation. The reversal now allows SDVO firms and their prospective joint venture partners greater flexibility when making business decisions regarding the formation of joint ventures.

For additional information, please read PilieroMazza’s Client Alert regarding this issue. A copy of OHA’s ruling has been provided for reference. To learn more about PilieroMazza, please visit their website at www.pilieromazza.com.

Sources: PilieroMazza
OHA’s ruling*