Our office represented the protester in CVE Protest of Valiant Construction, LLC, SBA No. CVE-110-P (April 19, 2019). We argued, among other things, that an SDVOSB Joint Venture Agreement (“JVA”) between Smith Hafeli, Inc. and Ross Construction did not comply with the applicable regulation on profit sharing. We also argued that the service-disabled Veteran had a part time job (15 hours a week) that prevented him from working full time for his SDVOSB company. The SBA Office of Hearings and Appeals (“SBA OHA”) agreed.
The OHA judge found that the joint venture did not comply with the requirement that the SDVOSB must receive at least 51% of the profits and that the profits must be distributed in proportion to the work performed. While the joint venture agreement stated that profits “will be commensurate with work performed on the project” it failed to state how much work would actually be performed by the SDVOSB. SBA OHA ruled that this did not comply with the regulation on profit sharing:
However, the JVA is silent as to what percentage of the work SHI actually will perform. SHR has the burden of proof, and this it must establish that its JVA meets the requirements of both regulations, i.e. profits will be distributed in proportion to the work performed, and at least 51% of the profits must be distributed to SHI, hence requiring the SDVOSB must perform at least 51% of the work. Because the JVA fails to provide that SHI will perform at least 51% of the work, it leaves open the possibility that profits will not be distributed in proportion to work performed, and thus the JVA fails to meet all the requirements of the regulation. I thus must conclude that SHR is not an eligible joint venture for this reason.
SBA OHA also held that the JVA was ineligible because the service-disabled Veteran did not devote full-time to his SDVOSB business during normal working hours because he work as an instructor at the Marion High School’s JROTC program for 15 hours a week. In this regard, the judge noted:
Here, Mr. Hafeli spends 15 hours a week during normal business hours, more than a third of the standard 40-hour work week, serving as a JROTC instructor. This is a substantial amount of time in the classroom during the time when SHI must be conducting its normal business I must conclude that Mr. Hafeli is not devoting full time to the business during normal business hours. Accordingly, I must concluded that SHI is not controlled by a service-disabled veteran and SHR is not an eligible joint venture controlled by a SDVOSB.
This case illustrates that just because CVE may have approved your joint venture agreement does not mean you are in the clear. Under SBA OHA’s new CVE Protest jurisdiction, disgruntled contractors can protest a company’s SDVOSB eligibility at SBA OHA for an independent review. Attorney’s for the protester, like us in this protest, will closely examine the joint venture agreement and other corporate documents to challenge compliance. I can assure you that this review will be more vigorous than the “busy” CVE examiner’s review. So, be careful and consult with a professional if you have any questions.
