Legal Issues: New Ruling on Small Business Joint Ventures Earlier this summer, SBA’s Office of Hearings and Appeals issued an important decision that has had an immediate impact on 8(a) mentor/protégé joint ventures. The case, Size Appeal of SES-TECH Global Solutions, SBA No. SIZ-4951 (2008), resulted from an adverse SBA size determination in which SBA concluded that an 8(a) protégé was not eligible for the exception to affiliation with its large-business mentor because the parties’ joint venture agreement did not fully comply with SBA’s 8(a) joint venture regulations. Notably, however, the joint venture pursued a small business contract, not an 8(a) contract. In overturning the size determination on appeal, the Office of Hearings and Appeals rejected SBA’s application of the 8(a) joint venture regulations to a joint venture for a small business contract. According to OHA, the 8(a) program is “unique” and its governing rules “do not apply to a procurement that is not within the 8(a) program.” Consequently, SBA lacks the authority to review a joint venture agreement under the 8(a) regulations unless the procurement at issue is an 8(a) set-aside. This makes clear that a joint venture for a small business contract is governed only by SBA’s small business affiliation regulations, which provide that two firms in an SBA-approved mentor/protégé arrangement may form a joint venture for any federal government procurement and will be exempt from the normal rules of affiliation so long as the protégé qualifies as a small business under the applicable size standard. Consistent with this conclusion, OHA found that a prior decision SBA cited in the size determination, Size Appeal of Lance Bailey & Associates, Inc., SBA No. SIZ-4817 (2006), is inapplicable to joint ventures for small business contracts. This is because Lance Bailey dealt with an 8(a) contract, not a small business contract. As discussed, the type of contract at issue is a critical factual distinction given the different regulations for small business and 8(a) contracts. Several other aspects of the SES-TECH decision are also worth noting. For example, OHA confirmed that SBA may not use the ostensible subcontractor rule to review a mentor/protégé joint venture because the existence of a joint venture is a given, rendering the ostensible subcontractor rule irrelevant. Furthermore, OHA noted that neither SBA area offices nor OHA have authority to review mentor/protégé eligibility issues, including mentor/protégé and joint venture agreements. OHA relied on another recent decision, Size Appeal of White Hawk/Todd, A Joint Venture, SBA No. SIZ-4950 (2008), which held that only SBA’s Office of Business Development has authority to review a mentor-protégé agreement. Thus, concerns regarding whether a mentor/protégé relationship fully complies with the applicable regulations should be dismissed if raised in a size protest to an SBA area office or on appeal to OHA. Finally, OHA ruled that an SBA area office’s interpretation of SBA regulations is not entitled to deference. In the size determination, SBA argued it would be “remiss” if it permitted 8(a) firms to enter into joint ventures on non-8(a) contracts without complying with the 8(a) joint venture regulations. SBA further suggested that OHA should give deference to this interpretation of SBA’s regulatory obligations. OHA rejected SBA’s argument because deference is reserved for notice and comment rulemaking or other final agency action on review in federal court. Conversely, per OHA, “[a]gency interpretations contained in policy statements, positions in litigation, or determinations by an agency’s subordinate office are not entitled to this deference.” Jonathan Williams, an associate with PilieroMazza PLLC, prepared the successful appeal in the SES-TECH decision. He practices in the areas of government contracts, litigation, corporate transactions and telecommunications law. He can be reached at jwilliams@pilieromazza.com.