joint venture business requirements

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					Joint Ventures Agreements: The Key to Success By Antonio R. Franco As government contracting requirements continue to grow, contractors are increasingly joint venturing to perform the work. These arrangements allow companies that might be particularly experienced in a certain line of business, but lacking in another, to work together on large, complex contracts. Given the prevalence of joint ventures to perform government requirements, firms need to be aware of the legal intricacies of these arrangements. The key to a successful joint venture relationship is the agreement between the parties. Structuring a joint venture to the needs of the members and addressing anticipated problems up front reduces the likelihood that a disagreement between the members will derail the entire joint venture relationship or hinder contract performance. In its simplest terms, a joint venture is an association of two or more entities that come together to carry out a single enterprise, such as a government contract, in the pursuit of a profit. Such a relationship is appealing to many companies that cannot perform a requirement on their own but do not want a subcontractor role. Joint ventures are also appealing to the government as it receives the benefit of two or more experienced companies with the depth and breadth to perform large, risky contracts. Often times, when entering into a joint venture, companies use boiler-plate agreements. They also often create limited liability companies (LLC) through which the joint venture is operated. When creating the operative agreements, the parties sometimes do not take into account the different legal relationships they are creating -- as both members to an LLC and joint venture partners. The agreements they strike are often too generic in nature to be truly meaningful when applied to a specific situation. Additionally, these agreements tend to focus on “positive” aspects of the joint venture, such as how profits will be divided. As a result, companies are often times unaware and ill prepared to handle potential pitfalls in the relationship. Prior to entering into a joint venture, it is imperative that the companies identify and address the potential problems that may arise between them. Some of the pitfalls are obvious and are addressed in almost all joint venture agreements, such as how the parties will manage the contract, distribute profits and losses and divide responsibility for the work. Other pitfalls that are not so obvious include whether one member will be performing other services for the joint venture or even competing with the joint venture on other requirements.

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Small businesses in particular need to be mindful of the subcontract limitation requirements on small business set asides and the structure of the joint venture or LLC. If a party to the joint venture is also performing work as a subcontractor, there should be an understanding of how the work is allocated for performance of work purposes. Consideration should also be given to how profits are passed through to the government when a party to the joint venture is also a subcontractor. In addition, the parties should consider the impact of the new size recertification rule. If a joint venture partner outgrows the size standard applicable to the contract, the joint venture may find itself unable to recertify its size on long term contracts or if requested to do so by the contracting officer. These scenarios should be addressed in the operative documents. Regardless of whether a joint venture consideration is obvious or not, the parties should remember that in a joint venture, their actions should be guided pursuant to their fiduciary duties under state law. Parties to a joint venture must usually act with honesty, loyalty, and in the best interests of the other party. Joint venturers should be in a position to avoid even an inadvertent breach of this nature by having the joint venture agreement spell out exactly what is expected of each member before, during, and after the term of the joint venture. The joint venture agreement itself should anticipate as many pitfalls as possible and provide, in no uncertain terms, what each party would be required to do in such a situation. Any joint venture agreement should also have a mechanism that would enable the parties to handle a dispute that is not contemplated in the joint venture. Joint ventures can be excellent contracting vehicles that combine the efforts and strengths of multiple companies and allow them to work together to produce excellent results for the government. In order to accomplish this, the parties have to structure their joint venture agreement with care, properly addressing potential pitfalls. While having these protections does not guarantee that the joint venture will be successful, it certainly improves the chances.

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