Joint ventures and teaming agreements for transportation contracts: bidding bigger with other small providers

When a contract is too big for one small ride company, two can bid it together in one of two ways. A teaming agreement keeps one company in front: it signs the contract, and the partner works as its subcontractor. A joint venture puts both behind one bidder, which may be a new company, that signs the contract and splits the work. The choice decides who answers to the buyer, who gets paid, whether you stay small under SBA’s rules, and whether Medicaid sees a new provider.

Most of the written rules come from federal contracting, because VA and other federal buyers set work aside for small businesses. County and school buyers follow their own purchasing rules, so read each solicitation for what it allows. For finding these solicitations and writing the response, start with government NEMT contracts. Sharing broker trips with another fleet is a different arrangement, covered in working as a subcontractor.

Teaming agreement or joint venture

Federal rules call both a contractor team arrangement. FAR 9.601 defines it as either two or more companies teaming up as a partnership or joint venture that will be the prime, or one prime lining up other companies to work as its subcontractors. The government recognizes either kind as long as the offer names the arrangement and discloses the relationships (FAR 9.603). It keeps the right to consent to subcontracts and to judge whether the prime is responsible, and the arrangement cannot break antitrust law (FAR 9.604).

The two forms differ in what you have to set up:

A teaming agreement is a contract between two companies that already exist. A joint venture set up as its own entity is a new business, with its own bank account, contracts and filings.

Staying small: the four SBA rules that matter

On a contract set aside for small businesses, SBA’s rules decide whether your team still qualifies. Four of them apply to most ride company partnerships on federal work.

Each partner must be small

A joint venture may bid as a small business only if each partner is small under the size limit tied to the NAICS code on the solicitation (13 CFR 121.103(h)). For NAICS 485991 (special needs transportation), that limit is $19.0 million of average yearly receipts (13 CFR 121.201). For example, two fleets with $11 million each in average receipts can bid together as small, even though together they reach $22 million.

The two-year window

A joint venture is meant for specific work, not as a permanent merger. Under the same rule, it may submit offers for two years from the date of its first contract award. Offers it made within that window can still be awarded after the window closes, and orders under contracts it already holds can continue. If the venture submits a new offer after two years, SBA treats the partners as affiliated and adds their receipts together. The same two companies can form a new joint venture with its own two-year window, but a long run of ventures between the same partners can lead SBA to find them affiliated anyway.

The 50 percent limit on subcontracting

On a service contract set aside for small businesses above the simplified acquisition threshold, or for SDVOSB, VOSB, women-owned, HUBZone or 8(a) firms, the prime must agree to keep its payments to firms that are not similarly situated at or below half of what it receives from the government (13 CFR 125.6). “Similarly situated” means a subcontractor with the same program status as the prime: a certified SDVOSB under an SDVOSB contract, any small business under an ordinary small business set-aside. Work a similarly situated subcontractor does with its own employees counts as the prime’s.

The ostensible subcontractor rule

A prime loses eligibility when a subcontractor that is not similarly situated performs the primary and vital requirements of the contract, or when the prime is unusually reliant on it (13 CFR 121.103(h)(3)). The prime may still cite the subcontractor’s experience and past performance to strengthen its offer. On a ride contract, driving the trips is the primary and vital work, so the prime has to run a real share of them.

An example with numbers

Picture a VA contract for wheelchair van rides, reserved for SDVOSBs (small businesses owned by service-disabled veterans) and worth $480,000 a year. A certified SDVOSB with three vans wins it and teams with a larger fleet that is not veteran-owned.

1. The prime may pay the larger fleet no more than $240,000 a year, half of what VA pays.
2. If a second certified SDVOSB drives some routes with its own drivers, that work counts toward the prime’s share.
3. If the offer has the larger fleet driving most of the trips, SBA can find it an ostensible subcontractor and the prime ineligible for the award. If that happens later, during the contract, the prime breaks the 50 percent limit it agreed to.

How VA buys these rides is covered in VA transportation contracts.

Joint ventures on set-aside contracts

A joint venture of two small companies on an ordinary small business set-aside needs no particular form of agreement (13 CFR 125.8). The rules get specific when the venture uses a special status or a mentor.

For a veteran-owned set-aside, 13 CFR 128.402 requires the agreement to:

• Name a certified VOSB or SDVOSB as managing venturer, matching the set-aside, and one of its employees as the responsible manager.
• Give the certified partner at least 51 percent of the joint venture if the venture is a separate legal entity.
• Pay the certified partner profits in line with the work it performs, or a larger share if the partners agree.
• List the vehicles, facilities and other resources each partner brings.

The certified partner must also perform at least 40 percent of the work the venture does, and more than administrative tasks, while the venture as a whole meets the 50 percent limit. SBA does not certify the venture itself. You designate it in SAM as a VOSB or SDVOSB joint venture and name the certified partner. A certified firm can be in only one venture bidding on a given set-aside, and it reports each year to the contracting officer and SBA on how the performance-of-work rules are being met.

Experience counts for both partners. When an agency evaluates a joint venture’s offer on a set-aside, it must consider work done and qualifications held by each partner individually, plus anything the venture has done itself. A new company paired with an established one is not judged as a blank slate, a point covered further in NEMT contracts with no experience.

SBA’s mentor-protege program

SBA’s mentor-protege program lets a small company team with a larger one and still bid as small. The mentor can be any for-profit business, large or small, that has good character, a favorable financial position and the ability to help, and is not on the debarred list (13 CFR 125.9). What the protege gets:

• Help with the business. Management and technical help, loans or equity, subcontracts in either direction, and help with bonding.
• A small joint venture. A venture between a mentor and protege counts as small for any federal contract as long as the protege alone is small, and it can pursue set-asides the protege qualifies for, including SDVOSB and women-owned set-asides.
• No affiliation from the help itself. The two firms are not treated as affiliated just because the protege receives assistance under the agreement.

The protege has to do real work. In a mentor-protege joint venture, the protege must perform no less than 40 percent of all work the venture does, and that work must be more than administrative. The program is not a matchmaking service: SBA says a protege applies with its mentor already identified, through its online certification portal. An agreement can run for as long as six years, a protege can generally have two mentor agreements in total, and a mentor can generally have no more than three proteges at once.

If the mentor is a larger transportation company, decide up front which trips the protege will run with its own drivers, because the 40 percent share is checked.

Medicaid treats a joint venture as a new provider

A joint venture formed as its own company is a new provider in Medicaid’s eyes, because Medicaid enrolls the company that bills. Texas, for example, has the applicant enter the company’s own nine-digit federal tax ID on the enrollment application. The steps for a first enrollment are in the Medicaid provider enrollment guide.

Federal rules then ask the venture to disclose its owners (42 CFR 455.104):

• The name and address of every person or company with an ownership or control interest, with dates of birth and Social Security numbers for individuals and tax IDs for corporate owners.
• Whether any owners are related as spouse, parent, child or sibling.
• Other Medicaid providers in which an owner has an ownership or control interest.
• The name, address, date of birth and Social Security number of each managing employee.

Those disclosures are due with the application, again when the provider agreement is signed, on request at revalidation, and within 35 days of any change in ownership. Each broker also has to credential the new company before it receives trips. Sharing Medicaid trips as prime and subcontractor under one enrolled provider avoids that, but it needs the broker’s consent where the broker’s contract requires it.

What the agreement should settle

Whichever form you choose, write down the operating details before the bid goes in. Our guide to subcontracting NEMT trips covers the clauses for sharing trips. For a team bid, make sure the agreement also answers these:

• The split. Which partner runs which service area, level of service or hours, and how the split will be measured against the 50 percent or 40 percent rules.
• Dispatch. Who takes the buyer’s ride requests, who assigns trips, and who picks up a will-call return when one partner’s vans are all out.
• Insurance. Which policy covers each van, which partner names the buyer as additional insured, and how each partner meets the buyer’s limits.
• Money. Which bank account the buyer pays, when each partner is paid, and who carries the cost if the buyer pays late. Set-aside ventures with a mentor or a veteran partner must use a special joint venture account that needs every partner’s consent for payments to members.
• Records. Who keeps trip logs, incident reports and complaint files, and who answers the buyer’s audits.
• Exit. What happens if one partner loses its certification, grows out of its size standard, or loses its insurance mid-contract.

Showing who ran each trip

The 50 percent and 40 percent rules are measured in work performed, so each partner needs a clean record of its own trips. In HealthRide, every finished trip is stored with its actual times and GPS-verified miles, and on-time results can be read driver by driver. Each partner can pull its own trip log as a spreadsheet or print-ready PDF and hand it to the prime, the venture or the buyer. The reports page lists what each report covers.