So another contactor tells you, “Joint ventures are a great way to win big contracts. Join up with me on this next one. Look at the money you can make. Look at the money I have made.”
You look. What he says is true. He HAS won big contracts and made beaucoup bucks. And you realize that you can too. His firm is not DBE certified. That’s why he’s talking to you. You’re a woman and a minority, so partnering with your firm will keep doors open to lucrative new world of contracting opportunities for his firm. It’s a match made in contractor’s heaven.
But he wants to keep the arrangement loose. No need for a written joint venture agreement,” he says. “The details of our deal—how profits and losses are allocated, who is responsible for what work—will work themselves out during contract performance.”
How does that sound? What do you say? What should you say?
Federal and state regulations dictate how DBE / MWBEs must run their joint ventures.
Here’s the U.S. Government’s take on it:
“A DBE joint venture partner must be responsible for specific contract items of work, or clearly defined portions thereof. Responsibility means actually performing, managing and supervising the work with its own forces.”
In New York, a similar regulation defines a joint venture this way:
“A contractual agreement joining together two or more business enterprises, one of which is a certified minority – or woman – owned business enterprise, for the purpose of performing on a State contract. The certified minority – or woman – owned business enterprise must provide a percentage of value added services representing an equitable interest in the joint venture.”
Does that mean you can simply put your partner’s non-DBE employees on your payroll? Or, hire them as consultants and let them do the work? Do you have any special knowledge or expertise that your non-DBE partner doesn’t? Are you making decisions concerning the contract work, communicating with owners, architects and engineers? Are you personally attending important meeting and speaking for the joint venture?
What have you contributed to the joint venture in terms of money and property and credit? The federal regulations are very specific on what you, the DBE / MWBE need to bring to the table in order for your arrangement to be legit in the eyes of the law.
Here’s what the federal regulation says:
“The DBE joint venture partner must share in the capital contribution, control, management, risks and profits of the joint venture commensurate with its ownership interest.”
And in New York, “All parties [must] agree to share in the profits and losses of the business endeavor according to their percentage of equitable interest.”
So, a regulatory enforcement officer might ask, “What did you give in order to get a 50% stake in the joint venture? Your non-DBE partner put in all the manpower, put up all the working capital, has all the bonding capacity. All you appear to have contributed was your DBE certification. You have no special knowledge or expertise or experience doing the type of the contract work involved. Your non-DBE partner paid almost all the upfront costs of bidding and performing the contract. What’s up with that? On paper you own 50% of the joint venture, but it looks like the amount you’ve earned is a flat fee equal to 5% of the contract price. If there were a loss on this contract, your non-DBE partner would eat it, not you—because he has funded the cost of performance.”
And finally, “how is it that your joint venture can take credit for $X amount of dollars toward DBE / MWBE contacting goals when your firm has done little or nothing to advance the performance of the contract work?”
Here’s how is DBE participation is counted toward goals in a joint venture:
When a DBE performs as a participant in a joint venture, count a portion of the total dollar value of the contract equal to the distinct, clearly defined portion of the work of the contract that the DBE performs with its own forces toward DBE goals.
If you are a contractor bidding on a public contract, don’t be the bad guy and try to take advantage of the starving DBE / MWBE firm. Try your best to find a qualified and competent DBE to perform work on your contract. Pass-through or fronting schemes designed to satisfy DBE goals could lead to criminal charges. Can’t meet the DBE goal? Make sure to document your efforts to meet it, because you can fight for the contract award if you are the low bidder. Using those documents, if you can demonstrate “good faith efforts” to meet the DBE goal, you cannot be denied contract award.