GAO Confirms Joint Venture Members’ Security Clearances Count

A Michigan business won a protest recently against the Department of the Air Force where the solicitation included an outdated—and frankly nonsensical—requirement that the joint venture entity possess a facility security clearance.

Because the solicitation’s requirement is contrary to law and the SBA’s joint venture regulation, GAO sustained the protest, thus confirming the recent change to the law regarding joint ventures.

At issue was an Air Force solicitation for intelligence, surveillance, and reconnaissance support services. The solicitation said that if the offeror was a joint venture, the joint venture itself (i.e., the joint venture legal entity) would have to have a top secret facility security clearance. InfoPoint LLC, protested arguing that if the individual joint venture members to held the required clearance the joint venture should be permitted to bid.

Until recently, the joint venture laws and regulations were silent on this topic. As such, something of a debate sprang up. The SBA’s joint venture regulations generally require that a joint venture be a separate legal entity. Usually that is accomplished by the joint venturers forming a new limited-liability company of which they are the members. The new company exists only on paper as the legal representation of the cooperative agreement between the members. That new company becomes the offeror and performs as the prime contractor on the work through its members. By design, it is unpopulated—meaning that it has no employees. That also means, in general, that it has no assets—such as a building for which to seek a facility security clearance.

For that reason, it never made much sense to require that the joint venture itself have a security clearance. Think of it like this, if the contract required a bulldozer, and one of the joint venture members had a bulldozer, you wouldn’t make it sell the bulldozer to the joint venture to perform on the contract. Nevertheless, some didn’t see it that way. They thought that because the joint venture is a separate legal entity it must be separately vetted for security concerns.

Congress solved the issue with the 2020 National Defense Authorization Act (NDAA) (which was enacted December 20, 2019) by clarifying that the joint venture itself did not need to obtain the clearance when its members were cleared. It said “A clearance for access to a Department of Defense installation or facility may not be required for a joint venture if that joint venture is composed entirely of entities that are currently cleared for access to such installation or facility.” The SBA issued a final rule implementing the NDAA last October. It went further than the NDAA saying that a joint venture may be awarded a facility security clearance contract if the joint venture itself or the individual partners has the required clearance and that if the work requiring the clearance is primary to the contract the lead member must hold the clearance, but if the clearance is ancillary to the work a partner venturer with a clearance is good enough.

The solicitation here, issued in April (six months after the SBA final rule) required the offeror to “possess or acquire a facility clearance”. It said that the “individual partners to the [joint venture] having the [facility clearance] is not sufficient.”

InfoPoint protested, essentially arguing that the law was now clear on this matter. It is an unpopulated mentor-protege joint venture where both members have facility security clearances.

The Air Force, for perhaps unknowable reasons, decided to fight the protest. It asked GAO to dismiss the protest saying that it failed to state a valid basis of protest and it argued that the SBA regulations were permissive, not mandatory and that the Department of Defense hasn’t had the chance yet to implement the 2020 NDAA. It also argued that holding it to the 2020 NDAA would “create challenges arising from conflicts with existing regulations and policies.” In other words, it said complying with the law would cause extra work.

GAO disagreed. It said that “the plain meaning of the [NDAA] leads us to conclude, that it unambiguously prohibits DOD from requiring that a joint venture hold a facility clearance if the members of the joint venture hold the required facility clearances.”

It sustained the protest.