The easiest way to differentiate between a prime/subcontractor team and a joint venture is to ask: who is the prime contractor?
In a prime/subcontractor team, only one company is the prime contractor. However with a joint venture, the joint venture entity itself is the prime contractor, and the joint venture’s members are collectively responsible for the joint venture’s performance. In other words, a joint venture is a vehicle under which two or more companies can share the benefits and obligations of serving as the prime contractor on a government contract.
With this important conceptual distinction in mind, many of the key differences between prime/subcontractor teams and joint ventures are rather logical. Some of the most important differences between joint ventures and prime/subcontractor teams are:
- Relationship with Government. In a joint venture, because all parties are part of the prime contract entity, all parties have a direct relationship with the government customer. In contrast, in a prime/subcontractor team, only the prime contractor has a direct relationship with the Government. Because of this, many Contracting Officers and other federal agency officials will decline to deal directly with a subcontractor.
- Prime Contract Responsibilities. Because all members of a joint venture are part of the prime contractor, each venturer is responsible for the full performance of the prime contract. If one joint venturer is unable to complete its share of the prime contract work, the other venturers are nonetheless responsible for ensuring that the work is completed. In contrast, in a prime/subcontractor team, only the prime is responsible for ensuring that the prime contract work is completed.
- Separate Legal Entity. A joint venture typically is a separate legal entity. In some cases, a joint venture may be an informal partnership, but often joint ventures are formed as Limited Liability Companies (LLCs). For joint ventures operating under the SBA’s rules, the joint venture entity must be registered in the System for Award Management (SAM). The parties to a prime/subcontractor team do not create a new legal entity, and no new SAM registration is required.
- Small Business Eligibility. Except for joint ventures operating under an SBA-approved mentor-protege agreement, a joint venture only qualifies as a small business if all venturers fall beneath the applicable size standard. In contrast, in a prime/subcontractor team, only the prime must fall beneath the applicable size standard. The prime is limited, however, in how much of the prime contract can be subcontracted to large businesses.