August 31, 2021

GAO Clarifies Stance on Joint Ventures and Facility Clearances

Holland & Knight Government Contracts Blog
Robert K. Tompkins | Hillary J. Freund
Government Contracts Blog

In a bid protest decision released on Aug. 27, 2021, the Government Accountability Office (GAO) has resolved a long-simmering question regarding joint ventures and facility clearances. Specifically, in InfoPoint, LLC, B-419856, the GAO ruled that it was improper for an agency to require a joint venture entity offeror to possess a facility clearance at the time of proposal submission. Rather, the GAO held that so long as the parties to the joint venture each possess the requisite clearance, the procuring agency must accept the joint venture offeror's proposal, even if the joint venture itself does not yet have a facility clearance. GAO's ruling is consistent with – and relies upon – recent statutory direction and revised regulations issued by the U.S. Small Business Administration (SBA).

The ruling is significant because it resolves long-standing tension between the facility clearance requirement and the SBA's regulations governing joint ventures. The ruling should enable greater participation in the procurement process by joint ventures, particularly those led by small and other SBA-preferred businesses. According to senior SBA officials, InfoPoint was one of at least three pending protests before the GAO involving the issue at hand.


Since at least 2015, the SBA has required joint ventures pursuing set-aside contracts to be "unpopulated," meaning the joint venture itself cannot have employees and must perform work via subcontracts with its joint venture partners. Generally, the SBA only permits two types of joint ventures to pursue set-aside contracts: those between two businesses that qualify as small for the procurement in question and those between an SBA-approved mentor and small business protégé. The SBA also requires that these joint ventures be formed for a specific purpose and be of limited duration. Typically such ventures are established as separate limited liability companies (LLCs) and must register on the System for Award Management (SAM) website in order to pursue contract awards.

The SBA's requirements are in conflict with the requirements and practices of the Defense Counterintelligence and Security Agency (DCSA) which, among other things, manages the National Industrial Security Program (NISP) and the facility clearance process. DCSA has typically required that the entity serving as the government contractor (i.e. the joint venture LLC) possess the requisite clearance and employ the facility security officer (FSO) directly.

As a result of this tension, the SBA modified its regulations to relax its "unpopulated" joint venture requirements to permit joint ventures to have the FSOs of the respective joint venture partners serve as "administrative" employees of the joint venture. This, however, did not entirely resolve the issue.

Because SBA-permitted joint ventures must be formed for limited purposes (i.e. specific projects) and can only pursue work for a limited period of time (two years from initial contract award), such joint ventures often lack a facility clearance at the time of proposal submission. This is because a facility clearance will not typically be issued unless and until the offering entity actually obtains a contract requiring the clearance – in most cases, the joint venture partners each possess the requisite clearance and approval of a clearance for the joint venture itself follows quickly after award.

Nevertheless, some contracting agencies have continued to insist that offerors, including joint venture entities, possess the requisite clearance at the time of proposal submission. This has had a chilling effect on small business participation in such procurements.

In response, Congress included Section 1629 as a provision in the 2020 National Defense Authorization Act (NDAA) that prohibits the U.S. Department of Defense (DOD) from requiring a joint venture to hold a "facility access clearance" if the parties to the joint venture hold the requisite clearance. Similarly, Section 644 of the Small Business Act states that where a small business joint venture entity lacks capabilities or past performance, the procuring agency must consider the capabilities and experience of the joint venture's members. Reinforcing these statutory provisions, the SBA revised its regulations governing to joint ventures to address these legislative provisions to include the following provision:

Facility security clearances. A joint venture may be awarded a contract requiring a facility security clearance where either the joint venture itself or the individual partner(s) to the joint venture that will perform the necessary security work has (have) a facility security clearance.

13 C.F.R. 121.103, 85 Fed. Reg. 66146, 66180 (Oct. 16, 2020).

The Solicitation in InfoPoint

Notwithstanding these legislative and regulatory developments, the U.S. Air Force issued a task order solicitation for command and control, intelligence, surveillance and reconnaissance support services that contained the following provision:

2.2 A Top Secret Facility Clearance is required. An Offeror without the requisite clearance will not be permitted as the prime contractor due to the required security classification. Offerors shall possess or acquire a facility clearance equal to the requirement on the DD254 (Attachment 2) without additional authorization (i.e. National Interest Determination (NID)) by the proposal due date. If an Offeror does not have the required clearance at the time of proposal submission, the proposal will not be evaluated and is not eligible for award. The Sensitive Compartmentalized Information (SCI) work will take place at a Government facility.

InfoPoint challenged this provision based on the legislative and regulatory provisions noted above. InfoPoint noted that it is an unpopulated mentor-protégé joint venture organized pursuant to the SBA's regulations and that both of its joint venture partners possess the required level of clearance. The GAO invited the SBA to participate in the case, and the SBA offered its support for InfoPoint's position.

In response the Air Force made four principal arguments:

  1. First, the Air Force argued the 2020 NDAA does not apply to the solicitation because the DOD had not yet issued regulations implementing that statute. The GAO rejected this argument on a number of grounds, including that, unless otherwise specified in a statute, the effective date of the statute is the date of its enactment.
  2. Second, the Air Force argued that the provisions of the SBA regulation at Section 121.103 are permissive, rather than mandatory. The GAO disagreed and gave deference to the SBA's interpretation of its regulations.
  3. Third, the Air Force argued the GAO should give deference to the statutory delegation of authority to the DOD concerning security clearances. The GAO also rejected this position, holding that the DOD has not promulgated regulations interpreting the 2020 NDAA and that the agency's reading of the DOD's regulations would be clearly contrary to the language of the 2020 NDAA.
  4. Finally, the Air Force argued that implementation of the plain language of the 2020 NDAA would create challenges arising from conflicts with existing regulations and policies. Here again, the GAO rejected the Air Force's position as ignoring the clear and unambiguous command by Congress that the DOD may not require a joint venture to hold a facility clearance where the joint venture members hold the required facility clearances.


This decision resolves a long-standing dilemma for small business joint ventures and will have a significant impact on small business joint venture participation in DOD procurements. As noted, there are at least two other bid protests involving similar issues pending at the GAO. The question presented also arises with considerable frequency.

Going forward, questions remain, including:

  • Will this same principle hold for non-DOD procurements? The NDAA was specific to DOD procurements.
  • Will the DOD issue its own regulations on the subject?
  • Will the broader principles articulated in the decision – including providing deference to the SBA and its regulations over procuring agencies' objections, and giving immediate effect to statutory enactments pending the promulgation of implementing regulations – be applied more broadly in the future?

Stay tuned.

Related Insights