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Discussion Starter #1 (Edited)
I have my own company, been in business for three years. My Bonding cap is 250k 400k Ag, now the guy that I use to work for says he wants to join forces because he wants to eventually retire and he sees that I'm staring to pick up on government contracts. He has a bonding cap of 2mil. I'm am SDVOSB so I need to control at least 51% of my co to operate as such. My question to you is if I were to write up a mere partnership agreement with this company would I be privy to bond at his cap? If not How do I achieve this in this situation?
 

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I see no one has answered this question yet, so I will try.

If you enter into a partnership agreement with this other guy, then the entire business is subject to the partnership; both your Disabled Veterans Small Business as well as his much larger business (I assume larger as you mention he has a larger bonding capacity). In essence, every business decision you would want to make would be subject to his approval as he is your partner. And vice-versa. Are you ready to get "married" to this guy... for better and for worse?

I suggest that a better option would be a Joint Venture relationship. Your businesses would still be separate entities, but the JV could then apply for bonding and the combined net worth and working capital of both businesses would be considered when determining surety capacity.

I don't know the exact regulations of the SDVOSB program, so you would have to check with them re how they qualify Joint Ventures. I assume they have rules in place so that you truly have to be a majority owner and not just label yourself as 51% ownership. Also, would combining his larger business with yours make you ineligible for their definition of "Small Business"? That might be the case for a partnership, however, a JV might still be okay as this is truly still two separate companies. Again, you have to check with the government department that runs the SDVOSB program. (I'm Canadian; what do i know? ;) )

Another thought is to simply have this other guy "loan" you the additional working capital you need, and in turn you could hire him as a sub-contractor on jobs; but again, I don't know the SDVOSB program rules on what qualifies and what doesn't.

Entering into either a partnership, JV or other arrangement will not automatically give you access to his $2 million capacity, however, it is likely that this can happen because, as you mentioned, he already has bonding for this amount.

However, it should be noted that surety underwriters don't only look at net worth and working capital. Equally important is work performance. The surety underwriter will scrutinize your business practices closely if you go into a partnership/JV/other relationship with this guy to determine if they are still willing to offer up $2 million limits, now that you are a decision-maker in how the projects are being run.

Have your past bids been profitable or have you lost money; do you pay your subs/suppliers on time; how do you handle change orders; are your Work-In-Progress estimates relatively accurate; do you complete jobs on time. These are all factors that will be considered when the existing surety company who is providing $2 million limits to this other guy are told that there are two of you now running a combined business.

Hope this helps.
 
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