Pass-Through Risk vs. True Partnership

Pass-Through Risk: Staying Compliant with Subcontracting Rules

Teaming with SDVOSB or DVBE-certified firms can be a powerful way to win contracts — but only if it’s done correctly. Too often, businesses get into trouble by setting up “pass-through” relationships that don’t meet federal or state requirements.

Here’s how to avoid risk and build true, compliant partnerships that stand up under scrutiny.

1. What Is a “Pass-Through”?

A pass-through occurs when a certified small business (like an SDVOSB or DVBE) is listed on a proposal but doesn’t actually perform a commercially useful function. Instead, the prime does nearly all the work and uses the certified firm only to meet requirements.

Risk: This can lead to disqualification, audits, or even suspension from contracting programs.

Exceptions: There are circumstances where this is a legitimate business relationship, SDVOSB and DVBE companies that act as a reseller of products or software or routinely subcontract certain services as a normal operation of their business, for example.

2. Federal Rules: Limitations on Subcontracting

• SDVOSB Contracts: The SBA requires that SDVOSBs perform a minimum percentage of the work themselves (generally 50% for services).

• FAR Compliance: Agencies may audit workshare to ensure subcontracting limits are respected.

3. State Rules: California DVBE “Commercially Useful Function”

• Definition: A DVBE must perform a role that adds value beyond simply acting as a shell.

• Examples of compliance: Project administration, staffing support, reporting, specialized services.

• Risk: If a DVBE is just “on paper,” agencies can reject the bid and bar the prime from future opportunities.

4. Signs of a True Partnership

• Clearly defined scope of work for each partner.

• Revenue split aligned with actual labor and deliverables.

• Joint proposal development, not just signature approval.

• Ongoing role for the SDVOSB or DVBE during contract execution.

5. How to Stay Safe and Compliant

• Document all roles and responsibilities in the teaming agreement.

• Ensure certified firms contribute skills or services essential to performance.

• Avoid agreements where the small business has no staff or deliverables.

Key Points

Government agencies value partnerships — but they also scrutinize them closely. Building a true partnership with SDVOSB or DVBE-certified firms doesn’t just keep you compliant; it makes your proposal stronger and more competitive.

👉 Learn how to structure teaming-friendly proposals in Your First Government Contract.

If you are a contractor in need of an SDVOSB or DVBE contracting partner, get in touch with us today.

How to Leverage Teaming Partnerships with SDVOSB & DVBE Firms

Using Teaming Partnerships with SDVOSB & DVBE Firms to Win State Contracts

In government contracting, few small businesses can go it alone. Teaming partnerships — especially with certified firms like SDVOSBs and DVBEs — can be the difference between losing a bid and securing the award.

Here’s how teaming strategies help you win more state and local contracts (and how they differ from federal teaming).

1. Why Teaming Matters

• Access to Bigger Opportunities: Small firms can pursue larger contracts by combining resources.

• Stronger Proposals: Partnering adds depth to past performance, staffing, and technical capabilities.

• Compliance & Incentives: Working with an SDVOSB or DVBE can boost your score through bid preferences or subcontracting goals.

2. State-Level Teaming Advantages

• California DVBE Program: Primes often need certified DVBE partners to meet the state’s 3% participation goal.

• Local Preferences: Counties and cities frequently award additional evaluation points for local or veteran-owned partners.

• Practical Benefit: For primes, teaming is often a compliance requirement — making DVBEs and SDVOSBs highly sought after.

3. Federal vs. State Teaming

• Federal: Structured through Mentor-Protégé Programs, Joint Ventures, or FAR Part 9 subcontracting. Emphasis on compliance and detailed agreements.

• State & Local: More flexible, with emphasis on meeting participation percentages, practical delivery, and local economic impact.

4. Keys to a Strong Teaming Agreement

• Define scope of work clearly (who does what).

• Ensure compliance with “commercially useful function” rules (especially in California’s DVBE program).

• Outline revenue splits and subcontracting percentages.

• Present the team as a seamless, integrated solution in the proposal.

5. Real-World Example

A mid-sized IT firm bidding on a $10M California Department of Transportation contract partnered with a DVBE firm. The DVBE handled project administration and compliance reporting, meeting the state’s DVBE requirement. This partnership not only boosted the prime’s evaluation score but also secured them the award over lower-priced competitors.

Key Points

Teaming with SDVOSB and DVBE-certified firms is a win-win: primes meet compliance requirements, while veteran-owned firms gain access to contracts they couldn’t secure alone. The key is building partnerships that go beyond paper compliance and create lasting business growth.

👉 For more guidance on writing teaming-friendly proposals, see Your First Government Contract, or Contact SSRJ Today.

Government Contractor Teaming Opportunities

Contractor Teaming Opportunities at SSRJ Consulting

Collaborate with a Leading SDVOSB to Unlock New Government Contracting Success

As a certified Service-Disabled Veteran-Owned Small Business (SDVOSB), we are proud to lead with excellence in government contracting, project management, and financial analysis. We invite like-minded businesses to partner with us and leverage our unique strengths and status to achieve greater success in the competitive public sector landscape.

Why Partner with SSRJ LLC Consulting?

Teaming with SSRJ LLC Consulting offers numerous advantages. As an SDVOSB, we have preferential access to a variety of government contracts, and our status is highly valued by agencies seeking to meet their SDVOSB contracting goals. By partnering with us, your company gains a strategic ally who brings specialized expertise, a proven track record, and a strong appeal in the government contracting market.

Key Benefits of Teaming with SSRJ LLC Consulting:

Enhanced Bid Potential: Strengthen your proposals with our SDVOSB status and extensive experience in securing and managing government contracts.

Expanded Market Access: Tap into new opportunities and markets where our SDVOSB status provides a competitive edge.

Shared Expertise: Leverage our deep knowledge in government contract management, project management, and financial analysis to complement your own capabilities.

Our Areas of Expertise

• Government Contract Management: Comprehensive services that ensure compliance, efficiency, and success in government contracting.

• Government Project Management: Expert oversight and execution of government projects, ensuring they are delivered on time, within scope, and on budget.

• Financial Analysis: In-depth financial planning and analysis services that support strategic decision-making and financial health in government contracts.

Together, we can:
- Develop and deliver innovative solutions that meet the needs of government agencies.
- Increase our collective capabilities and win more government contracts.
- Drive mutual growth and create lasting impact in the public sector.

Need a California Disabled Veteran Business Entity (DVBE)? We have you covered!