Late last year, the U.S. Small Business Administration (SBA) issued a lengthy final rule that made changes to various SBA regulations. While the SBA highlighted its changes to the Mentor-Protégé program, the rule will have wide-ranging impacts on small business contracting, including the treatment of a small business offeror’s capabilities, past performance, and experience.
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On November 8, 2019, the Small Business Administration published a proposed rule to combine the 8(a) Business Development (BD) Mentor-Protégé Program with the All Small Mentor-Protégé Program. 84 Fed. Reg. 60,846 (Nov. 8, 2019) . The far-reaching SBA proposal also includes changes to the mentor-protégé programs, changes affecting joint ventures, changes for certain details in the 8(a) Program, and new requirements for certain multiple-award contracts, among others. Comments on the proposed rule are due January 17, 2020.
Combining the 8(a) BD and All Small Mentor-Protégé Programs
Although the 8(a) Mentor-Protégé Program seems to have been around forever, SBA started it relatively recently, in 1998. The purpose of the program is to enhance the ability of the minority-owned protégé to compete for government and commercial contracts, through business assistance for the protégé, such as technical or management training, financial assistance in either equity investments or loans, and subcontracts. But it also proved popular because it enabled large firms to form joint ventures with 8(a) protégés, which were then eligible to compete for any opportunity for which the protégé qualified.
In 2010 and 2013, in two separate legislative enactments, Congress created a similar mentor-protégé program, first for the other socioeconomic preference programs – the Service-Disabled Veteran-Owned Small Business Concern (SDVOSB) Program, the HUBZone Program, and the Women-Owned Small Business (WOSB) Program – and subsequently expanding it to cover all small businesses (the “All Small Mentor-Protégé Program”).
Since the purposes and benefits of the two programs are identical, SBA now proposes to eliminate the 8(a) Mentor-Protégé Program and allow 8(a) companies to continue to form mentor-protégé joint ventures through the All Small Mentor-Protégé Program.
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An important benefit of a mentor-protégé agreement (MPA) is that no determination of affiliation may be found between a protégé and its mentor solely because of assistance provided under the agreement. A recent decision of the Small Business Administration (SBA) Office of Hearings and Appeals (OHA), Avar Consulting, Inc., upheld a size determination which found that a protégé was not affiliated with its SBA-approved mentor through economic dependence, even though the revenues it received from the mentor constituted over 70% of the revenues it received between formation and the date of size self-certification. A small business government contractor that anticipates future affiliation with a business under the 70% economic dependence rule should consider entering into an SBA-approved small business MPA with that business to prevent future revenues it receives from the business from being considered when economic dependence is assessed.
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The Small Business Administration (SBA) Office of Inspector General (OIG) recently issued a public report on the SBA’s All Small Mentor-Protégé Program (ASMPP), in which the SBA OIG found certain shortcomings in the SBA’s administration of the program. As discussed below, the report also provides a series of recommendations, most of which the SBA has accepted.
The SBA began accepting applications for the ASMPP in 2016 and has seen a surge in applications each subsequent year. Under the ASMPP, any small business – including 8(a) small businesses, Historically Underutilized Business Zone small businesses, veteran-owned and service-disabled veteran-owned small businesses, woman-owned and economically disadvantaged woman-owned small businesses – may enter into an agreement with a large business under which the large business will provide mentorship and assistance. In return, the large and small businesses are permitted to joint venture to perform federal small business set-aside contracts.
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