By: Michael H. Payne and Maria L. Panichelli
The long-awaited Final Rule addressing changes to the Small Business Administration’s Mentor-Protégé program was published in the Federal Register this week. The Mentor-Protégé program that was limited to 8(a) Small Business Concerns has now been expanded and, effective August 24, 2016, will be available to Service Disabled Veteran-Owned Small Businesses, HUBZones Small Businesses, and Women-Owned Small Businesses, as well as non-disadvantaged Small Business Concerns. The program is “designed to enhance the capabilities of protégé firms by requiring approved mentors to provide business development assistance to protégé firms and to improve the protégé firms’ ability to successfully compete for federal contracts.”
A summary of the new rule is provided in the Federal Register, as follows:
The U.S. Small Business Administration (SBA or Agency) is amending its regulations to implement provisions of the Small Business Jobs Act of 2010, and the National Defense Authorization Act for Fiscal Year 2013. Based on authorities provided in these two statutes, the rule establishes a Government-wide mentor-protégé program for all small business concerns, consistent with SBA’s mentor-protégé program for Participants in SBA’s 8(a) Business Development (BD) program. The rule also makes minor changes to the mentor-protégé provisions for the 8(a) BD program in order to make the mentor-protégé rules for each of the programs as consistent as possible. The rule also amends the current joint venture provisions to clarify the conditions for creating and operating joint venture partnerships, including the effect of such partnerships on any mentor-protégé relationships. In addition, the rule makes several additional changes to current size, 8(a) Office of Hearings and Appeals and HUBZone regulations, concerning among other things, ownership and control, changes in primary industry, standards of review and interested party status for some appeals. Finally, SBA notes that the title of this rule has been changed.
A mentor-protégé arrangement between a large business and a small business concern is exempt from the prohibition on affiliation between large and small businesses, but the Mentor-Protégé Agreement (“MPA”) must be approved by the SBA. It is anticipated that this expansion of the mentor-protégé program will dramatically increase the number of applicants and the SBA plans to establish a “a separate unit within the Office of Business Development whose sole function would be to process mentor-protégé applications and review MPAs and the assistance provided under them once approved.” Highlights of the new rule are as follows:
Any concern that demonstrates a commitment and the ability to assist small business concerns may act as a mentor and receive benefits from the mentor-protégé program. Mentors may be large or small businesses.
A Mentor will generally only have one protégé at a time, but there are exceptions.
The “SBA may authorize a small business to be both a protégé and a mentor at the same time where the firm can demonstrate that the second relationship will not compete with or otherwise conflict with the first mentor-protégé relationship.”
A Protégé “must qualify as small for the size standard corresponding to its primary NAICS code or identify that it is seeking business development assistance with respect to a secondary NAICS code and qualify as small for the size standard corresponding to that NAICS code.”
The past performance of the members of a joint venture, not just the joint venture itself, must be considered in the evaluation of a bid or proposal.
The limit on eligibility to qualify as a small business concern in procurements that are less than 50% of the applicable NAICS code has been lifted and small business size status will only be calculated according the full limit of the applicable NAICS code.
In order to participate in the program a “mentor-protégé must enter into a written agreement setting forth an assessment of the protégé’s needs and providing a detailed description and timeline for the delivery of the assistance the mentor commits to provide to address those needs.”
The Agreement must state that the Mentor will provide assistance for at least one year, although it may not exceed three years. It may be extended for an additional three years.
Small Business Protégés must make annual reports to the SBA.
“A mentor and protégé may joint venture as a small business for any government prime contract or subcontract, provided the protégé qualifies as small for the procurement. Such a joint venture may seek any type of small business contract (i.e., small business set-aside, 8(a), HUBZone, SDVOS, or WOSB) for which the protégé firm qualifies.”
The SBA must approve any Joint Venture Agreement before a mentor-protégé joint venture can benefit from the affiliation exception that is part of the Small Business Mentor-Protégé program.
There are many other details contained in the new regulation that will be addressed in further blog posts, but there is no question that this expansion of the mentor-protégé program will have a far reaching effect on federal contracting. It will become increasingly difficult for small business concerns to successfully compete against mentor-protégé’s and it will become more difficult for large business concerns to participate in federal contracting without engaging in mentor-protégé arrangements (particularly if the number of small business set-aside solicitations increases).
With these new changes from the SBA, the attorneys in the Firm’s Federal Contracting Practice Group welcome any questions or concerns you may have.