Type: Law Bulletins
Date: 10/16/2020

SBA Consolidates Mentor-Protégé Programs

Last November, the Small Business Administration (SBA) released an interim rule proposing to consolidate the 8(a) Mentor-Protégé Program and the All Small Mentor-Protégé Program into one streamlined program. For the most part, the programs had overlapping benefits for small businesses as well as similar regulatory requirements. Both allow a small business (protégé) to team up with a larger company (mentor) who will help the protégé develop and grow as a company. They also allow large business mentors to pursue small business set-aside opportunities through joint venture agreements with their protégés.

However, there were always nuanced differences between the two programs. The 8(a) Business Development Mentor-Protégé program was more established and had more restrictions. It was available only to certified 8(a) companies and the eligibility requirements for 8(a) status are limited to U.S. citizens who are both economically and socially disadvantaged, and who own, manage, and control the small business. It also required mentor-protégé joint ventures between 8(a) companies and larger businesses to be approved by an SBA district office before the joint venture could be awarded a contract.

In contrast, the All Small Mentor-Protégé Program launched by the SBA in 2016 was available to all other types of small businesses: plain vanilla small businesses, Women-Owned Small Businesses (WOSBs), Economically Disadvantaged WOSBs (EDWOSBs), Service-Disabled Veteran-Owned Small Businesses (SDVOSBs), and Historically Underutilized Business Zones (HUBZones). Like the 8(a) Mentor-Protégé program, these small businesses were now able to partner with a mentor and grow under its guidance.

The SBA’s new rule, released today (Oct. 16, 2020), will merge its two mentor-protégé programs. It will go into effect in 30 days.

In consolidating the two programs, the SBA intends to predominantly adopt the All Small Mentor-Protégé Program’s language. A notable carve out will be for 8(a) joint ventures – the SBA will no longer need to preapprove an 8(a) joint venture agreement before the joint venture can be awarded a competitive contract. However, the 8(a) joint ventures seeking sole source 8(a) procurements will still need prior approval from the SBA, the same as it does today.

Based on comments from the public, the SBA is removing language that would have placed limitations on the mentor’s size. Initially, the SBA suggested that mid-sized company mentors, those companies with annual revenues below $100 million, were best positioned to help small business protégés develop. This somewhat controversial stance was the single-most commented on topic in the lengthy rule. The SBA has determined that its focus needs to remain on the protégé and not the mentor. Therefore, it has removed the size limitation language.

One other key highlight is that the SBA is changing the 3-in-2 rule. Historically, mentor-protégé joint ventures were intended to be short-lived entities. The SBA instituted the 3-in-2 rule which limited joint ventures created under mentor-protégé agreements to exist for only two years and compete for no more than three contracts in that two-year period without triggering affiliation. Affiliation is typically bad for small businesses because it causes the mentor and protégé’s revenues and personnel to be combined when determining the company’s size, which could result in the protégé no longer being considered small. Many mentor-protégé joint ventures circumvented this rule by setting up new joint venture entities once they had reached the limit. Moving forward, the SBA will retain the two-year period, but remove the three contract limitation, essentially encouraging mentor-protégé joint ventures to seek as many contracts as possible during the two-year window.

The Final Rule will also implement a number of Executive Orders and make other changes to the SBA regulations.

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