On Feb. 5, 2015, the Small Business Administration (“SBA”) issued a proposed rule that would expand the mentor-protégé program, which is currently only available to 8(a) small business concerns (“SBCs”), to all other SBCs, including traditional small businesses, women-owned small businesses (“WOSB”), service disabled veteran-owned small businesses (“SDVOSB”), and HUBZone small businesses.1 The effect of this program will be to allow a small business to joint venture with an SBA-approved large business and qualify as a small business for any federal government contract or subcontract, provided that the small business qualifies as small for the size standard corresponding to the NAICS code assigned to the procurement. In other words, it creates an exception to the traditional affiliation rule regarding joint ventures.2
The Small Business Jobs Act of 2010 authorized the SBA to establish separate mentor-protégé programs for each of these programs, and the National Defense Authorization Act (“NDAA”) for Fiscal Year 2103 authorized the SBA to establish a mentor-protégé program that would be applicable to all small business concerns. The SBA has opted to implement one new mentor-protégé program that will be applicable to all small businesses, other than 8(a) participants, as opposed to four new separate programs.
Generally, the proposed rule establishes a mentor-protégé program that reflects the requirements of the current 8(a) mentor-protégé program. Both the mentor-protégé agreement and any joint venture agreement between the mentor and protégé must be in writing and must include certain mandatory provisions. In addition, both the mentor-protégé and the joint venture agreements will need to be submitted to and approved by the SBA prior to the firms receiving any benefit from the program, including award of a contract to a joint venture formed between a mentor and a protégé.
The proposed rule also makes some other changes. For example, it changes the rules relating to joint ventures.3 If a joint venture is formed as a separate legal entity, it must be unpopulated. It may have its own separate employees to perform administrative functions, but it may not have its own separate employees to perform contracts awarded to the joint venture. The SBA believes this rule will allow it to more accurately determine if the protégé is benefiting from working with the mentor and is in control of the joint venture and whether the protégé is satisfying the requirement that it perform at least 40% of the work performed by the joint venture.
Another change relates to mentors having multiple protégés. The existing 8(a) mentor-protégé program rule presumes that a mentor may have only one protégé but allows a mentor to have up to three protégés in certain circumstances. The proposed rule clarifies that, regardless of the SBA program (8(a), WOSB, SDVOSB, HUBZone or small business), under no circumstances may a mentor have more than a total of three protégés. In addition, non-profits are prohibited from acting as mentors.
So, whether you are a large or a small business, this program should expand your company’s ability to pursue new contracting opportunities. Just be aware that although the mentor-protégé program creates an exception to the affiliation rule, the SBA may still find affiliation under some circumstances. And, as anyone who has been involved in the 8(a) mentor-protégé program is aware, compliance with the program’s requirements can be complicated.
180 Fed. Reg. 6618 (Feb. 5, 2015). Anyone who wishes to comment on the proposed rule should do so on or before April 6, 2015.
2Under the existing rules, the revenues of both of the joint venture partners are aggregated to calculate the size of the joint venture, with only limited exceptions.
3This change is made to the affiliation rules and thus applies to all excepted joint ventures, not just those participating in a mentor-protégé program.