Contracting opportunities for small business government contractors in the federal marketplace will soon be increasing through the expansion of the Small Business Administration’s (SBA) Mentor-Protégé Program.
To implement provisions of the Small Business Jobs Act of 2010 and the National Defense Authorization Act for Fiscal Year 2013, the SBA has proposed to amend its regulations to significantly expand its Mentor-Protégé Program to include all small business concerns, not just those participating in SBA’s 8(a) Business Development Program.
The SBA’s Mentor-Protégé Program currently allows certain successful businesses to act as mentors to 8(a) Program participants (as protégés) and to provide various forms of business development assistance, including technical, management, and financial assistance to their protégés. Mentors also can assist their protégés by awarding them subcontracts and by joint venturing with them for federal subcontracts and federal prime contracts reserved for small businesses.
An 8(a) Program participant’s ability to receive assistance from its mentor and to joint venture with its mentor, while still maintaining its status as a “small business,” is particularly important because of the SBA’s “affiliation” rule. Under SBA regulations, two or more entities are “affiliates” of each other when one controls or has the power to control the other, or when a third party controls or has the power to control both. Affiliation is a principal worry for small businesses because a business (or “concern”) is small only if it, in combination with all affiliates, is small under the NAICS code applicable to a given procurement opportunity.
Under the SBA’s regulations, however, no determination of affiliation or control may be found between a protégé and its mentor based solely on the mentor/protégé agreement or on any assistance provided pursuant to that agreement. Further, a mentor and an 8(a) protégé may joint venture as a small business for any government prime contract or subcontract typically without affiliation concerns, as long as the joint venture agreement complies with the SBA’s regulations, the protégé qualifies as small for the procurement, and for purposes of 8(a) sole source requirements, the protégé has not reached a specific dollar limit. As a result, the Mentor-Protégé Program provides a unique way to assist certain small business concerns, without sacrificing their ability to compete for small business set-aside contracts and subcontracts.
Recognizing the importance of the Mentor-Protégé Program in promoting small businesses, developing their capabilities, and increasing contracting opportunities, Congress, through the enactment of the Jobs Act, authorized the SBA to establish separate mentor-protégé programs for all small businesses, including HUBZone small businesses, service-disabled veteran-owned small business concerns, and women-owned small business concerns, each modeled on the existing Mentor-Protégé Program. Under this authority, on February 5, 2015, the SBA published a proposed rule to amend its regulations.
The SBA’s proposed rule, as currently drafted, would establish an additional mentor-protégé program that would be available to all small business concerns other than 8(a) Program participants, as the current Mentor-Protégé Program would remain a separate program. However, the SBA is also exploring whether it should instead create five separate mentor-protégé programs—one for each of the various types of small business entities—and specifically sought comments on this point.
Additionally, among other changes, the SBA is also proposing to change the qualifications for protégés. Currently, in order to qualify as a protégé for the 8(a) Program, an 8(a) Program participant must be less than half the size standard corresponding to its primary NAICS code, be in the developmental stage of its 8(a) Program participation, or not have received an 8(a) contract. The SBA is proposing to eliminate the second and third criteria for all mentor-protégé programs and to eliminate the “less than half the size standard” requirement, and instead only require that the protégé be “small” under its primary NAICS code. The SBA, however, also requested comments on whether it should still require a “smaller-than-small” size requirement for participation. Comments in response to the proposed rule were originally due by April 6, 2015, but the comment period was extended to May 6, 2015. As a result, it will be some time still before any changes actually take effect. However, once adopted, these changes should increase small business participation in the federal marketplace as they will not only help improve small business concerns’ ability to successfully compete individually for federal contracts, they will expand joint venture opportunities as well. An increase in small business participation generally is significant not only for small businesses themselves, but also for large business prime contractors seeking small business subcontractors to satisfy their small business subcontracting goals.