On Aug. 5, 2016, we updated you on the Small Business Administration’s (“SBA”) final amendment to the mentor-protégé program. A proposed amendment to the Department of Defense (“DoD”) mentor-protégé program ("M/P program") was published on Sept. 23.

Comparatively, the amendment to the DoD’s M/P program is much smaller and lighter on details, but two things are clear: (1) the DoD does not plan to defer to the SBA’s new M/P program and intends to maintain its own parallel program; and (2) the DoD intends to expand its own pilot M/P program.

Mentor Eligibility

Currently, a mentor must be a graduate of the 8(a) program who no longer qualifies as a small business and who maintains an active subcontracting plan. The proposed change is less restrictive / more flexible, requiring a prospective mentor to demonstrate an ability to impart value to a protégé firm by demonstrating that it:

  • Is a large business that received DoD contracts and subcontracts of at least $100 million during the previous fiscal year; or
  • Is a large prime contractor to the DoD with an active subcontracting plan; or
  • Is a small business, if the mentor obtains a waiver from the Director of Small Business Programs in the Office of the Undersecretary for Defense for Acquisition, Technology and Logistics; or
  • Is an 8(a) program graduate providing documentation of its ability to serve as a mentor.

Protégé Eligibility

According to the proposed rule, a prospective small business protégé will be expanded to include an entity that is:

  • A “nontraditional defense contractor,” e.g., any entity that did not perform as a prime or subcontractor subject to full CAS coverage for at least one year preceding the solicitation; or
  • Currently providing goods or services in the private sector critical to enhancing the capabilities of the defense supplier base and fulfilling key DoD needs.

However, the DoD has also proposed adding two new restrictions on protégé eligibility:

  • A protégé would have to be “[l]ess than half the Small Business Administration (SBA) size standard for [its] primary North American Industry Classification System (NAICS) code.” (Size Standards Table). This would be a significant change from the current regime, which allows a company to be a protégé so long as it is small under its NAICS code.
  • A protégé cannot be “owned or managed by individuals or entities that directly or indirectly have stock options or convertible securities in the mentor firm.”

Notable Differences between SBA Final Rule and DoD Proposed Rule

  • The SBA rule specifically provides an exception to affiliation, allowing mentors and protégés to enter into joint ventures. No explicit exception is mentioned in the DoD rule.
  • Whereas protégés under the SBA rule may re-apply after a three-year term for an additional three years, DoD protégés would be limited to one five-year term.
  • The SBA rule allows protégés to have up to two mentors at a time, but the DoD proposed rule provides that protégés can only have one mentor/protégé agreement in place at a time.
  • There is no minimum substantive work requirement for DoD protégés, whereas SBA protégés must perform at least 40% of the work.

The proposed rule can be found here. For consideration in the final rule, comments are due on or before Nov. 22, 2016.

This law update was co-authored by Taft partners Suzanne Sumner and Barbara Duncombe, with contributions from Taft’s Tony Busch.