New SBA Rules Expands Mentor-Protégé Program—Creating Opportunities for Small and Large Businesses

07/28/16

David P. Goodwin

Shomari B. Wade

The Small Business Administration’s (“SBA”) various new rules issued on July 25, 2016 and taking effect on August 24, 2016, implement changes from the Small Business Jobs Act of 2010 (“Jobs Act”) and the National Defense Authorization Act for Fiscal Year 2013 (“NDAA 2013”). The cumulative effect of the new rules is to expand the mentor-protégé program from only participants in the 8(a) Business Development Program to all small business concerns, while making the rules for each of the mentor-protégé programs as consistent as possible.

Expanding the Mentor-Protégé Program for All Small Business Concerns

The explicit purpose of the 8(a) Business Development mentor-protégé relationship is to enhance the capabilities of protégés and to improve their ability to successfully compete for both government and commercial contracts. Likewise, the mentor-protégé program being implemented by this rule is designed to achieve the same goals as it relates to all small business concerns. The new rules add the benefits of the 8(a) Business Development program to a new provision of the SBA’s regulations (13 C.F.R. § 125.9), which applies to all small business concerns. However, the new rule keeps the mentor-protégé program of the 8(a) Business Development program separate from the new program. Essentially, the new rules give all other small businesses the same opportunities for growth and experience that have been provided to 8(a) businesses.

Joint Ventures—Writing Requirements

While the SBA’s size regulations recognize that joint ventures may be formal or informal, the new rules amend § 121.103(h) to clarify that every joint venture, whether a separate legal entity or an “informal” arrangement existing between two (or more) parties, must be in writing. This requirement is implemented to advance the purpose of identifying the joint ventures separately and specifically. To further that purpose, § 121.103(h) also requires filing information about the joint venture separately from the entities forming the joint venture in the System for Award Management (“SAM”).

Joint Ventures—Effect on Other Small Business Regulations

While HUBZone program regulations permit a joint venture only between a HUBZone small business concern and another HUBZone small business concern, in authorizing a mentor-protégé relationship for HUBZone qualified small business concerns, these new rules allow joint ventures for HUBZone contracts between a HUBZone protégé firm and its mentor, regardless of whether the mentor is a HUBZone qualified small business concern. 13 C.F.R. § 126.616. Further, any eligible 8(a) Business Development Program participant can now choose to pursue a mentor-protégé relationship through either the 8(a) Business Development program or through the new program, applicable to all small business concerns. 13 C.F.R. § 125.9(c).

New Size Regulations

As with the 8(a) Business Development program, under the small business mentor-protégé program, a protégé may enter into a joint venture with its SBA-approved mentor and qualify as a small business for any Federal Government contract or subcontract, provided that the protégé qualifies as small for the size standard corresponding to the North American Industry Classification System (“NAICS”) code assigned to the procurement. Under the old rules, 8(a) businesses could only form mentor-protégé relationships if they were half of the size limit for the relevant NAICS code, or smaller. The new rules alter § 124.103(h) to require that the 8(a) small business concern meet the criteria for the relevant NAICS code to qualify for the mentor-protégé program, as opposed to requiring the 8(a) business be half that size. This is meant to make the new program and the 8(a) program more consistent.

Consideration of the Past Performance and Capabilities of the Members of a Joint Venture

In the new rule, the SBA proposes that an Agency must consider the past performance of the members of a joint venture when considering the past performance of an entity submitting an offer as a joint venture. This proposal applies to both the 8(a) joint ventures and the small business joint ventures. 13 C.F.R. § 124.513(e), 125.18(b)(5), 126.616(f), and127.506(f). This proposal was in response to agencies that were considering only past performance of a joint venture entity, and not considering the past performance of the entities that created the joint venture entity. This new proposal seeks to alleviate the difficulties for newly formed joint ventures to demonstrate positive past performance. This provides a substantial opportunity and value proposition for small and large businesses with strong past performance records to partner with companies that may be newer to government contracts.

Clarifying Social Disadvantage for the 8(a) Business Development Program

The SBA proposed amendments to § 124.103(c) to clarify that an individual claiming social disadvantage must present a combination of facts and evidence, which by itself establishes that the individual has suffered social disadvantage that has negatively impacted their entry or advancement in the business world. Under the proposed rule, the SBA could disregard a claim of social disadvantage where a legitimate alternative ground exists for the adverse action and the individual has not presented evidence that would render their claim any more likely than the alternative ground. The SBA provides an example in the rule where a woman alleges she receives less compensation at work than her male counterpart. The SBA provides that this alone, without additional facts, is insufficient to constitute social disadvantage. This clarification helps guide those seeking to qualify as an 8(a) small business concern as to what must be shown to satisfy the requirements of being designated socially disadvantaged. The burden of proof, however, remains a preponderance of the evidence.

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