SBA Announces It Is Considering Whether To Prohibit Mentor-Protégé Joint Ventures From Competing For Multiple Award Contracts

On July 22, 2024, the Small Business Administration (SBA) posted an announcement, Tribal Consultation for HUBZone Program Updates and Clarifications and Potential Reforms Under Executive Order 14112, 89 Fed. Reg. 59010 (“Announcement”), which described SBA’s intent to hold tribal consultation meetings at several locations throughout the United States and a listening session in Hawaii to obtain feedback about SBA’s intent to issue a proposed rule concerning the HUBZone Program. While the announcement of these meetings alone would not typically be a controversial event, SBA included the following comment in the Announcement that should get significant attention from small business government contractors that intend to compete for multiple award contracts as part of a joint venture:

Lastly, SBA is requesting comments on the perception that mentor-protégé joint ventures are winning an inordinate number of orders issued under small business multiple award contracts and seeks suggestions on how to incentivize a more equitable marketplace for individual small businesses who compete against mentor-protégé joint ventures for multiple award, small business contracts. There is also a perception that small businesses often enter joint ventures to seek multiple award contract awards because procuring agency past performance and experience requirements make it difficult for many small businesses to qualify for the awards individually. SBA is considering whether to propose eliminating the exception to affiliation between an SBA-approved mentor and its protégé for multiple award contracts to address this concern. Such a change would continue to allow joint ventures to seek and be awarded single award small business contracts, but would make joint ventures ineligible for multiple award contracts. If that would occur, SBA would expect the past performance and experience required for award of future multiple award contracts to be adjusted to allow individual small businesses to more easily qualify for award.

89 Fed. Reg. 59011 (underline added). If SBA proceeds with this change, joint ventures created under the All-Small Mentor Protégé Program (“ASMPP”) will not be able to compete for multiple award contracts, which would be a significant change from the present law.

As we have discussed in prior publications, under SBA’s programs, partners to a joint venture that perform a federal government contract or subcontract are considered affiliated under SBA’s regulations unless an exception applies. 13 CFR § 121.103(h). This means that, unless an exception to affiliation applies, SBA will typically aggregate the receipts and/or employees of the joint venture partners when determining the size of the joint venture for all small business programs. If a joint venture does not have an applicable affiliation exception, and the aggregated receipts and/or employees of the joint venture partners collectively exceed the size standard associated with a particular procurement, the joint venture will not be eligible to perform the set-aside contract because it will not be a small business. Therefore, it is very important for contractors to follow closely SBA’s regulations related to joint ventures to ensure that their joint venture is not inadvertently disqualified from the competition.

The two primary exceptions to affiliation for joint ventures are applicable when:

1. Two or more business concerns form a joint venture and each of the parties to the joint venture are small under the size standard corresponding to the NAICS code assigned to the contract; or
2. Two firms that are approved by SBA to be a mentor and protégé under ASMPP (13 CFR § 125.9) joint venture together as a small business for any Federal government prime contract or subcontract, provided that the protégé qualifies as small for the size standard corresponding to the NAICS code assigned to the procurement, and the joint venture agreement includes all of the provisions required by SBA’s applicable joint venture regulations. (i.e., § 124.513 (c)-(d) for the 8(a) Business Development Program, § 125.8(b)-(c) for small businesses, § 128.402(c)-(d) for Service-Disabled Veteran-Owned Small Business (“SDVOSB”), § 127.516(c)-(d) for Women-Owned Small Business (“WOSB”) Program, etc.)

Joint ventures under the ASMPP currently may compete for both single award and multiple award contracts based on the second exception described above. However, because of “the perception that mentor-protégé joint ventures are winning an inordinate number of orders issued under small business multiple award contracts,” through the Announcement, SBA has stated that it is now considering whether it should prohibit ASMPP joint ventures from competing for multiple award contracts. Interestingly, while the Announcement’s title appears limited to just announcing future tribal consultation meetings, this significant potential policy change included in the Announcement would impact all businesses that have a mentor-protégé agreement.

Therefore, businesses that have created joint ventures intending to compete for future multiple-award contracts should follow closely these developments. SBA is also accepting comments in response to the Announcement in which interested parties can raise concerns about these intended changes. Since the tribal consultation meetings will occur between August 19, 2024 and September 17, 2024, those interested in making comments should do so soon. We also will closely track these developments.

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