Section 125.9 - What are the rules governing SBA's small business mentor-protege program?(a)General. The small business mentor-protege program is designed to enhance the capabilities of protege firms by requiring approved mentors to provide business development assistance to protege firms and to improve the protege firms' ability to successfully compete for federal contracts. This assistance may include technical and/or management assistance; financial assistance in the form of equity investments and/or loans; subcontracts (either from the mentor to the protege or from the protege to the mentor); trade education; and/or assistance in performing prime contracts with the Government through joint venture arrangements. Mentors are encouraged to provide assistance relating to the performance of contracts set aside or reserved for small business so that protege firms may more fully develop their capabilities.(b)Mentors. Any concern that demonstrates a commitment and the ability to assist small business concerns may act as a mentor and receive benefits as set forth in this section. This includes other than small businesses.(1) In order to qualify as a mentor, a concern must demonstrate that it: (i) Is capable of carrying out its responsibilities to assist the protege firm under the proposed mentor-protege agreement;(ii) Does not appear on the Federal list of debarred or suspended contractors; and(iii) Can impart value to a protege firm due to lessons learned and practical experience gained or through its knowledge of general business operations and government contracting.(2) SBA will decline an application if SBA determines that the mentor does not possess good character or a favorable financial position, employs or otherwise controls the managers of the protege, or is otherwise affiliated with the protege. Once approved, SBA may terminate the mentor-protege agreement if the mentor does not possess good character or a favorable financial position, was affiliated with the protege at time of application, or is affiliated with the protege for reasons other than the mentor-protege agreement or assistance provided under the agreement.(3) In order for SBA to agree to allow a mentor to have more than one protege at time, the mentor and proposed additional protege must demonstrate that the added mentor-protege relationship will not adversely affect the development of either protege firm (e.g., the second firm may not be a competitor of the first firm).(i) A mentor that has more than one protege cannot submit competing offers in response to a solicitation for a specific procurement through separate joint ventures with different proteges.(ii) A mentor (including in the aggregate a parent company and all of its subsidiaries) generally cannot have more than three proteges at one time.(A) The first two mentor-protege relationships approved by SBA between a specific mentor and a small business that has its principal office located in the Commonwealth of Puerto Rico do not count against the limit of three proteges that a mentor can have at one time.(B) Where a mentor purchases another business entity that is also an SBA-approved mentor of one or more protege small business concerns and the purchasing mentor commits to honoring the obligations under the seller's mentor-protege agreement(s), that entity may have more than three proteges (i.e., those of the purchased concern in addition to those of its own). In such a case, the entity could not add another protege until it fell below three in total.(c)Proteges.(1) In order to initially qualify as a protege firm, a concern must qualify as small for the size standard corresponding to its primary NAICS code or identify that it is seeking business development assistance with respect to a secondary NAICS code and qualify as small for the size standard corresponding to that NAICS code. (i) A firm may self-certify that it qualifies as small for its primary or identified secondary NAICS code.(ii) Where a small business concern seeks to qualify as a protege in a secondary NAICS code, the concern must demonstrate how the mentor-protege relationship will help it further develop or expand its current capabilities in that secondary NAICS code. SBA will not approve a mentor-protege relationship in a secondary NAICS code in which the small business concern has no prior experience. SBA may approve a mentor-protege relationship where the small business concern can demonstrate that it has performed work in one or more similar NAICS codes or where the NAICS code in which the small business concern seeks a mentor-protege relationship is a logical business progression to work previously performed by the concern.(2) A protege firm may generally have only one mentor at a time. SBA may approve a second mentor for a particular protege firm where the second relationship will not compete or otherwise conflict with the first mentor-protege relationship, and: (i) The second relationship pertains to an unrelated NAICS code; or(ii) The protege firm is seeking to acquire a specific expertise that the first mentor does not possess.(3) SBA may authorize a small business to be both a protege and a mentor at the same time where the small business can demonstrate that the second relationship will not compete or otherwise conflict with the first mentor-protege relationship.(d)Benefits.(1) A protege and mentor may joint venture as a small business for any government prime contract, subcontract or sale, provided the protege qualifies as small for the procurement or sale. Such a joint venture may seek any type of small business contract (i.e., small business set-aside, 8(a), HUBZone, SDVO, or WOSB) for which the protege firm qualifies (e.g., a protege firm that qualifies as a WOSB could seek a WOSB set-aside as a joint venture with its SBA-approved mentor). Similarly, a joint venture between a protege and mentor may seek a subcontract as a HUBZone small business, small disadvantaged business, SDVO small business, or WOSB provided the protege individually qualifies as such.(i) SBA must approve the mentor-protege agreement before the two firms may submit an offer as a joint venture on a particular government prime contract or subcontract in order for the joint venture to receive the exclusion from affiliation.(ii) In order to receive the exclusion from affiliation, the joint venture must meet the requirements set forth in § 125.8(b)(2), (c) , and (d).(iii) A joint venture between a protege and its mentor will qualify as a small business for any procurement for which the protege individually qualifies as small. Once a protege firm no longer qualifies as a small business for the size standard corresponding to the NAICS code under which SBA approved its mentor-protege relationship, any joint venture between the protege and its mentor will no longer be able to seek additional contracts or subcontracts as a small business for any NAICS code having the same or lower size standard. A joint venture between a protege and its mentor could seek additional contract opportunities in NAICS codes having a size standard for which the protege continues to qualify as small. A change in the protege's size status does not generally affect contracts previously awarded to a joint venture between the protege and its mentor.(A) Except for contracts with durations of more than five years (including options), a contract awarded to a joint venture between a protege and a mentor as a small business continues to qualify as an award to small business for the life of that contract and the joint venture remains obligated to continue performance on that contract.(B) For contracts with durations of more than five years (including options), where size re-certification is required under § 121.404(g)(3) of this chapter no more than 120 days prior to the end of the fifth year of the contract and no more than 120 days prior to exercising any option thereafter, once the protege no longer qualifies as small for the size standard corresponding to the NAICS code assigned to the contract, the joint venture will not be able re-certify itself to be a small business for that contract. The rules set forth in § 121.404(g)(3) of this chapter apply in such circumstances.(2) In order to raise capital, the protege firm may agree to sell or otherwise convey to the mentor an equity interest of up to 40% in the protege firm.(3) Notwithstanding the mentor-protege relationship, a protege firm may qualify for other assistance as a small business, including SBA financial assistance.(4) No determination of affiliation or control may be found between a protege firm and its mentor based solely on the mentor-protege agreement or any assistance provided pursuant to the agreement. However, affiliation may be found for other reasons set forth in § 121.103 of this chapter.(5) Where appropriate, procuring activities may provide incentives in the contract evaluation process to a firm that will provide significant subcontracting work to its SBA-approved protege firm.(6) A mentor that provides a subcontract to its protege that is a covered territory business, or that has its principal office located in the Commonwealth of Puerto Rico, may: (i) receive positive consideration for the mentor's past performance evaluation, and (ii) apply costs incurred for providing training to such protege toward the subcontracting goals contained in the subcontracting plan of the mentor.(e)Written agreement.(1) The mentor and protege firms must enter a written agreement setting forth an assessment of the protege's needs and providing a detailed description and timeline for the delivery of the assistance the mentor commits to provide to address those needs (e.g., management and or technical assistance; loans and/or equity investments; bonding; use of equipment; export assistance; assistance as a subcontractor under prime contracts being performed by the protege; cooperation on joint venture projects; or subcontracts under prime contracts being performed by the mentor). The mentor-protege agreement must: (i) Specifically identify the business development assistance to be provided and address how the assistance will help the protege enhance its growth and/or foster or acquire needed capabilities;(ii) Identify the specific entity or entities that will provide assistance to or participate in joint ventures with the protege where the mentor is a parent or subsidiary concern;(iii) Establish a single point of contact in the mentor concern who is responsible for managing and implementing the mentor-protege agreement; and(iv) Provide that the mentor will provide such assistance to the protege firm for at least one year.(2) A firm seeking SBA's approval to be a protege must identify any other mentor-protege relationship it has through another federal agency or SBA and provide a copy of each such mentor-protege agreement to SBA.(i) The small business mentor-protege agreement must identify how the assistance to be provided by the proposed mentor is different from assistance provided to the protege through another mentor-protege relationship, either with the same or a different mentor.(ii) A firm seeking SBA's approval to be a protege may terminate a mentor-protege relationship it has through another agency and use any not yet provided assistance identified in the other mentor-protege agreement as part of the assistance that will be provided through the small business mentor-protege relationship. Any assistance that has already been provided through another mentor-protege relationship cannot be identified as assistance that will be provided through the small business mentor-protege relationship.(3) The written agreement must be approved by the Associate Administrator for Business Development (AA/BD) or his/her designee. The agreement will not be approved if SBA determines that the assistance to be provided is not sufficient to promote any real developmental gains to the protege, or if SBA determines that the agreement is merely a vehicle to enable the mentor to receive small business contracts.(4) The agreement must provide that either the protege or the mentor may terminate the agreement with 30 days advance notice to the other party to the mentor-protege relationship and to SBA.(5) The term of a mentor-protege agreement may not exceed six years. If an initial mentor-protege agreement is for less than six years, it may be extended by mutual agreement prior to the expiration date for an additional amount of time that would total no more than six years from its inception (e.g., if the initial mentor-protege agreement was for two years, it could be extended for an additional four years by consent of the two parties; if the initial mentor-protege agreement was for three years, it could be extended for an additional three years by consent of the two parties). Unless rescinded in writing as a result of an SBA review, the mentor-protege relationship will automatically renew without additional written notice of continuation or extension to the protege firm.(6) A protege may generally have a total of two mentor-protege agreements with different mentors.(i) Each mentor-protege agreement may last for no more than six years, as set forth in paragraph (e)(5) of this section.(ii) If a mentor-protege agreement is terminated within 18 months from the date SBA approved the agreement, that mentor-protege relationship will generally not count as one of the two mentor-protege relationships that a small business may enter as a protege. However, where a specific small business protege appears to enter into many short-term mentor-protege relationships as a means of extending its program eligibility as a protege, SBA may determine that the business concern has exhausted its participation in the mentor-protege program and not approve an additional mentor-protege relationship.(iii) If during the evaluation of the mentor-protege relationship pursuant to paragraphs (g) and (h) of this section SBA determines that a mentor has not provided the business development assistance set forth in its mentor-protege agreement or that the quality of the assistance provided was not satisfactory, SBA may allow the protege to substitute another mentor for the time remaining in the mentor-protege agreement without counting against the two-mentor limit.(iv) Instead of having a six-year mentor-protege relationship with two separate mentors, a protege may elect to extend or renew a mentor-protege relationship with the same mentor for a second six-year term. In order for SBA to approve an extension or renewal of a mentor-protege relationship with the same mentor, the mentor must commit to providing additional business development assistance to the protege.(7) SBA must approve all changes to a mentor-protege agreement in advance, and any changes made to the agreement must be provided in writing. If the parties to the mentor-protege relationship change the mentor-protege agreement without prior approval by SBA, SBA shall terminate the mentor-protege relationship and may also propose suspension or debarment of one or both of the firms pursuant to paragraph (h) of this section where appropriate.(8) If control of the mentor changes (through a stock sale or otherwise), the previously approved mentor-protege relationship may continue provided that, after the change in control, the mentor expresses in writing to SBA that it acknowledges the mentor-protegeagreement and certifies that it will continue to abide by its terms.(9) SBA may terminate the mentor-protege agreement at any time if it determines that the protege is not benefiting from the relationship or that the parties are not complying with any term or condition of the mentor protege agreement. In the event SBA terminates the relationship, the mentor-protege joint venture is obligated to complete any previously awarded contracts unless the procuring agency issues a stop work order.(f)Decision to decline mentor-protege relationship. Where SBA declines to approve a specific mentor-protege agreement, SBA will issue a written decision setting forth its reason(s) for the decline. The small business concern seeking to be a protege cannot attempt to enter into another mentor-protege relationship with the same mentor for a period of 60 calendar days from the date of the final decision. The small business concern may, however, submit another proposed mentor-protege agreement with a different proposed mentor at any time after the SBA's final decline decision.(g)Evaluating the mentor-protege relationship. SBA will review the mentor-protege relationship annually. SBA will ask the protege for its assessment of how the mentor-protege relationship is working, whether or not the protege received the agreed upon business development assistance, and whether the protege would recommend the mentor to be a mentor for another small business in the future. At any point in the mentor-protege relationship where a protege believes that a mentor has not provided the business development assistance set forth in its mentor-protege agreement or that the quality of the assistance provided did not meet its expectations, the protege can ask SBA to intervene on its behalf with the mentor.(1) Within 30 days of the anniversary of SBA's approval of the mentor-protege agreement, the protege must report to SBA for the preceding year:(i) All technical and/or management assistance provided by the mentor to the protege;(ii) All loans to and/or equity investments made by the mentor in the protege;(iii) All subcontracts awarded to the protege by the mentor and all subcontracts awarded to the mentor by the protege, and the value of each subcontract;(iv) All federal contracts awarded to the mentor-protege relationship as a joint venture (designating each as a small business set-aside, small business reserve, or unrestricted procurement), the value of each contract, and the percentage of the contract performed and the percentage of revenue accruing to each party to the joint venture; and(v) A narrative describing the success such assistance has had in addressing the developmental needs of the protege and addressing any problems encountered.(2) The protege must report the mentoring services it receives by category and hours.(3) The protege must annually certify to SBA whether there has been any change in the terms of the agreement.(4) At any point in the mentor-protege relationship where a protege believes that a mentor has not provided the business development assistance set forth in its mentor-protege agreement or that the quality of the assistance provided did not meet its expectations, the protege can ask SBA to intervene on its behalf with the mentor.(5) SBA may decide not to approve continuation of a mentor-protege agreement where: (i) SBA finds that the mentor has not provided the assistance set forth in the mentor-protege agreement;(ii) SBA finds that the assistance provided by the mentor has not resulted in any material benefits or developmental gains to the protege; or(iii) A protege does not provide information relating to the mentor-protege relationship, as set forth in paragraph (g).(h)Consequences of not providing assistance set forth in the mentor-protege agreement.(1) Where SBA determines that a mentor may not have provided to the protege firm the business development assistance set forth in its mentor-protege agreement or that the quality of the assistance provided may not have been satisfactory, SBA will notify the mentor of such determination and afford the mentor an opportunity to respond. The mentor must respond within 30 days of the notification, presenting information demonstrating that it did satisfactorily provide the assistance set forth in the mentor-protege agreement or explaining why it has not provided the agreed upon assistance and setting forth a definitive plan as to when it will provide such assistance. If the mentor fails to respond, does not adequately provide information demonstrating that it did satisfactorily provide the assistance set forth in the mentor-protege agreement, does not supply adequate reasons for its failure to provide the agreed upon assistance, or does not set forth a definite plan to provide the assistance:(i) SBA will terminate the mentor-protege agreement;(ii) The firm will be ineligible to again act as a mentor for a period of two years from the date SBA terminates the mentor-protege agreement; and(iii) SBA may recommend to the relevant procuring agency to issue a stop work order for each federal contract for which the mentor and protege are performing as a small business joint venture in order to encourage the mentor to comply with its mentor-protege agreement. Where a protege firm is able to independently complete performance of any such contract, SBA may recommend to the procuring agency to authorize a substitution of the protege firm for the joint venture.(2) SBA may consider a mentor's failure to comply with the terms and conditions of an SBA-approved mentor-protege agreement as a basis for debarment on the grounds, including but not limited to, that the mentor has not complied with the terms of a public agreement under 2 CFR 180.800(b) .(i)Results of mentor-protege relationship.(1) In order to assess the results of a mentor-protege relationship upon its completion, the protege must report to SBA whether it believed the mentor-protege relationship was beneficial and describe any lasting benefits to the protege.(2) Where a protege does not report the results of a mentor-protege relationship upon its completion, SBA will not approve a second mentor-protege relationship either under this section or under § 124.520 of this chapter.81 FR 48585, July 25, 2016, as amended at 85 FR 66194, Oct. 16, 2020; 87 FR 50927, Aug. 19, 2022; 88 FR 26211, Apr. 27, 2023 81 FR 48585, 8/24/2016; 85 FR 66194, 11/16/2020; 87 FR 50927, 10/18/2022; 88 FR 26211, 5/30/2023