Under a final rule published on July 25, 2016, the U.S. Small Business Administration’s Mentor-Protégé Program is now open to all small businesses. See 81 Fed. Reg. 48558 (July 25, 2016). This significant expansion can be expected to provide real benefits to small businesses, large businesses, and government agencies. The revamped program will no doubt increase the popularity of mentor-protégé agreements among companies seeking federal contracts for goods, services, and construction. With more small-business ventures available to compete, it may also increase the number of contract opportunities actually set aside for small business.
Origin of SBA’s 8(a) Mentor-Protégé Program
The Mentor-Protégé Program was authorized by Congress in 1991 as a pilot program to help certain small businesses compete for Defense Department contracts. By 1998, the SBA was administering a program to help socially and economically disadvantaged small businesses. These businesses were called “8(a) companies” because the program was authorized by section 8(a) of the Small Business Act. Qualified companies acting as mentors provided technical, managerial, and financial assistance to help 8(a) companies compete for federal contracts.
By 2011, roughly 1,000 participating mentor-protégé joint ventures held federal contracts, with about half of those monitored by the SBA. Twelve other participating agencies oversee and administer the other half of existing mentor-protégé participants. Each agency has its own rules and monitoring program.
The Small Business Jobs Act of 2010 directed SBA to expand the mentor-protégé program beyond 8(a) companies to include women-owned businesses, veteran and service-disabled veteran-owned small businesses and HUBZone small businesses. Section 1641 of the 2013 National Defense Authorization Act authorized the SBA to establish a mentor-protégé program for all small businesses and to consolidate the design and operation of the program.
The Expanded Program
The SBA’s new rule establishes one set of program rules for all civilian agencies and all categories of small businesses. Agencies will have one year to consolidate under SBA’s rules or get specific approval for their own plans. The Defense Department’s existing mentor-protégé program is exempt from this requirement because it has its own independent legal authorization.
Businesses already familiar with the 8(a) mentor-protégé program will be comfortable with the new rules. Like the original 8(a) procedures, the new program requires pre-approval of a developed business arrangement with identifiable responsibilities, annual reporting to monitor achievements of the mentoring goals (with a course correction or cancellation where assistance is not delivered as promised), and a post-contract review of lessons learned and accomplishments.
The SBA’s final rule makes several substantive changes to the rules for participation. Under the new rule, each new joint venture must be specifically identified with its own CAGE code and DUNS number, but they cannot be populated with individuals designated to perform work awarded to the joint venture. SBA wants to avoid confusion about what parts of the work the mentor is doing and what parts the protégé is doing.
The SBA rule directs contracting officers to consider the experience of both participants in the joint venture when making a decision to award a contract. This raises some questions since many protégés are in the program precisely because of their limited experience.
Another key change eliminates the requirement that mentors in HUBZone-qualified joint ventures themselves be HUBZone-qualified.
The mentor-protégé model reflected in SBA’s program offers a wide range of benefits. Small business protégés receive technical and management assistance and financial assistance in the form of loans and equity. Large business mentors get opportunities to participate in federal contracts for which they would not otherwise be eligible. Federal agencies benefit from the expanded pool of qualified contractors competing for contracts.
SBA expects the mentor-protégé program to double in size to 2,000 participating joint ventures. This level may actually underestimate the impact. Some have predicted that mentor-protégé ventures will compete in “every significant set-aside situation.” Only time will tell if SBA will be able to handle the workload.