SBA Creates Mentor-Protégé Program for All Small Businesses

A July 25, 2016, rule issued by the Small Business Administration finalizes, with changes, a proposed rule creating a comprehensive new mentor-protégé program for all small businesses.

The rule implements provisions of the Small Business Jobs Act of 2010 (PL 111-240) and the National Defense Authorization Act for Fiscal Year 2013 (PL 112-239). The major parts of the rule address SBA’s mentor-protégé program and SBA’s treatment of joint ventures. Section 1641 of the NDAA authorized SBA to establish a mentor-protégé program for all small business concerns that is similar to the existing mentor-protégé program for participants in the 8(a) Business Development program.

SBA uses the 8(a) mentor- protégé program as a business development tool in which mentors provide diverse types of business assistance to eligible 8(a) protégés. This assistance can include technical assistance, management assistance, financial assistance through equity investments and loans, subcontracts, and assistance in performing federal prime contracts through joint venture arrangements.

New SBA 125.9 creates a mentor-protégé program that covers service-disabled veteran-owned, HUBZone, women-owned, and all other small business concerns. SBA designed the new program to require approved mentors to provide assistance to protégé firms to enhance the capabilities of protégés, assist protégés with meeting their business goals, and improve the ability of protégés to compete for contracts.

The rule allows approved mentor-protégé relationships to seek to perform joint ventures for any contracts for which the protégé qualifies as eligible, and clarifies the conditions for creating and operating joint venture partnerships, including the effect of these partnerships on mentor- protégé relationships.

The rule revises the joint venture provisions in SBA 125.15(b), SBA 125.18, SBA 126.616, and SBA 127.506 to align then with the requirements of the 8(a) program, and adds new SBA 125.8 to specify the requirements for joint ventures between small business protégé firms and their mentors.

The rule also amends the definition of joint venture in SBA 121.103(h) to explicitly require joint venture agreements to be in writing and to specify that if a joint venture exists as a formal separate legal entity, it may not be populated with individuals intended to perform contracts awarded to the joint venture.

Further, the rule requires all partners to a joint venture agreement that performs a SDVO, HUBZone, WOSB, or small business set-aside contract to certify to the contracting officer and SBA prior to performing the contract that they will perform the contract in compliance with the joint venture regulations and with the joint venture agreement.

The rule also makes changes to SBA’s size, 8(a) Program, Office of Hearings and Appeals, and HUBZone regulations concerning ownership and control, changes in primary industry, standards of review, and interested party status for appeals.

SBA received 113 comments on the proposed rule. SBA received the most comments on a proposed amendment to SBA 124.112 that would have allowed SBA to change the primary North American Industry Classification System code of an 8(a) participant where the greatest portion of the participant’s total revenues during a three-year period has evolved from one NAICS code to another.

The final version of the rule alleviates the concern that SBA would unilaterally change a participant’s primary NAICS code without input from the participant by clarifying that there will be a dialogue between SBA and the affected participant before any NAICS code change is made. The final rule also provides that a change will not occur if the participant provides a reasonable explanation as to why the identified primary NAICS should remain the same.

The final rule goes into effect on August 24, 2016. For the text of the rule, see 81 FR 48557.

About William Van Huis

Bill Van Huis is a Senior Writer/Analyst for Wolters Kluwer Law & Business who tracks and analyzes new regulations impacting federal government contracting. He also follows court decisions involving bid protests and contract disputes. You can find his work in WK publications like Government Contract Reports and the FAR and DFARS Matrix Tools. Bill is a Certified Professional Contracts Manager, and he has a law degree from Southern Illinois University, where he graduated summa cum laude. Prior to joining WK, Bill worked both inside and outside state and local government in the areas of procurement and municipal finance. Bill also worked as a staff attorney for the Illinois Supreme Court.
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