Legal Meets Practical

In a final rule published in the Federal Register on July 25, 2016, the SBA provides the framework for what may be one of the most important small business programs of the last decade–one that will allow all small businesses to obtain developmental assistance from larger mentors, and form joint ventures with those mentors to pursue set-aside contracts.

The SBA’s final rule creates a new regulation, 13 C.F.R. 125.9, entitled: “What are the rules governing SBA’s small business mentor-protege program?” The new regulation sets forth the framework of the small business mentor-protege program. It also sets out the major benefit to being in a mentor-protege relationship: A protege and mentor may joint venture as a small business for any government prime contract or subcontract, provided the protege qualifies as small for the procurement. Such a joint venture may seek any type of small business contract 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).

In plain English, this means that if you are a small business in a good business relationship with a larger business with complementary capabilities and strong past performance, you could team up to take advantage of your socioeconomic status on set-asides. You just need to be willing to do the dance with the SBA to get your mentor-protege relationship approved.

So. . . who can be a mentor, and who can be a protege? 

As a general matter, “[a]ny concern that demonstrates a commitment and the ability to assist small business concerns may act as a mentor and receive benefits ” from the mentor-protege program. Mentors may be large or small businesses – the key is whether they have the good financial health and character to successfully guide their proteges.

To qualify as a protege, a company “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.” However, if the prospective protege is not a small business in its primary NAICS code, “the firm must demonstrate how the mentor-protege relationship is a logical business progression for the firm and will further develop or expand current capabilities.” Further, “SBA will not approve a mentor-protege relationship in a secondary NAICS code in which the firm has no prior experience.”

What is the mentor-protege agreement?

In order to participate in the mentor-protege program, “[t]he mentor and protege firms must enter into 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 . . ..” The mentor-protege agreement must provide that the mentor will provide assistance to the protege for at least one year. However, the agreement must also provide “that either the protege or the mentor may terminate the agreement with 30 days advance notice to the other party . . . and to SBA.” The written mentor-protege agreement must be approved by the SBA before it takes effect. Additionally, the SBA “must approve all changes to a mentor-protege agreement in advance, and any changes made to the agreement must be provided in writing.” A single mentor-protege agreement may not exceed three years, but it may be extended for a second three years.

What is the application process? 

On October 1, 2016, the SBA will begin accepting applications for the new universal small business mentor-protege program. Applications will only be accepted through the SBA’s new certify.sba.gov portal, and it is unclear whether the SBA will choose to cap the number of applicants to the program.

Applicants are required to register in the System for Award Management (SAM) prior to creating their profile in certify.sba.gov. Applicants (both prospective Protégés and Mentors) will be required to complete an online training module as part of the application process, and to upload a certificate of completion to certify.sba.gov before they are allowed to complete the application process.

The application itself will be entirely electronic, and will require that certain documents – certificate of completion for the online training module, signed Mentor-Protégé agreement(s), size determination letters, and other documents – be uploaded to certify.sba.gov, or completed in narrative form within that web portal. Although Mentors are not required to provide financial statements and tax returns during the application process, the SBA retains the right to request such documentation during the reporting and evaluation processes. For further information, go to the SBA’s website for the small business mentor-protege program.

What do you think? What kind of logistical problems do you foresee in the application process? After all, this is brand new. Also, are there any issues the SBA should consider when implementing this new program?

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As of October 1, only the SBA approves mentor-protege applications. Absent special statutory authority, a agency can no longer operate its own mentor-protégé program, unless: 1) the agency submits a program plan to the SBA, and 2) receives approval of the plan within one year of the SBA’s mentor-protégé regulations finalization.