On November 8, 2019, the Small Business Administration (SBA) released an expansive proposed rule to merge its two mentor-protégé programs, while also modifying a number of rules applicable to participants in the program. Under the proposed rule, the SBA will combine its 8(a) Mentor-Protégé Program into its All Small Mentor-Protégé Program (ASMPP).

The 8(a) program is about two decades old and is reserved for 8(a) firms, while the ASMPP was created in 2016 and is open to any small business. According to the SBA, the benefits to participants in both of the programs are identical and the merging of the two programs is being done to “eliminate confusion regarding perceived differences between the two programs, remove unnecessary duplication of functions within SBA, and establish one, unified staff to better coordinate and process mentor-protégé applications.” Below is a summary of the material proposed changes and new recertification rule that could have a big impact on who qualifies for set-asides under unrestricted multiple award contracts.

Removal of SBA Prior Approval for 8(a) Awards

Under existing rules, the SBA must review and approve the initial joint venture agreement of participants seeking to be awarded an 8(a) contract. Under the proposed rule, mentor-protégé joint venture agreements will no longer require pre-approval by SBA local district offices for 8(a) set-asides. According to the SBA, eliminating this burden will reduce the costs associated with what is oftentimes a “highly fact-intensive” SBA review process.

Exception to Regulatory Limit of Two Mentor-Protégé Relationships

The proposed rule would also respond to concerns raised by small businesses regarding the regulatory limit of permitting only two mentor-protégé relationships.  Although the SBA has, in the past, informally allowed a mentor-protégé relationship to not count against the lifetime limit of two relationships where the protégé can show that it has not received any assistance from its mentor under the relationship. Under the new proposed rule, a small business that enters into a mentor-protégé agreement but receives no business development assistance or contracting opportunities from its mentor, will be able to terminate the deal within 18 months without it counting against its lifetime limit of two mentor-protégé relationships.

Allowance of Greater Small Business Profits

The normal distribution of profits in a relationship between a mentor and protégé would be commensurate with the percentage of the work performed by either party. However, many small businesses have indicated to the SBA that they would like the latitude to negotiate arrangements where a small business would receive a higher distribution of the profits than it otherwise would under a traditional arrangement. Under the new proposed rule, the SBA will allow joint venture partners to mutually agree to give the small-business partner a higher percentage of the profits than the percentage of work it performs, if both parties choose.

End of the Three-Contract Limit (But There is a Catch)

The SBA’s current regulations “provide that a joint venture is something that can be formed for no more than three contracts over a two-year period.” Many businesses have indicated to SBA that the three-contract limit is unnecessarily restrictive on small businesses and “can disrupt normal business operations.” In light of concerns about burdening small businesses unnecessarily, the SBA has proposed to eliminate the three-contract limit for joint ventures which eliminates the onerous necessity of forming an additional joint venture entity to perform further contracts. Additionally, the SBA has also proposed to limit the time period that such joint ventures can submit offers for new contracts without triggering affiliation to two years from the date of its first award. The reason behind the continued time limitation is, despite the removal of the three-contract limit, the SBA still believes “a joint venture is not intended to be an on-going business entity.”

Recertification Requirement for Set-Aside Orders Under Unrestricted Multiple Award Contracts

Under current rules, the size status of a business for an unrestricted multiple award contract (MAC) is determined as of the date a business submits its offer for the unrestricted MAC. Orders outside of the underlying MAC that are set-aside for small businesses may subsequently be awarded to a business even though it does not currently qualify as small because the determination could be out of date. Recognizing this problem, the SBA  proposes that, “if an order under an unrestricted MAC is set-aside exclusively for small business…, a concern must recertify its size status and qualify as such at the time it submits its initial offer, which includes price, for the particular order.” The SBA feels this proposal will not cause a disruption to the procurement process and will “ensure that small business set-aside awards are made to firms that qualify as small at the time of the award.”

The proposed SBA rule will be open for comment until January 17, 2020.  For any questions on the proposed rule, please contact Todd Overman.