On October 16, 2020, the SBA issued an extensive final rule that makes numerous revisions and clarifications to the small business procurement regulations. We previously provided a high-level overview of some of the most significant changes implemented by the new rule. This article provides further analysis of the changes to the SBA’s Mentor-Protégé Program, which took effect on November 16, 2020.
Merger of 8(a) Mentor-Protégé Program into the All Small Mentor-Protégé Program
Recognizing that the purposes and benefits of the two mentor-protégé programs were identical, the SBA merged the 8(a) Mentor-Protégé Program into the SBA’s All Small Mentor-Protégé Program. As a result, any mentor-protégé relationship that was previously approved under the 8(a) Mentor-Protégé Program will now be governed by the requirements of the All Small Mentor-Protégé Program, and SBA has updated or removed references to the former program throughout SBA’s regulations.
Elimination of Requirement for Prior Approval of an 8(a) Mentor-Protégé Joint Venture Agreement Before Receiving a Competitive 8(a) Award
The new SBA final rule also more broadly eliminated the need for 8(a) participants to seek and receive approval from the SBA of an 8(a) JV agreement before receiving a competitive 8(a) award. Consequently, this final rule also eliminated the previous requirement that a JV between an 8(a) protégé and its mentor receive pre-approval as well. The rule does not change the requirement that SBA must approve a JV agreement between an 8(a) protégé and its mentor prior to receiving a sole source 8(a) award.
Clarification that the Protégé Firm Must Itself Perform at Least 40% of the Work Performed by the Joint Venture
The final rule clarifies that the Mentor-Protégé JV must comply with two separate workshare limitations – the joint venture workshare requirement and the limitation on subcontracting. In a Mentor-Protégé JV, the protégé firm must itself perform at least 40% of the work to be performed by the JV and it cannot rely on similarly situated subcontractors to satisfy this requirement. The JV can still rely on similarly-situated subcontractors to comply with the limitations on subcontracting rule. However, the way workshare is calculated in both instances is the same, and must be consistent with 13 CFR 125.6(b).
Confirmation that SBA Will Not Count Mentor-Protégé Relationships Terminated within 18 Months Against Protégé’s Two-Mentor Lifetime Limit
Under the Mentor-Protégé rules, the term of a mentor-protégé relationship may not exceed six years. The rules also limit protégés to two mentors in a lifetime. Recognizing that some mentor-protégé relationships are terminated early if they do not provide the intended benefits to the protégé, SBA amended its regulations so as to not count any mentor-protégé relationship that is terminated within 18 months from the date SBA approved the agreement toward the protégé firm’s two permitted lifetime mentors. The final rule notes that SBA may determine that a firm has exhausted its participation in the mentor-protégé program if it appears to be using this 18-month test to have many short-term mentor-protégé relationships.
Clarification on Annual Review of Mentor-Protégé Relationships
The proposed rule added clarifying language regarding the annual review of mentor-protégé relationships. SBA will obtain an assessment from the protégé on how the mentor-protégé relationship is working and if the protégé is receiving the business development assistance promised by the mentor. If the protégé believes that the mentor is not providing the agreed-upon business development assistance, the protégé can ask SBA to intervene on its behalf. If a mentor-protégé relationship is terminated by SBA, the rule also allows a protégé to substitute another firm as its mentor for the remaining duration of the original mentor-protégé agreement without counting against the two-mentor limit, even if it is not terminated within the first 18 months.
If you have questions about SBA’s final rule and how it impacts your business, please contact Berenzweig Leonard’s Government Contracts team.
Stephanie Wilson is a Partner and Co-Director of Government Contracts at Berenzweig Leonard. She can be reached at swilson@berenzweiglaw.com.