SBA Mentor Protege Program Rules — SBA Joint Venture Exception to Affiliation

When trying to get the benefit of the SBA Mentor Protege Program, there is a Joint Venture affiliation exception that you must be extremely careful about.  SBA rules that require 8a companies to get prior approval. This requirement poses substantial problems for small businesses relying on the SBA to approve a mentor protege agreement when still faced with short proposal submission deadlines.

Small businesses not in the 8a Program sometimes attempt to develop relationships outside of the SBA Mentor Protege approval rules. However, they are still required to meet the statutory requirements.  Many companies lose out of lucrative contracts as a result.

In many cases, the SBA does not give priority for mentor protege approval simply because there is a pending proposal evaluation or upcoming bid. Nevertheless, as current court decisions show, you can be stuck with the bottom line – you have to get SBA approval before submitting your proposal.

SBA Mentor Protege Joint Venture Rules & SBA Joint Venture Agreements

Two firms that form a small business joint venture to perform a contract will be considered affiliates for purposes of that contract. See New Rules.  Under the Federal Mentor Protege Program, SBA rules suggest that firms submitting offers on a particular procurement as joint venturers are affiliates about that contract, and their revenues or employees will be aggregated for the purpose of determining the outcome of a small business size protest. See information about forming strategic alliances with joint ventures. However, there are exceptions to the rule.

Exceptions to SBA Mentor Protege Program and Small Business Affiliation

Government contract law and SBA Mentor Protege Program regulations recognize several exceptions to the general rule. One such exception is afforded to joint ventures formed by 8(a) BD program mentor protégé firms. Find out What is a Mentor Under SBA Rules 13 CFR 124.520?

Two firms that have SBA Mentor Protege Program approval under § 124.520 of the regulations may joint venture as a small business for any Federal government prime contract or subcontract, provided the protege qualifies as small for the size standard corresponding to the NAICS code assigned to the procurement and, for purposes of 8(a) sole source requirements, has not reached the dollar limit set forth in § 124.519 of the regulations.

Severe Consequences for Not Following the Rules

SBA OHA has ruled in many cases that your company must follow SBA Mentor Protege Joint Venture rules or lose the contract due to affiliation. For example, in the case of Size Appeal of KTS Solutions, Inc., SBA No. SIZ-6049 (2020)  OHA found that the parties’ mentor-protégé joint venture agreement failed to meet the requirements of 13 CFR 125.18(b)(2)(vi) and (vii) because the agreement failed to:

(i) itemize the equipment to be used in the performance of the contract;

(ii) specify the specific responsibilities of the parties with respect to negotiation of the contract, the source of labor, and contract performance requirements; and

(iii) indicate the tasks that each member of the joint venture would perform on the contract, or which employees of each member would perform the functions.

If a government contract is to be awarded through the SBA 8a certification program, the SBA approval along with the JV under 13 CFR 124.513.

• If you risk submitting your proposal with SBA approval, you run the risk of losing the contract in a size protest.

Contents of  Your SBA Mentor Protege Agreement– SBA Joint Venture Documents

To get through the SBA approval process, both companies must enter into a written SBA Mentor Protege Program 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 regulations are clear that “SBA must approve the mentor/protégé agreement before the two firms may submit an offer as an SBA  joint venture on a particular government prime contract or subcontract for the JV to receive the exclusion from affiliation.

Verbal SBA Mentor Protege Approval May Not Hold Up on Appeal: There are size protest appeal cases where there are allegations that there was verbal  SBA Mentor Protege approval.  However, many of the businesses were found affiliated. Never rely on the position that the SBA verbally approved your mentor protege relationship to win a small business size protest.

• Get SBA  approval in writing
• The SBA will not be held accountable simply because it was late approving your Mentor Protege agreement

How Can You Minimize the Impact of unapproved SBA Small Business Mentor Protege Agreements? Given the current court decisions on SBA approval in pending procurement, the cards are stacked against you. Consider the following.

• Focus on forecasts to identify potential projects that you intend to bid on
• Never wait until the solicitation goes to fbo.gov
• See if the agency is willing to amend the solicitation to show that approval must be a condition before award

Dealing with Litigation Regarding SBA Mentor Protege Rules

Most of the litigation regarding mentor protege joint venture relationships come about when the non-awardee files an SBA small business size protest. Although after the fact, companies that are awarded government contracts have to prove that the mentor protege relationship meets the legal requirements.

Affiliation issues are complicated and litigation can be challenging. Many mentor protege lawyers understand the legal issues but contract attorneys not familiar with the ins and outs can struggle to become successful during the litigation phase.

Speak to an Attorney & Get a Free Initial Consultation

If you are subject to a small business size protest or looking to gain the benefit of the SBA Mentor Protege Program an small business joint venture exception to affiliation, call our small business size protest lawyers at 1-866-601-5518.