Many small businesses think about getting into the SBA Mentor- Protégé Program. However, to become a mentor, they must first meet the SBA mentor definition. The program is in place to help small businesses to be able to secure federal government projects with the aid of a business mentor that can provide valuable assistance.
For example, if your small business is certified in SBA’s 8(a) Business Development Program, you can utilize the benefits of a Mentor by using its expertise, capabilities, and resources.
Government small businesses that have formed a small business mentor-protégé relationship can also form a joint venture agreement. This way they can bid for small business set-asides for government contracts. A joint venture can also bid on contracts that are set aside for service-disabled veteran-owned, women-owned, or HUBZone businesses — as long as the protégé qualifies for the contract.
In order for your joint venture to be able to bid on contracts reserved for small businesses, you must follow the requirements for receiving an exclusion of affiliation for contracting purposes.
What is the SBA Mentor Protege Program Under 13 CFR 124.520?
According to the Legal Information Institute, the SBA mentor protege program is in place to help encourage SBA approved mentors to provide various forms of business development assistance to small businesses that are qualified protégé firms. This mentor’s assistance may include technical and/or management assistance; financial assistance in the form of equity investments and/or loans; subcontracts (either from the mentor to the protégé or from the protégé to the mentor); trade education; and/or assistance in performing prime contracts with the Government through joint venture arrangements.
Approve Mentor companies are can offer assistance relating to the performance of non- SBA 8(a) contracts so that protégé small business firms may more fully develop their capabilities.
Tip: Without having an approved mentor-protege agreement(MPA), the mentor would have no other legal means to provide this level of assistance to the small business protege without being exposed to a size protest launched against the small business.
Tip: The Mentor and Protege must have a joint venture agreement in addition to the Mentor Protege Agreement.
The purpose of the small business mentor/protégé relationship is to enhance the capabilities of the protégé, assist the protégé with meeting the goals established in its SBA-approved business plan, and to improve its ability to successfully compete for contracts.
SBA Mentor Definition
To meet the legal SBA mentor definition, you want to first meet the requirements. For example, to become a business mentor to a small business in the 8(a) BD program, you must have graduated from the 8a Program; be an 8a firm that is in the SBA’s transitional stage; be either a small business or large firm, or you can also be a non-profit business entity.
- Under the legal definition, the mentor firm can own up to 40 % of the protégé to help raise capital.
The SBA definition states that: Any concern that demonstrates a commitment and the ability to assist developing SBA 8(a) Participants may act as a mentor and receive benefits as stated in 3 CFR 124.520.
- Mentors can be companies that have graduated from the 8(a) BD program, firms that are in the transitional stage of the 8(a)program participation, other small businesses, and large businesses.
- The key to becoming a small business mentor is developing a sound plan to show how the protege will benefit.
SBA Mentor Qualifications
There is more to becoming a mentor or meeting the SBA definition that simply submitting a package. The SBA will scrutinize the mentor-protege application to make sure that the mentor is qualified.
To meet the statutory definition of being a mentor in federal government contracts, the company must show that it:
- Is capable of carrying out its responsibilities to assist the protégé firm under the proposed mentor-protégé agreement;
- Possesses good character;
- Does not appear on the federal list of debarred or suspended contractors; and
- Can impart value to a protégé firm due to lessons learned and practical experience gained because of the 8(a) BD program, or through its knowledge of general business operations and government contracting.
SBA Mentor Program Restrictions
After getting certified, companies that are approved mentors can make costly legal mistakes. An example includes having more that one protege with no prior approval from the SBA.
The SBA Area Office / Can authorize you as a mentor to have more than one protégé at a time only if the mentor can demonstrate that the additional relationship will not adversely affect the development of either of the two protégé firm (e.g., the second firm may not be a competitor of the first firm). See information about the Consequences of Procurement Fraud Schemes & Avoiding Criminal Liability
Tip: Under 13 CFR 124.520 and 13 CFR 125.9 a Mentor, under no circumstances, can be permitted to have more than three protégés at one time. Documents to submit to the SBA to get your application approved include:
- Copies of the federal tax returns it submitted to the IRS, or audited financial statements, including any notes, or in the case of publicly traded concerns, the filings required by the Securities and Exchange Commission (SEC), for the past three years.
Tip: Once you become an approved mentor, you must annually certify that you continue to possess good character and have a favorable financial position.
Other SBA mentor programs also have additional requirements
Small businesses need the extra boost to become successful in the federal procurement marketplace. Therefore, the SBA looks for certain criteria making a determination as to whether or not you meet the Mentor definition. Your business must:
- Show some level of commitment and ability to help the 8(a) small business. This is critical as the core reason for having mentoring programs. Having the proper track record is essential.
- To become part of the SBA Mentor Protégé Program, you must commit to helping the protégé for at least one year.
- Your company must show the requisite financial health, possess good character; cannot be on the suspension or debarment list, and be able to provide a good track record through lessons learned and /or through practical experience gained through being in the 8a program.
- Becoming a business mentor also means being able to oversee the protégé based upon your experience in government contracting.
- The SBA generally requires that you only have one protégé at a time (it can approve more – but no more than three protégés are allowed.)
Reporting Requirements for Joint Ventures and New Changes to the Mentor/Protégé Program Rules?
The SBA’s new rules have introduced an annual review requirement. The annual review requires that the Mentor protégé participant shows how it is meeting the contract requirements for each 8(a) contract awarded to a JV and the performance requirements.
Under new SBA rules, meeting the mentor definition can now mean that non-profit Mentors, and traditional ones can now have up to 3 protégés at one time. Also, the small business Protégé can now have a second Mentor, corresponding to an unrelated, secondary NAICS code. The limitation under the new rules is that a mentor cannot be both a protégé and a mentor at the same time.
- The level of work provided by the business mentor must be related to the Protégé’s SBA-approved business plan. Also, the SBA must approve the agreement before the parties can propose on small business contracts. For mentors that do not have an 8(a) protégé, compliance with SBA regulations is still required.
- The SBA cannot approve mentor protégé relationships if the 8(a) company is within 6 months of completing the 8(a) BD Program.
Stiff Mentor Consequences For Non-Compliance
Given the recent statistics where small business mentors find themselves not complying with the protégé agreement terms, the SBA can now impose sanctions to the mentor. However, if there are allegations of noncompliance, the rules require to mentor to get notice and have an opportunity to respond. See SBA main points.
If adverse facts warrant, the mentor can be barred for two years. Finally, if the mentor fails to comply with laws governing the SBA 8a mentor protégé program, the federal government can institute grounds for worldwide suspension and debarment.
What are Common Mistakes to Avoid in a Mentor Protege Joint Venture Relationship?
One of the common mistakes that companies make when entering into the mentor-protégé joint venture agreement is to comply with the basic mentor-protege agreement requirements under 13 CFR 125.18(b)(2)(vi) and (vii) because. Among them include: itemizing the equipment to be used in the performance of the contract; specifying the responsibilities of the parties with respect to the negotiation of the contract, source of labor, and contract performance; and indicating the tasks that each member of the joint venture would perform on the contract, or which employees of each member would perform the functions. Read about contractor certificate of competency and bid protests.
SBA Rules for Joint Venture Arrangements
The following rules apply to the small business joint venture arrangement:
- The joint venture must perform the appropriate percentage of work based on the subcontracting requirements; the protégé must perform 40% of that.
- The joint venture must submit annual reports to the SBA and the contracting agencies explaining how the work is being performed for each contract.
The SBA’s regulations governing joint ventures are found in 13 CFR 125.8.Contractor Faces Service Disabled Veteran Fraud and False Claims Act Criminal Liability(Opens in a new browser tab)
If you need help with compliance and adverse actions in the SBA mentor Protege Program. Call us at (720)941-7200 or Toll Free 1-866-601-5518.