SBA 8(a) Mentor-Protege Joint Ventures: SBA OIG Questions Oversight

SBA 8(a) mentor-protege joint ventures suffer from inadequate oversight and may not adequately benefit 8(a) protege firms, says the SBA Office of Inspector General.  In a recently-released report, the SBA OIG criticized the SBA’s oversight of 8(a) mentor-protege joint ventures, finding that there is no way to ensure that 8(a) protege’s substantially benefit from the 8(a) mentor-protege joint venture program.

Some highlights from the 37-page report follow.

  • The SBA lacks “performance measures” to monitor the 8(a) mentor-protege program.  This failure, according to the SBA OIG, contributes to risks such as “when non-8(a) firms perform the majority of the work on a contract, and the 8(a) firm receives little or no developmental benefit from the program.”
  • The SBA “did not evaluate the protege’s lack of capacity when approving a joint venture.”  The SBA OIG blamed this failure on “staff workloads, inadequate information systems, and problems with availability and quality of data.”
  • Certain “minimal indicators” should be tracked by the SBA, such as the total number of joint venture arrangements, the number of participants in 8(a) mentor-protege joint ventures, and the growth experienced by 8(a) proteges after completing a joint venture contract.  Without such data, the SBA lacks sufficient information to determine if the program is beneficial to 8(a) proteges.
  • In the majority of cases examined in the report, the SBA did not monitor the percentage of work performed by the 8(a) and non-8(a) partners to the joint venture after work on the contract began.
  • In three of the joint ventures the SBA OIG examined, the non-8(a) mentor managed financial records, indicating undue control by the mentor.  In one case, for instance, the protege was based in Texas and the mentor in Maryland.  The joint venture’s bank account was established at the mentor’s bank in Maryland, not in Texas, and the mentor controlled the accounting records.
  • SBA officials responsible for 8(a) mentor-protege joint ventures were often overworked, and some had to work overtime to complete mandatory functions.  This circumstance contributed to a lack of effective oversight over joint ventures.

The SBA OIG recommended six changes to improve oversight of 8(a) mentor-protege joint ventures.  These changes included such things as better information gathering and performance metrics, stronger ongoing monitoring of existing joint ventures (including site visits and a contract closeout evaluation), consideration of alternate SBA staffing approaches, and better ensuring that 8(a) proteges have capacity to perform on contracts pursued by 8(a) mentor-protege joint ventures.

8(a) firms and their mentors may groan at the prospect of more oversight, but the SBA OIG’s recommendations are not  unreasonable.  Especially given recent SBA OHA decisions indicating that 8(a) mentor-protege joint venture agreements cannot be protested, effective oversight by the SBA is essential to guard against abuses.  Done right, the additional steps the SBA OIG recommends could help ensure that everyone plays by the rules.

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