8(a) mentor-protege agreements cannot be protested by competitors, according to a recently-issued decision by the SBA’s Office of Hearings and Appeals. In Size Appeal of Professional Performance Development Group, Inc., SBA No. SIZ-5398 (2012), SBA OHA held that the SBA’s decision to approve an 8(a) mentor-protege agreement is outside the scope of the SBA size protest process.
The Professional Performance Development Group SBA size appeal involved a U.S. Army Medical Command small business set-aside solicitation for ancillary medical services. After evaluating competitive proposals, the Army announced that InGenesis STGi Partners, LLC, or IGSP, was the apparent successful awardee. IGSP was an 8(a) mentor-protege joint venture between STG, Inc., as mentor, and InGenesis, Inc., the 8(a) protege.
After the Army made its announcement, two unsuccessful competitors filed SBA size protests, challenging IGSP’s eligibility for the contract. One of the protesters’ primary arguments was that the SBA should not have approved the 8(a) mentor-protege relationship between STG and InGenesis.
The protesters apparently argued that InGenesis was too successful to be an 8(a) protege. The protesters noted that InGenesis has previously been in an 8(a) mentor-protege relationship with another large firm, The Arora Group, Inc. During fiscal years 2008-2012, InGenesis and Arora formed 12 joint ventures, which collectively bid on 30 procurements and were awarded 14 contracts.
The SBA Area Office found that IGSP was an eligible small business. The SBA Area Office concluded that even though InGenesis and Arora had won 14 contracts together, they had not violated the so-called “three-in-two” rule under 13 C.F.R. § 121.103(h) because none of the joint ventures had bid upon, or won, ore than three contracts over a two-year period. The SBA Area Office did not examine the question of whether InGenesis and STG should have been approved as mentor and protege.
On appeal, SBA OHA agreed with the SBA Area Office’s decision not to consider the propriety of the mentor-protege agreement. It held that “the power to approve mentor-protege agreements, and their renewals, is vested solely with the SBA’s Director, Office of Business Development.” As a result, SBA OHA wrote, “an area office may not review questions of mentor-protege eligibility as part of a size determination.”
SBA OHA also affirmed the SBA Area Office’s finding with respect to the three-in-two rule, holding that the protesters had not persuasively demonstrated that InGenesis and Arora had violated the three-in-two rule. Further, SBA OHA wrote that even if InGenesis and Arora had violated the three-in-two rule, their mentor-protege agreement may nonetheless have shielded them from affiliation. SBA OHA denied the size appeal.
The Professional Performance Development Group SBA size appeal decision illustrates the limits of the size protest process. The SBA Area Office simply lacks authority to review 8(a) eligibility issues as part of a size determination, and small businesses raising such issues in size protests are likely wasting their time.
Although it is hard to argue with SBA OHA’s decision from a legal perspective, the case still leaves a bit of a bad taste in my mouth. After all, InGenesis was incredibly successful during its tenure as Arora’s mentor. Did it really require a second, large mentor after that initial mentor-protege relationship ended? And, on the flip side, was STG truly “mentoring” a needy disadvantaged business by partnering with this already-successful 8(a) company? Although the size protest process may not be the appropriate vehicle, it seems that some mechanism to review the propriety of mentor-protege agreements might not be a bad idea.
Finally, the Professional Performance Development Group provides a nice example of the silliness of the “three-in-two” rule. The prohibition contained in the rule (currently, no more than three contract awards over a two-year period) is easily avoided by simply forming a new joint venture when necessary. Arora and InGenesis did it twelve times—something the Area Office deemed perfectly acceptable. As this case demonstrates, the three-in-two rule is little more than a “gotcha” for those not savvy enough to form that second (or twelfth) joint venture, rather than a genuine yardstick for determining whether two companies have become unduly reliant upon one another.