The SBA’s Utah District Office has imposed tough new restrictions on the approval of 8(a) mentor-protege agreements and joint ventures.

The Utah SBA obviously hopes that these restrictions will lead to more successful 8(a) mentor-protege and joint venture relationships–but I worry that these District-specific restrictions may backfire, and put Utah 8(a)s at a significant competitive disadvantage against 8(a)s serviced by other SBA District Offices.

The Utah District Office’s new policy was announced in an email sent on April 21, 2016, which was forwarded to me by an industry contact.  While I don’t ordinarily quote source material at length on SmallGovCon (that’s what links are for), this new policy doesn’t seem to be available online.  Here is the SBA’s email, in its entirety (with names and other identifying details omitted):

To All Current 8(a) Firms:

The Utah District Office has experienced an increase in requests to approve both Mentor Protégé and Joint Venture relationships over the last several months.  This increase is a natural response to federal agencies moving toward larger contracting vehicles (i.e. MATOCs, SATOCs, IDIQs, SABERs, etc.).  Larger contracting vehicles create pressures among 8(a) firms to leverage the size, experience and past performance of non-8(a) firms in order to qualify for these larger contracting opportunities.

Unfortunately, many 8(a) firms are not as prepared as they should be to handle the differences between their own company culture and the culture of other firms they may not have previously done business with.  Additionally, many younger 8(a) firms have not had the opportunity to build up their company’s infrastructure to handle the capability and capacity required to handle even the minimum percent of work requirements associated with larger projects typically seen in joint ventures.

To address these concerns, effective immediately, the Utah District Office is implementing the following guidelines related to approvals for both Mentor Protégé and Joint Venture applications:  It is HIGHLY suggested that you do the following BEFORE apply for an MPA or JV.

For Mentor Proteges –

Both firms must successfully complete at least one government project together under a Teaming or Prime – Subcontractor relationship BEFORE applying for approval of a Mentor Protégé Agreement.  The project need not be large nor expansive, but it must be over the simplified acquisition threshold of $150K.  If this ‘test’ project is to be used as the basis for applying for an 8(a) Joint Venture, the project size must be comparable to the size of project targeted by the proposed Joint Venture (see below).

For 8(a) Joint Ventures –

If the firms have not been approved for a Mentor Protégé Agreement, both firms must successfully complete at least one government project together under a Teaming or Prime – Subcontractor relationship BEFORE applying for approval of an 8(a) joint venture.  The size of the project must be comparable to the size of project targeted by the proposed joint venture (‘comparable’ means +/- 25% in size).

These guidelines will provide both firms and Utah SBA with:

• A better baseline on which to judge the potential for MPA and JV success;
• Reassurance that the 8(a) firm can successfully perform the required percentage of work on a proposed project; and,
• A means for both firms to decide if their respective company business cultures are compatible.

We hope that by implementing these guidelines, we are taking measures we feel will enable the firms to discover problems or issues that may well indicate it would be advisable to look for a different partner as they pursue their business development goals.

Consider first the mentor-protege process.  Ordinarily, approval for the mentor-protege program can take three months or more.  But add in the requirement that the parties complete a subcontract together before even applying, and prospective mentors and proteges could be waiting years to be approved–especially if the parties must complete a large subcontracting effort “comparable in size” to a project that the parties hope to complete as joint venture partners.

Utah 8(a) firms, that “tick tock” you hear is your nine-year 8(a) program term slipping away while you work on completing a subcontract with a prospective mentor, just so that you can have the privilege of applying to the mentor-protege program–a privilege your 8(a) competitors in other states already have, without the subcontracting requirement.

Of course, that’s assuming that Utah 8(a) firms can even find interested prospective mentors in the first place.  If I’m a prospective mentor, and I have to go jump through this time-consuming extra hoop to obtain an 8(a) protege in Utah, I’m probably going to start exploring my options with 8(a) firms located elsewhere.

But as problematic as the mentor-protege policy may be for Utah 8(a) firms, it pales in comparison to the potential problems with the joint venture policy.  In order to obtain SBA approval of a joint venture, a Utah 8(a) firm must complete a project with the prospective joint venture partner comparable in size to the project targeted by the joint venture.  I’m not sure how this can even be workable in practice–especially given that the projects targeted by 8(a) joint ventures are usually quite large.

Consider, for instance, a Utah 8(a) firm that is interested in pursuing an 8(a) set-aside contract for services, with a potential value of $40 million over five years.  The Utah District Office seems to be saying that the 8(a) firm would not be approved for a joint venture unless the 8(a) firm and its prospective joint venture partner have already completed a project of at least $30 million together as a prime/subcontractor team.  Of course, completing such a project is likely to take years.  And what are the chances that the Utah 8(a) and its prospective partner have already completed a five-year, $30 million project by the time it wants to bid on the new set-aside contract?  In the words of one Mr. Jerry Seinfeld, “not bloody likely.”

It seems to me that the most likely result of the Utah District Office’s joint venture policy is that Utah 8(a) firms will, for the most part, be unable to joint venture on 8(a) contracts.  In the meantime, the companies that they might have joint ventured with will form JVs with 8(a) firms from other states, putting Utah 8(a)s at a significant competitive disadvantage.

Again, it’s commendable that the Utah District Office wants its 8(a) firms to experience successful mentor-protege relationships and joint ventures.  But I am very worried that the way the District Office is going about it is all wrong–and could backfire spectacularly on the very 8(a) firms the District Office is trying to assist.

Update (May 11, 2016): In a brief email sent on May 5, the SBA Utah District Office rescinded its policy.  No reason was given.