The SBA 8(a) mentor-protege joint venture exception from affiliation applies to non-8(a) contracts, so long as the joint venture meets the 8(a) regulatory requirements.

In a recent size appeal decision, the SBA Office of Hearings and Appeals held that the SBA Area Office erred by deeming a mentor and its protege affiliated for purposes of a non-8(a) contract, without considering whether the joint venture qualified for the mentor-protege exception to the ordinary SBA affiliation rules.

SBA OHA’s decision in Size Appeal of Drace Anderson Joint Venture, SBA No. SIZ-5531 (2014) involved a NAVFAC procurement for a multiple-award construction contract.  The procurement was set aside for small businesses under NAICS code 236200 (Commercial and Institutional Building Construction).

After evaluating competitive proposals, NAVFAC named Drace Anderson Joint Venture one of seven awardees.  DAJV was a joint venture between Drace Construction Company (DCC), an 8(a) participant, and Roy Anderson Corporation (RAC), its SBA-approved mentor.

An unsuccessful offeror, J&S Construction Company, Inc., filed a SBA size protest.  J&S contended that RAC was a large business, and that because the procurement was not an 8(a) set-aside, the mentor-protege exception from affiliation did not apply.

The SBA Area Office determined that DCC and RAC were parties to an ongoing 8(a) mentor-protege agreement.  The Area Office also determined that DCC and RAC had complied with the “three in two” rule because their joint ventures had not won more than three contracts over a two-year period.

Nevertheless, the Area Office found DCC and RAC to be affiliated for purposes of the NAVFAC procurement.  The Area Office noted that as a general rule, two firms submitting an offer on a procurement as a joint venture are affiliates with respect to that procurement.  The Area Office concluded that none of the exceptions to this general rule applied.  Because DCC and RAC were affiliated, RAC’s status as a large business meant that DAJV was ineligible for award.

DAJV filed a size appeal with SBA OHA.  DAJV argued, in part, that the Area Office had failed to apply the exception from affiliation codified in 13 C.F.R. § 121.103(h)(3)(iii), which calls for an exception from affiliation for a joint venture between an SBA-approved mentor and its protege.  That exception applies so long as the joint venture meets the 8(a) regulatory provisions under 13 C.F.R. § 124.513, such as naming the 8(a) protege as the managing venturer.  DAJV contended that its joint venture agreement met all of the 8(a) regulatory requirements.

SBA OHA noted that the size determination “did not address whether [DAJV] qualifies for the exception from affiliation for mentor-protege joint ventures.”  SBA OHA wrote that in evaluating DAJV’s size, the Area Office should have considered whether the mentor-protege exception from affiliation applied, but “[t]he record does not reflect that any such analysis was performed in this case.”  SBA OHA granted the size appeal and remanded the case to the Area Office for further consideration.

The Drace Anderson size appeal demonstrates that the mentor-protege exception from affiliation is not limited only to 8(a) contracts.  Rather, the rule allows an 8(a) protege and its SBA-approved mentor to joint venture for any federal government prime contractor or subcontract, provided that the 8(a) protege qualifies as small and that the joint venture meets the 8(a) regulatory requirements.