The SBA’s Small Business Mentor-Protégé Program (MPP) is arguably one of the federal government’s most successful undertakings when it comes to supporting our nation’s small business policies, economy, and contracting goals. It fosters the development of small business protégés, allowing many different forms of mentor assistance. It includes opportunity for eligible protégés and their mentors to joint venture (JV) for set-aside contracts—often otherwise off-limits to mentors that don’t qualify for the set-aside status/size standard and/or to protégés incapable of competing for or performing such contracts on their own. MPP JV awards may also incentivize federal government customers—simultaneously getting closer to meeting their set-aside quotas and getting the know-how, qualifications, resources, and personnel of more experienced (typically larger) contractors.
While it’s easy to see why this program enjoys immense popularity amongst small and large businesses alike, confusion consistently shrouds SBA’s MPP, nevertheless (hence the need for a two-parter here). In this article, we’ll skip over the “basics” of SBA’s MPP (which you can read all about here) and instead, jump right into the last few common misconceptions surrounding the program (you can read about the first few in Part I).
Just like last time, before we get started, you can reference the rules and requirements covered in this article (and the coming Part II) at 13 C.F.R. § 125.9 and 13 C.F.R. § 121.103, respectively, SBA’s MPP and affiliation regulations. But why must we reference affiliation, you might ask? Well, you can’t really discuss mentor-protégé relationships without having at least a general understanding of the concept of affiliation. In case you don’t–or you just need a refresher–check out these Back to Basics blogs covering an overview of affiliation and the different types of affiliation (for a deeper dive, you can always get ahold of our Handbook covering both size and affiliation). For this article, for now, just keep in mind that the whole purpose of SBA’s MPP is to provide protections from and exceptions to affiliation—and every type of assistance and opportunity the MPP provides depends on such protections and exceptions.
We will also touch on SBA’s joint venture (JV) regulations for: small business JVs (found at 13 C.F.R. § 125.8); 8(a) Program JVs (found at 13 C.F.R. § 124.513); HUBZone JVs (found at 13 C.F.R. § 126.616); WOSB/EDWOSB JVs (found at 13 C.F.R. § 127.506); and VOSB/SDVOSB JVs (found at 13 C.F.R. § 128.402).
Misconception #3 – “An SBA-approved protégé may not have an additional SBA mentor-protégé agreement in place at the same time.”
Correction #3 – “An SBA-approved protégé may have one additional SBA mentor-protégé agreement in place at the same time in certain circumstances, provided certain restrictions are met.”
This misconception is not misplaced–it comes from the section of SBA’s MPP rule specific to protégés. It says, “[a] protégé firm may generally have only one mentor at a time.” But this is not a blanket prohibition as most seem to think. Indeed, that same rule goes on to state:
SBA may approve a second mentor for a particular protégé firm where the second relationship will not compete or otherwise conflict with the first mentor-protégé relationship, and:
(i) The second relationship pertains to an unrelated NAICS code; or
(ii) The protégé firm is seeking to acquire a specific expertise that the first mentor does not possess.
So, note the few words I emphasized above. The first one, “may,” is emphasized, as it is important to keep in mind that SBA’s discretion is broad here–even when the elements are met. The “and” and “or” are also emphasized, as the required elements are: (1) the second MPP relationship will not compete or conflict with the first; and (2) either, the second MPP relationship is under an unrelated NAICS or the second mentor has a specific expertise the first does not, which the protégé seeks.
Note, the chances of SBA approving a second mentor are likely strongest if you can say that all of the above are true. But even then, SBA could say no for other reasons. It is also crucial to keep in mind that even if SBA makes an exception allowing a protégé to simultaneously have two mentors, that does not affect the protégé’s two-mentor-lifetime-maximum (which only makes limited exceptions for early terminations or mentor substitutions by SBA). So, if a protégé choses to use up both of its mentor relationships at the same time, that is it!
Misconception #4 – “An SBA-approved mentor may not simultaneously have additional protégés under SBA’s MPP.”
Correction #4 – “An SBA-approved mentor may simultaneously have additional protégés under SBA’s MPP in certain circumstances, provided certain limitations are met.”
SBA must agree to allow a mentor to have more than one protégé at time. And it will only do so if the mentor and proposed additional protégé are able to “demonstrate that the added mentor-protégé relationship will not adversely affect the development of either protégé firm (e.g., the second firm may not be a competitor of the first firm).” When an existing mentor applies for a second mentor-protégé relationship, SBA will require that such demonstration is actively made as part of the application process. SBA typically wants to see the full list of reasons that the two protégés are not and will not become competitors. This can include things like: having different NAICS codes; providing different types of services/product; and/or geographical distinctions or different performance locations. But none of these are hard requirements–and there are certainly other factors that could be listed to support the required demonstration for SBA’s approval of the second protégé relationship.
SBA’s rules add that a mentor with “more than one protégé cannot submit competing offers in response to a solicitation for a specific procurement through separate joint ventures with different protégés.” This second restriction serves both to support the general rule prohibiting protégé competition above, as well as the FAR’s restrictions on improper business practices, such as price fixing.
Finally, SBA’s rules do put a general cap on this one, stating that “[a] mentor (including in the aggregate a parent company and all of its subsidiaries) generally cannot have more than three protégés at one time.” So, the takeaway is that SBA may allow a mentor to have anywhere between one and three protégés at one time–but it is ultimately up to SBA.
Misconception #5 – “Six years is the maximum term for the relationship between one SBA-approved mentor and protégé.”
Correction #5 – “The relationship between an SBA-approved mentor and protégé may run over two consecutive six-year terms, provided all other limitations are met.”
Until recently, this was not expressly included in SBA’s rules–though it was generally accepted (at least at our firm) that SBA would allow this. The MPP rules now state:
Instead of having a six-year mentor-protégé relationship with two separate mentors, a protégé may elect to extend or renew a mentor-protégé relationship with the same mentor for a second six-year term. In order for SBA to approve an extension or renewal of a mentor-protégé relationship with the same mentor, the mentor must commit to providing additional business development assistance to the protégé.
But just as I cautioned for Misconception #3 above, having two consecutive SBA-approved mentor-protégé relationships with the same mentor and protégé also uses up the protégé’s two-mentor-lifetime-maximum–yes, regardless of the fact that the protégé only had one mentor. SBA counts the relationships themselves. So, while this option is quite common, it is certainly something a protégé should think through before deciding, as a protégé has so much to potentially learn from its mentor(s).
Misconception #6– “One firm cannot simultaneously be an SBA-approved mentor and an SBA-approved protégé to two different firms.”
Correction #6 – “One firm can simultaneously be an SBA-approved mentor and an SBA-approved protégé to two different firms, provided SBA has authorized it and the relationships don’t compete.”
This rule also comes from the section of SBA’s MPP rules for protégés, and no one is hiding the ball here. The rule says:
SBA may authorize a small business to be both a protégé and a mentor at the same time where the small business can demonstrate that the second relationship will not compete or otherwise conflict with the first mentor-protégé relationship.
There is that “may” word again–reminding us that SBA’s discretion in overseeing its MPP is vast–making this last misconception a fitting conclusion of this two-parter blog.
* * *
Sure, there are less concrete rules in SBA’s MPP than most people realize. But SBA is still king. Either way, knowing SBA’s MPP rules and where they incorporate flexibility (as well as where they don’t) could certainly help a mentor and/or protégé plead its case for SBA to allow some flexibility or rule exception. Finally, don’t forget to check out Part I of this article for other rule clarifications and to keep an eye out for more of our “Common Misconceptions” articles in the future.
Questions about this post? Email us. Need legal assistance? call at 785-200-8919.
Looking for the latest government contracting legal news? Sign up for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook.