8(a) Mentor Protege Agreements And Shared Employees: A Risk Of Affiliation?

Can an SBA 8(a) program mentor and protege be affiliated, notwithstanding their 8(a) mentor-protege arrangement, if the firms engage in extensive employee sharing?


In a recent decision, the SBA Office of Hearings and Appeals suggested that extensive employee sharing between an 8(a) protege and its mentor might be outside the bounds of protected “assistance” under the 8(a) mentor-protege program.  And in the same case, SBA OHA raised an interesting question: does a mentor-protege relationship protect the mentor from affiliation, as well as the protege?

SBA OHA’s decision in Size Appeal of Patriot Construction, Inc., SBA No. SIZ-5439 (2013) involved a VA contract for site developments and utility upgrades for the VA Palo Alto Health Care System.  The procurement was set aside for SDVOSBs.

In September 2012, the VA notified unsuccessful offerors that K.O.O. Construction was the apparent awardee.  A competitor, Patriot Construction, Inc. subsequently filed a SBA size protest, alleging in part that KOO was affiliated with Total Team Construction Services, Inc.  Patriot submitted evidence that the companies shared certain facilities and that the same personnel represented themselves at the same time as officers or employees of both companies.

The SBA Area Office determined that Keith Odister, KOO’s sole owner, officer and director, controlled KOO.  Mr. Odister’s brother, Kendall Brooks, owned TTCS.  KOO had issued two subcontracts to TTCS and the companies had engaged in four joint ventures.

Despite the ties between the companies, the SBA Area Office held that KOO and TTCS were not affiliated.  The SBA Area Office noted that KOO and TTCS were parties to an SBA-approved mentor-protege agreement, with KOO serving as the mentor and TTCS as the protege.  According to the SBA Area Office, the existence of the 8(a) mentor-protege agreement precluded a finding of affiliation.

Patriot appealed the decision to SBA OHA.  Patriot alleged in part that the SBA Area Office had erred by failing to properly evaluate potential affiliation based on extensive employee sharing documented in the protest.

SBA OHA began its opinion by stating, “[t]he record contains a great deal of evidence that KOO and TTCS are affiliated.”  SBA OHA pointed out that the two principals were brothers, that the companies had collaborated on a number of joint ventures, and that they shared an address.

SBA OHA also wrote that the companies “appear to have freely shared their employees.”  This sharing of employees “appears to have gone well beyond that required to perform the joint ventures, extending to joint work on many other contracts.”

Having identified the ties between the companies, SBA OHA pointed out that the SBA’s regulations do not establish a total exception from affiliation for 8(a) mentors and proteges.  Rather, the applicable regulation, 13 C.F.R. § 121.103(b)(6), states that “[a]n 8(a) BD Participant” is not affiliated with its mentor “solely because the protege firm receives assistance from the mentor under the agreement.”  However, “[a]ffiliation may be found for other reasons.”

Under the regulation, SBA OHA wrote, “[t]he mentor/protege agreement thus protects the protege from a finding of affiliation for only assistance received under the agreement.  The concerns may still be found affiliated for other reasons.”

In KOO’s case, SBA OHA held that the mentor-protege agreement meant that KOO and TTCS were not affiliated on the basis of the brothers’ familial relationship.  Citing previous SBA OHA authority, SBA OHA wrote, “if SBA intended to never allow family members to form mentor/protege agreements, it should make this requirement a part of the regulation and not approve the relationship in the first place.”

However, SBA OHA held that the SBA Area Office had erred by assuming that the mentor-protege agreement necessarily shielded KOO and TTCS from affiliation on a basis other than the family relationship.  SBA OHA wrote, “the Area Office failed to consider whether the extensive sharing of employees between the two concerns, outside of the contracts the approved joint ventures performed, was beyond the scope of assistance provided under the mentor/protégé agreement, and thus constituted a basis for finding affiliation between the KOO and TTCS for other reasons.”

SBA OHA also held that the SBA Area Office had failed to consider another important matter: “whether the regulations protect the mentor from a finding of affiliation, as well as the protege.”  SBA OHA remanded the case to the SBA Area Office for further consideration.

Because SBA OHA remanded the case, the Patriot Construction decision raises more questions than it answers.  But SBA OHA strongly suggested that an 8(a) mentor and its protege can be affiliated on the basis of employee sharing, if that employee sharing is beyond the scope of “assistance” under the mentor-protege agreement.  Of course, the question of whether, in this case, KOO and TTCS went outside their mentor-protege agreement is now for the SBA Area Office to decide.

The SBA Area Office also must address the intriguing question of whether an 8(a) program mentor like KOO is entitled to an exception from affiliation with its protege.  Based on the plain language of the regulation, it is quite possible that the SBA Area Office could find that the affiliation “shield” applies only to the protege.

Because SBA Area Office decisions are not publicly published, this remand decision may be the last that we hear of the KOO/TTCS size determination.  But if a second SBA OHA appeal occurs, you can be sure that I will analyze it.

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