8(a) Mentor-Protege Joint Venture Shielded From “Three-In-Two” Rule Affiliation

According to the SBA Office of Hearings and Appeals, an 8(a) mentor-protege joint venture may be entitled to an affiliation “shield,” even if the joint venture violates the so-called “three-in-two” rule by receiving more than three contracts over a two-year period.

SBA OHA’s decision in Size Appeal of Magnum Opus Technologies, Inc., SBA No. SIZ-5372 (2012), should reassure 8(a) proteges and their mentors that if the SBA District Office has approved a contract award to an 8(a) mentor-protege joint venture, the joint venturers are very unlikely to be found affiliated as a result of that contract award.

When we checked in with the Magnum Opus SBA size appeal yesterday, I discussed SBA OHA’s holding that a protested small business cannot be found affiliated with another company unless it has been given the opportunity to contest the bases of alleged affiliation.  In case you did not read that post, the size appeal involved an Army solicitation for health care provider services.  Magnum Opus Technologies, Inc., an 8(a) graduate, was named the apparent successful offeror.

While in the 8(a) program, Magnum Opus had participated in a mentor-protege relationship with Sterling Medical Associates, Inc., as its mentor.  The two companies won ten contracts as joint venturers.  However, the last award to the joint venture had been issued several years before the Army award to Magnum Opus.

After Magnum Opus was named the apparent successful offeror, a competitor filed a SBA size protest.  The SBA Area Office found that Magnum Opus and Sterling had violated the so-called “three in two” rule, which states that a single joint venture can be awarded no more than three contracts over a two-year period, or the joint venture partners may be generally affiliated.

According to the SBA Area Office, because Magnum Opus and Sterling had violated the three-in-two rule, they were not entitled to the protection of the mentor-protege “shield” from affiliation.  The SBA Area Office issued a size determination finding Magnum Opus and Sterling affiliated.

Magnum Opus filed a SBA size appeal.  SBA OHA agreed with Magnum Opus, vacating the SBA Area Office’s decision.  Referring to a 2010 SBA size appeal decision, Size Appeals of Safety & Ecology Corp., SBA No. SIZ-5177 (2010), SBA OHA wrote that “forming a joint venture to compete for contracts is assistance provided pursuant to the mentor-protege agreement.  The regulation is clear that no such assistance can serve as the basis for an affiliation finding.”

SBA OHA summed up its holding as follows:

“Under Safety and Ecology, such non-compliance with the 3-in-2 rule—particularly by a joint venture that is not a participant in the instant procurement—does not by itself establish that Appellant and Sterling are automatically affiliated. Rather, Magnum Medical’s non-compliance with the 3-in-2 rule could precipitate a broader review of the facts and circumstances underlying the relationship between Appellant and Sterling. Based on the available record, it appears that such a review has not yet occurred, and the Area Office offered no rationale for finding Appellant and Sterling affiliated other than the 3-in-2 rule.”

Although SBA OHA did not raise the issue, its decision in Magnum Opus makes sense from a fairness standpoint.  Under the 8(a) regulations, an 8(a) mentor-protege joint venture cannot be awarded an 8(a) contract unless the protege’s SBA District Office approves the award.  In cases where a SBA has approved more than three 8(a) contract awards for a particular mentor-protege joint venture, it seems particularly unfair to later find the joint venture partners affiliated on the basis of those same awards.  Magnum Opus should help prevent this sort of unfairness.

Leave a Reply

Your email address will not be published.