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 first few common misconceptions surrounding the program (with the rest to follow in Part II).
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 #1 – “Any JV competing for contracts or pursuing sole-source contracts set aside for small businesses, 8(a)s, HUBZones, WOSB/EDWOSBs, or VOSB/SDVOSBs must have an SBA-approved MPA in place.”
Correction #1 – “Any JV competing for contracts or pursuing sole-source contracts set aside for small businesses, 8(a)s, HUBZones, WOSB/EDWOSBs, or VOSB/SDVOSBs must have an SBA-approved MPA in place if either venturer is large for that contract’s size standard.”
Indeed, an SBA-approved MPA is only required for two venturers to pursue a set-aside contract through a JV (competitively or through sole-sourcing) if one of those venturers is considered other-than-small for the size standard corresponding to the contract the JV seeks. In that case, once the venturers have an SBA-approved MPA in place, and have properly formed a JV entity/executed a compliant JV agreement, that MPP JV may then pursue any contract the protégé is eligible for, both in size and, if further set aside, in status too (i.e., for a WOSB set-aside contract with a $19 million size standard, the protégé must be a WOSB and must have average annual receipts under $19 million over the last five years).
Just a few caveats here—the MPP JV (like all JVs) must: (i) be registered in SAM.gov prior to bidding the project; (ii) ensure the JV agreement is fully-executed prior to bidding the project; and (iii) either be project-specific or have a project-specific addendum (also executed prior to bidding). Also, but only for an 8(a) MPP JV or 8(a) JV pursuing an 8(a) sole-source, SBA will need to approve of the JV agreement and any addendums/amendments to it (in addition to any required-MPA) prior to the JV receiving the 8(a) sole-source award.
Otherwise, two (or more) venturers are free to pursue any set-aside contract through a JV (competitive or sole-sourced) without an SBA-approved MPA, provided that: (i) those venturers both qualify as small for the size standard corresponding to the contract’s assigned NAICS code; and (ii) the managing venturer qualifies for any additional status the contract may be set aside for (i.e., for a WOSB set-aside contract with a $19 million size standard, the managing venturer must be a WOSB whose size does not exceed $19 million).
Misconception #2 – “The rules prohibit SBA from finding affiliation between a mentor and protégé if they have an SBA-approved MPA in place.”
Correction #2 – “The rules prohibit SBA from finding affiliation between a mentor and protégé based on the assistance provided under an SBA-approved MPA but may still find affiliation between such mentor and protégé for other reasons.”
Again, the primary purpose underlying SBA’s MPP (and the assistance and JV options allowed thereunder) is the regulatory “shield” from affiliation it provides to a protégé and its SBA-approved mentor. Without an SBA-approved MPA in place: (i) one business providing multiple types of assistance to another could be found indicative of affiliation; and again, (ii) a large business could not JV with a small business for set-aside work of any kind, as they would be deemed affiliates and their sizes aggregated. So, while this “shield” is obviously quite powerful, it is crucial to keep in mind that it still has it limits.
Specifically, SBA’s affiliation rules state the following:
A firm that has an SBA-approved mentor-protégé agreement authorized under § 125.9 of this chapter is not affiliated with its mentor or protégé firm solely because the protégé firm receives assistance from the mentor under the agreement. Similarly, a protégé firm is not affiliated with its mentor solely because the protégé firm receives assistance from the mentor under a federal mentor-protégé program where an exception to affiliation is specifically authorized by statute or by SBA under the procedures set forth in § 121.903. Affiliation may be found in either case for other reasons as set forth in this section.
Just a few things to note here: (i) my use (and SBA’s) of the repetitive precursor “SBA-approved,” as an MPA only provides this affiliation “shield” in the first place if SBA approves of it prior to the mentor providing assistance and, for an MPP JV, prior to bidding; (ii) my careful selection of the term “shield” for your visual representation of the MPP’s affiliation protections, rather than a broader-coverage term (like “blanket” or “immunity”), as the rule above clearly states that affiliation can always be found for “other reasons” than the mentor providing assistance “under the agreement”; and (iii) while most forms of assistance that are not anticipated by nor covered in the written, SBA-approved MPA will not receive protection from a finding of affiliation, it is generally accepted that a protégé and its SBA-approved mentor can JV in accordance with SBA’s rules whether the MPA spells that one out or not.
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If these first couple MPP misconceptions sparked your interest, keep your eyes peeled for Part II, coming soon! Oh yea, and this is only the first “Common Misconceptions” article in what promises to be a fun and exciting new series for our SmallGovCon blog readers; so stay tuned for many more on a variety of other topics.
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