Written by attorney David Allen Rose

The New SBA Mentor Protege Program under the 2013 Defense Authorization Act

It has now been almost three months since the 112th Congress authorized the SBA to create a mentor-protégé program (M/P) for all small businesses. As with many pieces of legislation, this change was not done directly pursuant to the Small Business Act but in the National Defense Authorization Act. It did; however, modify the Small Business Act, 15 U.S.C. 631, et.seq.) President Obama signed this change into law on January 3, 2013. Along with establishing a new SBA Mentor Protégé Program, it addressed, shall we say corralled the numerous Agency led Mentor Protégé Programs by now requiring the Agencies with a Mentor Protégé Program (or those desiring one) to submit their program for SBA approval (some exceptions, e.g. DOD, SBIR or SB Technology Transfer apply).

The precise language authorizing the new M/P program in the Act states “The Administrator [of SBA] is authorized to establish a mentor-protégé program for all small business concerns." In the next paragraph it states, “The new mentor-protégé program established under paragraph (a) shall be identical to the mentor-protégé program of the Administration for small business concerns that participate in the program under section 8(a) (as in effect on the date of enactment of this section) except that the Administrator may modify the program to the extent necessary given the types of small business concerns included as protégés."

On its face it appears we will now level the playing field for small businesses. The SBA shall establish M/P programs for all small businesses identical to the 8(a) program and it shall be identical to the 8(a) M/P program. The caveat inserted here is that it may be modified to the extent necessary given the type of small business concern included as protégés.

For someone who has been working with small businesses law for decades, this is clear. However, it is possible SBA may not interpret this the same way as I do. I believe the intent of Congress was to allow the SBA Administrator some flexibility to adjust the rules to accommodate the nuances of each program, For example SDVOSBs receive their CVE verifications from the VA so they would be subject, possibly to a coordination if the SBA decided to incorporate CVE designation into the process. HUBZones can lose their designation if either the geography of the HUBZone map changes or they bust their 35% employee composition.

This seems plain to me. However, the Administrator, or his drafters, might interpret this as a license to preserve certain privileges, long held by the 8(a) community, to disadvantaged status groups and not the small business community at large. While it is not clear as crystal, the history behind the purpose of this change should be and I believe my interpretation to be the right one, if not followed, will raise the most controversy.

However, if the programs are in substance, identical to the 8(a) program – if I were a small business I would be calling and writing my Congressman, then there are a great many incredible benefits to follow. For instance, all joint ventures between two companies are affiliated. Eyebrows are raised of course. The rest of the story – unless there is an exemption from affiliation found in 13 CFR 121.103(h). These exceptions can be viewed (and downloaded) from the joint venture chart on our website. The big one here is that a large business and small business are always affiliated unless they are in an approved SBA mentor protégé agreement (right now reserved for 8(a) firms). If they are and they form a joint venture, they get to compete for any small business procurement, 8(a) or small business set aside, regardless of the value, as a small business, and they get to claim the experience, bonding capacity and capabilities of the mentor. Other competitors (non M/P) are at a great competitive disadvantage.

Also, the search letter. Even a great many 8(a)s have not heard of this one. In effect, a search letter allows the SBA to cherry pick a project (<4 Million) for a sole source set-aside to an 8(a) of their choosing.

The mentor can also provide any type of assistance written into the M/P agreement (loans, line of credit, bonding, teaming, etc.) without the fear of affiliation, so long as the M/P agreement has been approved by the SBA.

So when do we get all these benefits? 270 days after January 3 (the date signed into law) the regulations were mandated to be released for Public Notice and Comment. Just like any CFR regulation under the Administrative Procedures Act. Once this process is completed, we should see what this program looks like.

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