1. Oles Morrison Rinker & Baker LLP
Dissecting the Monumental Changes to SBA’s Mentor-Protégé Program(s) October 5, 2016
Adam K. Lasky
Oles Morrison Rinker & Baker LLP

2. Overview Basics of the SBA Mentor Protégé Program
Major Changes to SBA Mentor Protégé Program(s) as result of Final Rule issued July 25, 2016 (Effective August 24, 2016)
Disclaimer: This Presentation is for informational purposes only and does not constitute legal advice.

3. Basics of the 8(a) Mentor-Protégé Program (Pre-Aug. 24, 2016)
Designed to enable successful firms to provide various forms of business development assistance to 8(a) BD Program Participants
Allowed for a small disadvantaged business in the 8(a) program to form a joint venture with a small or large business (the mentor) to compete for federal contracts
Key Benefits From the Program:
Protégé obtains mentoring and business development assistance from experienced large business
Protégé is more competitive for contract awards due to mentor’s performance history and capabilities
Exemption from Affiliation

4. Major Changes to SBA’s Mentor-Protégé Program

5. Creation of the “small business mentor-protégé” program
Final Rule creates 2nd SBA run Mentor-Protégé program
SBA now runs Two mentor-protégé programs
8(a) [SLIGHTLY REVISED]
Small Business [NEW]
Open to all small businesses – including 8a firms
SBA has tried to make regs as similar as possible for both MP programs
Benefits and requirements similar (but not identical) to those in SBA’s existing/revised 8(a) Mentor-Protégé Program
Exemption from Affiliation benefit carries over
Mentor-protégé joint ventures approved under the new small business program will be considered a small business for any procurement that the protégé, on its own, would be considered small
For example, an approved mentor-protégé joint venture under the small business program, with the protégé being a WOSB, will qualify as small for any small business set-aside or WOSB set-aside that the protégé would qualify for on its own, but would not qualify for 8(a) or SDVO or HUBZone set-asides. 
SBA will continue running the 8(a) mentor-protégé program separately (with some revisions), and SBA has tailored the 8(a) and small business mentor-protégé programs to be as similar as possible.  An 8(a) firm will be eligible to submit a mentor-protégé application under either program.
8a MP program remains a program separate from the new MP program
No changes to how MPAs are processed for the 8a MP program
Below changes apply only to the new SB MP program, and not the 8a program, unless otherwise noted

6. Relaxed Size Requirements for Protégés
Previously, to be a protégé under the 8(a) mentor-protégé program, a firm had to be:
less than half the size of the size standard applicable to its primary NAICS code, or
be in the developmental stage of the 8(a) program, or
have never received an 8(a) contract
Now:
 firm will only need be smaller than the size standard of its primary NAICS code
New rule applies to both M-P programs

7. Potential for Size Qualification under Secondary NAICS Code
Even in not small under primary NAICS code, can qualify to be a protégé firm is seeking BD assistance with respect to secondary NAICS code for which it qualifies as small
Must show protégé has performed project(s) in that secondary NAICS code
Must show assistance specific to secondary NAICS code
Secondary NAICS code must be a “logical progression” in firm’s development
SBA wont authorize a protégé based on the secondary NAICS code where the protégé has never performed a project in that NAICS code, or where the protégé brings nothing more to the table other than its status as small

8. Mentor Eligibility Old Rule: Now: New rule applies to both programs
Had to show mentor was in “favorable financial condition”
Mentors in the 8(a) mentor-protégé program could be for-profit or non-profit entities
Could not be a protégé and mentor simultaneously
Now:
Must be able to meet financial obligation in the MPA
Only for-profit entities will be eligible to become mentors
A protégé can also serve as a mentor for another firm simultaneously if it can show the two MP relationships will not conflict
New rule applies to both programs

9. The end of “populated” mentor-protégé joint ventures
Previously:
8(a) mentor-protégé joint ventures could be “populated” or “unpopulated”
populated  persons performing the contract work would be employed directly by the joint venture
Unpopulated  persons performing the contract would be employed by the partners to the joint venture
Now:
mentor-protégé joint ventures must be “unpopulated”
though they may still be populated with administrative personnel
New rule applies to both M-P programs
Populated JVs were favored by most service contractors (cheaper, easier for mentor to control)
Because of the difficulties in tracking the benefits gained by the protégé in a populated joint venture, SBA will required all mentor-protégé’s in either of its program to be unpopulated (though they may still be populated with administrative personnel).

10. Rights to Transfer to New Program upon 8(a) graduation
Previously:
Upon a protégé’s graduation from the 8(a) program, a mentor-protégé relationship would terminate (except for on already awarded contracts)
SBA would not approve a mentor-protégé relationship for an 8(a) Participant with less than six months remaining in its program term
Now:
Upon a protégé’s graduation from the 8(a) program, the mentor-protégé can transfer to the SBA’s Small Business Mentor-Protégé program by giving notice to SBA (no need to separately apply for that program – just give notice)
SBA will lift its previous ban on approving mentor-protégé agreements in the final six months of the protégé’s 8(a) term

11. Limit on Number of Protégés a Firm Can Mentor
Generally, mentors will only be allowed to have 1 protégé at a time.
SBA may approve up to 3 protégés for a mentor at a time
Mentor must demonstrate that having multiple mentor-protégé relationships will not interfere with the development of any of the protégés (i.e., protégés in different industries)
The mentor’s 1 & 3 protégé maximums will be counted in the aggregate across both of SBA’s mentor-protégé programs
SBA may authorize a Protégé to also be a mentor, without losing its status as a protégé in the other relationship
firm must demonstrate that the second relationship will not compete or otherwise conflict with the first MP relationship
Applies to 8a and SB programs
Some changes – but largely the same
Mentor need not show “good finanacial condition” to qualify as a mentor. Istead they must demonstrate that it “can fulfill its obligations under the MPA”

12. Limit on Duration of Mentor-Protégé Agreements
Old Rule:
MPA could last as long as protégé remained in the 8(a) program
New Rule
MPA can have a maximum term of 3 years, and can be renewed for an additional 3 years
When relationship transfers from 8a to SB program, can only be renewed for one more 3-year term
New Rule Applies to Both Programs
Unclear how this applies to MPAs approved in the old 8(a) program that are still in existence
Does 3 years start now?
Does 3 years start from when MPA was originally approved?
If MPA under old program lasted 6 years, can it be transferred over to the SB MP program after graduation for 3 more years?
Duration and quantity of MPA relationships (applies to 8a and SB MP)
Protégé may have no more than 2 mentors in its lifetime (including 8a)
For 8a’s the mentor it had in its 8a MP relationship counts as one of these 2 mentors
SBA will review MP relationships annually to determine whether to approve for an additional year. Unless recinded in writing at that time. MP relationship will automatically renew without additional notice or extension from SBA
A protege may have two 3-year MPAs with different mentors, and each may be extended an additional 3 years provided the protege has received the agreed-upon business development assistance and will continue to receive additional assistance through the extended MPA.
Although an 8(a) Participant can transfer its 8(a) mentor-prote´ge´ relationship to a small business mentorprote´ge´ relationship after it leaves the 8(a) BD program, it can have only two mentor-prote´ge´ relationships in total. If it transfers its 8(a) mentor-prote´ge´ relationship to a small business mentorprote´ge´ relationship after it leaves the program, it may enter into one additional mentor-prote´ge´ relationship. It cannot enter into two additional small business mentor-prote´ge´ relationships.
This is confusing
Where ownership/control of mentor changes during course of MPA, the MPA may contune provided that the mentor gives written notice to SBA that it acknowledges the MPA and agrees to continue to fulfill its comments under the MPA

13. Limit on Number of Mentors a Protégé Can Have
Generally protégé can only have 1 mentor at a time
Unless MPAs will not compete or otherwise conflict PLUS unrelated NAICS code or 1st mentor lacks specific expertise that 2nd mentor has
Protégés in both programs will be limited to a maximum of two different mentors  
Potentially ambiguity over whether regulation means across lifetime or at one time (disagreement in legal community as to extent of restriction)
New Rule Applies to Both Programs
Unclear how participation in old 8(a) program will be counted towards limits
Duration and quantity of MPA relationships (applies to 8a and SB MP)
Protégé may have no more than 2 mentors in its lifetime (including 8a)
For 8a’s the mentor it had in its 8a MP relationship counts as one of these 2 mentors
SBA will review MP relationships annually to determine whether to approve for an additional year. Unless recinded in writing at that time. MP relationship will automatically renew without additional notice or extension from SBA
A protege may have two 3-year MPAs with different mentors, and each may be extended an additional 3 years provided the protege has received the agreed-upon business development assistance and will continue to receive additional assistance through the extended MPA.
Although an 8(a) Participant can transfer its 8(a) mentor-prote´ge´ relationship to a small business mentorprote´ge´ relationship after it leaves the 8(a) BD program, it can have only two mentor-prote´ge´ relationships in total. If it transfers its 8(a) mentor-prote´ge´ relationship to a small business mentorprote´ge´ relationship after it leaves the program, it may enter into one additional mentor-prote´ge´ relationship. It cannot enter into two additional small business mentor-prote´ge´ relationships.
This is confusing
Where ownership/control of mentor changes during course of MPA, the MPA may contune provided that the mentor gives written notice to SBA that it acknowledges the MPA and agrees to continue to fulfill its comments under the MPA

14. Two Mentors across Lifetime or At One Time?
The Revised Regulation (125.9):
A protégé firm may generally have only one mentor at a time. SBA may approve a second mentor for a particular protégé firm where the second relationship will not compete or otherwise conflict with the assistance set forth in the first protégé relationship

15. Two Mentors across Lifetime or At One Time?
SBA’s Comments in Final Rule
“the final rule will continue to authorize two three-year MPAs with different mentors, but will allow each to be extended for a second three years provided the protégé has received the agreed-upon business development assistance and will continue to receive additional assistance. SBA intends to limit all small businesses, including 8(a) Participants, to having two mentors. Although an 8(a) Participant can transfer its 8(a) mentor- protégé relationship to a small business mentor-protégé relationship after it leaves the 8(a) BD program, it can have only two protégé relationships in total.”
The Revised Regulation (125.9):
“A protégé may have two three-year mentor- protégé agreements with different mentors, and each may be extended an additional three years provided the protégé has received the agreed-upon business development assistance and will continue to receive additional assistance through the extended mentor-p protégé agreement.”

16. Requirements for Mentor-Protégé Agreements – Benefit Must be Unique to MPA
MPA must be in writing and identify the specific assistance to be provided by the proposed mentor and benefits intended to be derived by the proposed protégé
Protégé must disclosed all other mentor-protégé relationships it has/had under SBA or other mentor protégé programs
MPA must identify how proposed assistance/benefits differ from protégé’s other MP relationships
SBA is unlikely to approve an MPA if assistance proposed by mentor is the same/similar to the assistance provided or pledged to that protégé by a mentor under another MPA (past or current)
Exception: assistance has not yet been provided, and protégé terminates the other MPA
Change applies to SB and 8a MP programs
Subcontract from a protégé to a mentor can be developmental assistance authorized by a MPA, and does not give rise to affiliation as something outside the MPA

17. No open/closed enrollment periods (for now)
SBA will accept applications to the new SB mentor-protégé program at any time (starting in October)
To help facilitate the review and approval of applications, a separate unit will be created within SBA’s Office of Business Development whose sole function will be to process mentor-protégé applications
is going to be submission portal (Nov 2016?)
Ultimate approval authority is SBA’s AA/BD
AA/BD has approval authority for both SB and 8a MP programs
SBA has left open the possibility of switching to open/closed enrollment periods in the future if the need arises. 
Because of the expansion of the mentor-protégé program to all small businesses, SBA anticipates an influx in applications to the program.  As a result of this expected influx, SBA had considered utilizing open and closed enrollment periods. 
AA/BD  Associate Administrator for Business Development
SBA had considered assigning SB MP approvals to the SBA D/GC (Director of Government Contracting)
8a MP 
SB MP  125.9

19. Evaluation of Past Performance/Experience on Small Business Set-Asides
Past Performance/Experience evaluation in source selection
Old Rule
No requirement that source selection team consider past performance/experience of both mentor and protégé
In theory, source selection team could limit consideration to projects performed by joint venture itself
New Rule
For set-aside procurement, source selection team must consider past performance/experience of both mentor and protégé
Could lead to unintended consequences
New Rule Applies to All JVs in Set-Aside procurements (not just MPs)
When evaluating the past performance or experience of proposals from MP JV (8a and SB), or other JVs under the SDVO, HUBZone or WOSB programs, a procuring agency must consider the past performance of the individual partners to the JV when considering the past performance of the JV (no longer can agencies limit evaluation of performance of the JV itself )

20. Size Protests Challenging Awards to M-Ps on 8(a) Set-Asides
Previously:
Could not file a size protest challenging an award to an 8(a) mentor-protégé joint venture
Now:
Unsuccessful offerors on a competitive 8(a) set-aside my file size protest challenging the size of an apparently successfully M-P joint venture offeror
Approval of MPA by AA/BD will not constitute a formal size determination
Review will include whether JV agreement meets requirements of 13 CFR
Previously whether JV complied was only subject to protest for non-8(a) set-asides (where pre-approval of JVA was not required)
Seems to allow Area Offices (D/GC) to second guess determinations by Office of Business Development  very problematic
SBA will not need to certify that protégé is small in order to approve MPA – the size protest process will allow challenges to whether the protégé qualifies as small in a SB MP
These commenters did not believe that size and 8(a) BD status were comparable. They argued that size has always been a self-certification process that is open to review and protest in connection with any individual procurement, and that the same should be true in the mentor-prote´ge´ context. They felt that SBA should be able to rely on the size self-certification of a firm seeking to qualify as small for a small business mentor-prote´ge´ relationship. The commenters believed that a firm approved to be a small business prote´ge´ would not gain any undue benefit from the program merely by entering a mentor-prote´ge´ relationship. If a firm that was approved to be a prote´ge´ was not in fact small and was awarded a joint venture contract with its mentor based solely on its status as a prote´ge´, of course that would be objectionable. However, because the size protest procedures permit any interested party to protest the size of any apparent successful offeror, the commenters believed that a prote´ge´ that was not small would ultimately be found ineligible for award of the contract and, thus, would not unduly benefit from its mentor-prote´ge´ relationship. SBA agrees, and as long as it is clear that SBA’s approval of a mentor-prote´ge´ relationship does not amount to a formal determination of size eligibility, SBA believes that the size protest procedures would in fact be sufficient to protect the integrity of the program.
OHA case law said:
once deemed eligible by SBA's Office of Business Development, not subject to further review
area offices have no authority to approve or review 8(a) mentor-protégé” agreements: and that a firm's eligibility to receive 8(a) contracts may not be challenged outside the Office of Business Development
when the apparent successful offeror is an 8(a) mentor-protégé joint venture which has already been vetted by the Office of Business Development in accordance with SBA regulations, there is no regulatory mechanism for an area office to again review the size of the protégé firm at the point of contract award
an area office cannot review the Office of Business Development's approval of the joint venture
Seems to allow Area Offices (D/GC) to second guess determinations by Office of Business Development  very problematic
- Actually seems to conflict with other recent regulatory change adding the following language to : “A Participant may submit a joint venture agreement to SBA for approval at any time, whether or not in connection with a specific 8(a) procurement.”  whats the point if D/GC isnt bound to follow AA/DB’s decision that agreement meets the requirements

21. Mentor-Protégé joint ventures will be tracked through SAM.gov
M-P joint venture must register as a separate entity in SAM.gov
own unique DUNS number and CAGE code
must identify the firm as a joint venture
must identify the members of the joint venture
New rule applies to both M-P programs

22. Mentor-Protégé Access to SDVO and HUBZone Set-Asides
Old Rule
Mentor-protégé JVs could not bid on SDVO or WSOB or HUBZone set-asides unless both mentor and protégé were SDVO or WOSB or HUBZone firms
New Rule
Mentor is no longer required to be a SDVO or WOSB or HUBZone firm
MP can bid on SDVO or WOSB or HUBZone set-aside so long as protégé would be eligible (size/status) to bid on its own
In May 2016 (effective June 2016) another final rule was issued allowing for a similar expansion…. This other final rule allowed a non-MP JV to bid on SDVO/HUBZone/WOSB set asides if both joint venture partners were small under the relevant NAICS, and at least 1 was a SDVO/HUBZone/WOSB – this was change from prior rule that required both joint venture partners to have the relevant status

23. No impact on DoD M-P programs All other non-SBA/DoD M-P programs:
Potential Elimination of Mentor-Protégé Programs Run by Other Agencies (Other than DoD)
No impact on DoD M-P programs
All other non-SBA/DoD M-P programs:
May continue to operate for 1 year
After 1 year will terminate unless SBA approves
Procuring agencies are authorized to provide incentives in the contract evaluation process for firms that will provide significant subcontracting work to its SBA-approved protégé
Subcontracting Incentives
Discretionary
Must be “signifincant” subcontracting work
Intended to replace incetives currently provided by other non-SBA/DoD MP programs

24. Links to Key Regulatory Resources
81 Fed. Reg (Final Rule – Small Business Mentor-Protégé Programs)
13 CFR 121 (Size and Affiliation)
13 CFR 124 (8a and 8a M-P)
13 CFR 125 (SDVOSB and New SB M-P)
13 CFR 126 (HUBZone)
13 CFR 127 (WOSB)
13 CFR 134 (OHA)

25. Oles Morrison Rinker & Baker LLP
Questions?
Adam K. Lasky
Oles Morrison Rinker & Baker LLP
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