A less positive evolution of the same revised rules goes beyond mentor-protected joint ventures: a small business must now recertify its size status at the time it submits a proposal (including price) for a downgraded task contract issued under an unrestricted multiple award (MAC) contract. The SBA continues to focus on preventing the abuse of this programme. Commenting on the final rule, the SBA noted that it “does not want a company that has become different from small in its primary NAICS codes to enter into a mentor-protected relationship in a NAICS code in which it had no experience simply because it qualified as small in that other NAICS code.” The SBA expressed concern about the downstream consequences of a joint venture between a mentor and a protégé who has no experience with the NAICS code in which the relationship is established. Qualification for this exemption requires the approval of the Mentor-Protégé agreement proposed by the SBA. Once the agreement is approved, the mentor and protégé can form joint ventures to pursue small business opportunities without having to worry about the size of the mentor. Equally advantageous is that the agreement itself is not the basis for finding an affiliation between the mentor and the protégé, as this would undermine the purpose of the program. Q: Does a protégé need to establish a mentor-protected relationship according to their primary NAICS code? Similarly, a protégé can be a potentially overwhelming mentor whose large company is more structured and whose business model and culture serve control rather than protected control. Even if a company qualifies as a mentor or protégé, why would they want to enter into a mentor-protected agreement? Specifically, with the “Designed to Improve the Skills of Protected Businesses” program, why would a mentor want to participate? There are four different benefits that flow from a mentor-protected agreement. In addition to being found bound or confronted with the termination of an approved mentor-protégé agreement, additional consequences may arise from the violation of SBA regulations, including termination of the contract for late payment, suspension or exclusion of the mentor and protégé, and in rare cases civil and/or criminal penalties. The protected, on the other hand, must be considered small under their main North American Industry Classification System code. If the protégé wants to expand into a second code, he must identify this code as a code in which he seeks support in business development.
However, this is not a carte blanche to enter a new market because “the SBA does not approve a mentor-protected relationship in a secondary code in which the company has no previous experience,” the rules state. Companies that are mentors or intend to serve as mentors should keep in mind that the SBA continues to emphasize that the Mentor Protected program benefits small businesses. While mentor involvement is obviously crucial when it comes to a mentor-protégé relationship, the focus must continue to be on developing the small business protégé. The SBA stated that the two programs were virtually identical in all cases and that it was unnecessary and confusing to separate them. According to the SBA, there are currently approximately 1,200 active mentor-protected agreements under the All Small Mentor Protégé program. Third, mentors can drive internal growth or ideas through the ideas of a protégé. Startups traditionally thrive by bringing new and innovative products or services to market. As a mentor, a company receives first-hand knowledge and access to innovative products and services from the protégé. This not only helps a company measure the pulse of new business activities, but also promotes internal growth and development through interactions with these innovative products and services.
Many protégés see business development as the biggest obstacle to success. According to the regulatory definition, mentors have found a way to meet this challenge. Whether entering a new region, entering a new market, or becoming familiar with government contracts, mentors have valuable knowledge to pass on to protégés. As with any other area of support, the scope of business development training should be tailored to the needs of the protected person. But the program has some shortcomings. For starters, mentors may be frustrated that the protégé has little or no management experience and can be the ideal partner for these contracts, especially for contracts with more complex performance requirements. What is even more difficult is that the protégé must have virtually total control over the joint venture, its management and day-to-day contract operations. Most importantly, mentors and protégés can hug their inner Rod Tidwell and shout at agencies to “show me the money!” Rob Kampen is an experienced government contract attorney based in Kansas City. It is accessible by linkedin.com/in/robertkampen.
As can be deduced, mentors are usually large companies and proteges are usually small companies. While mentors may also be small businesses, the regulatory context concludes that mentors are primarily large companies. However, as with most government programs, it`s not so easy for mentors to be tall and protected to be small. Many protected people do not have strong policies, procedures, or business systems. One form of mentor support is to design, compile or provide corporate documents such as record retention policies, annual review forms or proposal templates. Mentors can also provide advice on the procedures or systems that best suit the protégé. What should an internal audit process look like? What system should be used to properly document and track contract dates? Each and other of these are areas where the mentor`s experience helps a protégé avoid some of the traditional growth difficulties of a small business. The owner of the protégé is even individually called “project manager” or what the SBA now calls the “responsible manager”. Recent changes to the rules allow the mentor to participate in the corporate governance and operational activities of the Joint Undertaking, but the final decisions have not yet been taken by the protégé. Given that the SBA limits small businesses to having no more than two mentor relationships (as protégés) in their lifetime, and that the SBA has received complaints about protégés who have received limited or no support from mentors, the final rule provides additional protection for the protected. There`s no reason why mentor-protégé pairs should be a secret. Congratulations to the SBA for publishing the list, which will be useful to contract managers and the industry (as well as those of us who are simply curious by nature).
The SBA regulation allows mentors to acquire up to 40% of protegé`s shares. Even if a mentor does not make this investment in advance, there is nothing to prevent investments made in the mentor-protected agreement for a year or more. Meanwhile, employee mentors can gain valuable insights by working side-by-side with the protégé. Not only does this knowledge facilitate further due diligence efforts, but it could also help ease post-acquisition transitions. What this really means is that a good mentor can start a joint venture with a small protégé and allow that joint venture to compete as a separate small business deal on small business acquisitions without the dreaded prospect of being considered “connected” for SBA sizing. We will come back to this later. SBA has only made a few changes to the information that must be included in the mentor-protected agreement. In particular, the SBA has made it clear that it wishes to see the details of the business development assistance that the mentor will provide to the protégé by refining an existing requirement regarding the information to be included in the mentor-protégé agreement and revising the regulation so that the parties must “specifically identify the business development assistance to be provided”. before they take care of how she will improve the skills of the protégé.
Concern continues to focus on the idea that unscrupulous mentors can enter into a mentor-protected agreement to form a joint venture with a small business to win a single set-aside award and then terminate the mentor-protected agreement before that happens. The SBA has refused to limit the size of companies that can serve as mentors under the All-Small Mentor Protected program. In the proposed rule, the SBA asked for comments on whether it should limit mentors only to companies with average annual revenues of less than $100 million. This was the most commented topic – SBA received more than 150 comments on the topic, with the majority of commentators strongly opposing the proposal. SBA continues to allow any business unit, regardless of size, that demonstrates a commitment and ability to support small businesses to act as mentors. A high degree of commitment on the part of the mentor and protégé is required in order to seek and maintain valuable supply opportunities from the confederation. The business development and capture expertise that can be acquired by an experienced mentor and later used by the protégé is essential and, in some cases, difficult to obtain outside of the mentor-protégé agreement. .