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SBA Consolidates Mentor-Protege Programs and Changes Other Important Small Business Rules

by Stephen L. Bacon

On October 16, 2020, the Small Business Administration (SBA) published a Final Rule that consolidates its mentor-protégé programs and makes various other important rule changes that will impact small business government contractors.  The changes are also important for larger businesses considering the competitive benefits of teaming with small businesses to win federal contracts.  The Final Rule includes changes to the regulations that govern a variety of issues including mentor-protégé joint ventures, affiliation between joint venture partners, the timing of size and socioeconomic status recertification for task and delivery orders, the 8(a) Business Development (BD) Program’s “once an 8(a), always an 8(a)” rule, and more.  This article summarizes the key elements of the Final Rule that contractors need to know.  These changes take effect on November 16, 2020.


Mentor-Protégé Program Changes

For several years, the SBA has administrated two separate mentor-protégé programs – the 8(a) BD Mentor-Protégé Program, which is available to 8(a) Participants only, and the All-Small Mentor-Protégé Program (“ASMPP”), which is available to all small businesses.  Both programs allow mentor firms to provide valuable business development assistance to small business protégé firms.  Moreover, affiliation between the mentor and the protégé may not be found based solely on the assistance provided pursuant to their mentor-protégé agreement.

Because the benefits of these programs are identical, the Final Rule eliminates the 8(a) BD Mentor-Protégé Program and consolidates it with the ASMPP.  The SBA consolidated these programs to avoid confusion in the small business community and remove unnecessary duplication of functions within the SBA.

Existing 8(a) mentor-protégé relationships will continue under the ASMPP and will have the same remaining time in the ASMPP as they would have had in the 8(a) BD Mentor-Protégé Program.  The term of a mentor-protégé agreement cannot exceed six years, including extensions.  Thus, an existing 8(a) mentor-protégé relationship in its second year could continue for another four years under the ASMPP.

The Final Rule specifies that any mentor-protégé relationship approved under the 8(a) BD Mentor-Protégé Program will count as one of the two lifetime relationships that a small business may have under the ASMPP.  Moreover, the Final Rule amends the ASMPP regulations to provide that a mentor-protégé relationship will not count towards a firm’s two permitted lifetime relationships if the mentor-protégé agreement is terminated within 18 months from the date of the SBA’s approval.

The Final Rule also includes a new process for the SBA to intervene on behalf of the protégé if the mentor does not satisfy its commitment to provide assistance to the protégé.  If a protégé asks the SBA to intervene, the SBA may terminate the agreement if it the mentor does not adequately rebut the protégé’s allegation.  In the event of termination, the protégé may substitute a new mentor for the time remaining under the mentor-protégé agreement and the substituted mentor will not count against the protégé’s two-mentor limit.

Finally, as concerns the ASMPP, it is notable that SBA did not adopt any limitation on the size of eligible mentors.  In its Proposed Rule, SBA sought comments on whether mentors should be limited to firms with annual revenues less than $100 million.  However, the vast majority of comments opposed this limitation and SBA did not adopt it in the Final Rule.


Mentor-Protégé Joint Venture Rule Changes

One of the key benefits of the 8(a) BD Mentor-Protégé Program and the ASMPP is that they allow mentors and protégés to form joint ventures that are eligible to compete for small business set-aside contracts, so long as their joint venture agreement (JVA) meets certain requirements.  For 8(a) contracts only, joint ventures have been required to seek and obtain the SBA’s approval of the JVA prior to award.  Due to this pre-approval requirement, the SBA has not had size protest jurisdiction to consider whether a JVA is compliant with the governing regulations in an 8(a) set-aside procurement.

The Final Rule eliminates the JVA pre-approval requirement for 8(a) set-aside competitions, but not for 8(a) sole source awards.  This means that, in an 8(a) set-aside competition, a joint venture’s compliance with JVA requirements may now be challenged in a size protest.  As we discussed in a prior article, the SBA’s Office of Hearings and Appeals (“OHA”) has issued multiple decisions that have deemed joint ventures ineligible for non-8(a) set-asides due to their non-compliance with JVA requirements.  In light of the Final Rule change, we are likely to see an uptick in similar size protests filed in connection with 8(a) set-aside procurements.

Under the Final Rule, the governing JVA requirements remain largely the same with a few notable changes. Most importantly, the Final Rule clarifies the current requirement that the JVA must designate the protégé as the “managing venturer.”  The existing rule does not define “managing venturer,” but SBA OHA recently held that the protégé must have “unequivocal control” of the JV in a decision we wrote about earlier this year.  In that case, the JV was deemed in eligible for award because the large business mentor had “negative control” of the JV through its veto power over certain essential business functions including competition for and performance of contracts.  Seventh Dimension, LLC, SBA No. VET-6057 (2020).

The Final Rule change seems to suggest that the protégé does not necessarily need “unequivocal control” of the JVA as SBA OHA decided in Seventh Dimension.  Rather, the new rule provides that the “managing venturer is responsible for controlling the day-to-day management and administration of the contractual performance of the joint venture, but other partners to the joint venture may participate in all corporate governance activities and decisions of the joint venture as is commercially customary.”  Although the Final Rule is ambiguous as to the types of “corporate governance activities” that are “commercially customary,” the new language seems to indicate that SBA’s intent is to allow mentors to be involved in at least some degree of corporate decision-making for the JV.

The existing regulations provide that protégés must perform at least 40% of the work performed by the JV.  The Final Rule clarifies that a protégé cannot subcontract any portion of its 40% minimum workshare to one or more similarly situated entities.

The existing rule also specifies that each JV partner must receive profits from the JV commensurate with its share of work, i.e., the protégé must receive 40% of the profits.  Although it may be unlikely to occur in practice, the Final Rule provides that the small business protégé may receive profits in excess of its commensurate 40% workshare if the mentor agrees.

Under the current JV rules, an employee of the protégé must be designated as the “project manager” responsible for contract performance.  The Final Rule recognizes that some contracts use different labels (e.g. “program manager,” “program director,” etc.) to identify the responsible individual.  To clarify, the Final Rule provides that the protégé must employ the “Responsible Manager,” broadly defined to include any manager with ultimate responsibility for performance of the contract.

The Final Rule also confirms that procuring activities may not require protégé firms to individually meet the same evaluation or responsibility criteria as that required of other offerors generally.  This change responds to unreasonable requirements that some agencies have directed specifically to protégé partners of mentor-protégé joint ventures.


Elimination of the “3-in-2” Affiliation Rule for Joint Ventures

The Final Rule eliminates the so-called “3-in-2” rule, which created general affiliation between JV partners if the JV was awarded more than three contracts over a two-year period.  Under the Final Rule, a JV may submit an unlimited number of offers for a two-year period following the date of its first contract.  For affiliation purposes, there is no longer a limit on the number of awards a JV can receive during a two-year period.

If the JV is awarded any contracts after the two-year period, the JV partners will be deemed affiliated.  JV partners can avoid the consequences of this affiliation rule by forming a new JV entity to submit offers after the two-year period expires.  However, if the JV partners continue to create new JV entities over a long period of time, SBA may find that the partners are generally affiliated due to a longstanding relationship and/or contractual dependence.


Security Clearance Requirements for Joint Ventures

Under existing SBA rules, a JV cannot hire individuals to perform a contract (i.e., the JV must be “unpopulated”).  This rule has created some confusion on contracts where certain aspects of the work require a facility security clearance.  Some agencies have not awarded contracts to JVs because the JV itself does not have the required clearance.  SBA believes this is inappropriate.

To alleviate this problem, the Final Rule now allows the JV to directly employ administrative personnel and such personnel may include Facility Security Officers.  The Final Rule also provides that the JV may be awarded a contract where either the JV itself or the lead small business partner to the JV has the required facility clearance.  If the portion of the contract requiring a clearance is ancillary to the principle purpose of the procurement, the non-lead partner (e.g. large business mentor) can possess the clearance.


Size and Status Recertification for Set-Aside Orders Under Multiple Award Contracts

The Final Rule codifies changes to the size/status recertification requirements that apply to task and delivery order procurements under multiple award contracts (MACs).  The existing rule provides that, if a business is small at the time of the initial offer including price for a MAC, it is generally small for each order unless the contracting officer requests a new size certification in connection with a specific order.

Under the Final Rule, the requirement to recertify at the order level now depends on whether the underlying MAC was unrestricted or set-aside for small businesses (i.e., small business set-aside, 8(a) small business, service-disabled veteran owned small business, HUBZone small business, or women-owned small business).

Unrestricted MACs.  If the underlying MAC is unrestricted, offerors must recertify their size/status at the time they submit an initial offer including price for an order that is set-aside for small businesses.  This rule change recognizes that competitors do not have an incentive to protest the size/status of an awardee on an unrestricted MAC because size/status is not important at the time of award.  As a result of the rule change, an unsuccessful offeror can now protest the size/status of a competitor when an agency awards a set-aside task or delivery order under an unrestricted MAC.

Set-Aside MACs/Reserve “Pools.”  If the underlying MAC was set-aside for small businesses, or if the MAC includes a small business reserve “pool,” offerors are not required to recertify their size/status for an order if the order is set-aside for competition among the same small business subcategory that competed for the MAC or reserve “pool.”

Note that there are situations in which an offeror might be required to recertify status, but not size, for a task or delivery order procurement.  For example, if the MAC is set aside for small businesses, but the order is set-aside specifically for WOSBs, the offeror would have to recertify its status as a WOSB when its submits the offer in response to the order solicitation.

Agreements.  The rules with respect to “Agreements” have not changed.  A concern must qualify as small at the time of its initial offer including price for any “Agreement” including a Blanket Purchase Agreement (BPA) or Basic Ordering Agreement (BOA), except for BPAs issued against a GSA Schedule Contract.  A concern must also qualify as small for each individual order under an Agreement.

GSA Schedule Contracts.  BPAs and orders issued against GSA Schedule Contracts continue to be exempt from the requirement to recertify size/status at the order level, even though GSA Schedule Contracts are unrestricted.


Change to “Once an 8(a), Always an 8(a)” Rule

Once an agency’s requirement is accepted into the 8(a) program, that work must generally remain in the 8(a) program.  This so-called “once an 8(a), always an 8(a)” rule applies to “follow-on” requirements but not “new” requirements.  In other words, if the agency is soliciting a “new” requirement, as opposed to a “follow-on” requirement, the procurement does not need to be set aside for 8(a) Participants.

The existing rules state that a “new” requirement may include “[t]he expansion or modification of an existing requirement…where the magnitude of change is significant enough to cause a price adjustment of at least 25 percent (adjusted for inflation) or to require significant additional or different types of capabilities or work.”  13 C.F.R. § 124.504(c)(1)(ii)(C).  8(a) Participants expressed concern that agencies have increased the value of a procurement by 25% merely to call procurements “new” under this rule so that the work can be removed from the 8(a) program.

To address this concern, the Final Rule adopts a new flexible definition of a “follow-on requirement” that includes “consideration of whether the scope has changed significantly, requiring meaningful different types of work or different capabilities; whether the magnitude or value of the requirement has changed by at least 25 percent; and whether the end user of the requirement has changed.”  13 C.F.R. § 124.3.  A “new requirement” may satisfy at least one of these conditions, but the Final Rule codifies SBA’s view that the “25 percent rule…cannot be applied rigidly in all cases” because this could encourage a result that would be inconsistent with the intent of the “once an 8(a), always an 8(a)” rule.

As we explained in a prior article, the 25% rule has been strictly interpreted by the Government Accountability Office (GAO) in previous bid protest decisions.  A recent GAO decision, however, adopted the SBA’s less rigid interpretation of the 25% rule and found that the agency unreasonably concluded that a solicitation constituted a “new requirement” that could be removed from the 8(a) program.  See Eminent IT, LLC, B-418570; et al. (June 23, 2020).

Going forward, it will likely be more difficult for agencies to justify the removal of a requirement from the 8(a) program in light of the Final Rule change and GAO’s decision in Eminent.  It should also be noted that the Final Rule now gives the SBA authority to appeal a contracting officer’s determination that a procurement is a “new” requirement.



The Final Rule is likely to have an impact on many government contractors when it takes effect on November 16, 2020.  Contractors should consider how these various regulatory changes will impact their operations and business development strategies.




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