Recent rule changes issued by the Small Business Administration (SBA) provide significant improvements for government contractors in 2016.
In particular, a broader range of small businesses stands to gain new opportunities to bid on federal government contracts by participating in a program previously restricted only to those entities whose majority ownership qualified as disadvantaged.
The SBA’s 8(a) Business Development Program was designed to help small businesses that are at least 51 percent owned and controlled by socially and economically disadvantaged individuals improve their ability to win federal government contracts. To that end, a certain portion of government contracts is set aside for 8(a) Business Development companies only.
This limits the number of competitors in what otherwise would be an open bidding process, thus increasing the chances for those eligible for winning a federal contract. Additionally, it levels the playing field to only 8a-designated companies with similar capabilities, keeping out larger and more established firms with more resources and bidding experience.
A key element of this initiative is the mentor-protégé program that provides technical and management assistance from qualified for-profit and non-profit firms. Mentors can also enter into joint partnerships with protégés to compete for and fulfill government contacts, and may take up to a 40 percent ownership in the protégé company in order to raise capital.
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It’s the classic win-win situation. Small businesses can partner with mentor businesses to get experienced consulting and financial assistance in acquiring and managing a federal contract, while the mentor businesses gain access to opportunities they otherwise are disqualified from bidding on. In addition, bigger companies can team with smaller companies with specific subspecialties to make them both more competitive.
Of particular importance to small businesses is that they retain their size status. As Reginald M. Jones and Nicolas T. Solosky writing in The Federal Government Contracts & Procurement Blog explain, “With narrow, limited exceptions, the SBA regulations currently provide that two businesses that joint venture to perform federal contracts will be considered affiliated.
Affiliation… with a large business means the loss of small business size status and no longer being able to pursue small business set-aside contracts or subcontracts under a large business’s Small Business Subcontracting Plan. [However,] An 8(a) protégé can joint venture with its SBA-approved large business mentor and still qualify as a small business for any federal government contract or subcontract without the fear of affiliation.”
Now there’s more good news for a broader range of small businesses. Pending changes resulting from the Small Business Government Contracting and National Defense Authorization Act of 2013 Amendments expand the definition of 8(a)-qualifying status to most small businesses, not just those that qualify as disadvantaged.
Moreover, new standards aim at making procedures qualify businesses for 8(a) status as well as overall management of the program much more efficient.
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SIGNAL reporter Sandra Jontz writes, “The rule change establishes a universal mentor-protégé program for all federal agencies with the SBA managing the streamlined effort across the government except for the program run by the Defense Department… The change is one part of a comprehensive culture shift at the SBA that includes plans to modernize a number of processes…[as well as] making the ‘bold’ push to tutor U.S. businesses on how to expand their base and tap international markets and diversify their revenue.”
To qualify as a protégé, a small business must be in good standing in the 8(a) Business Development program and current with all SBA reporting requirements. In addition, the small business must meet at least one the following conditions:
- Is in the developmental stages of the 8(a) Business Development program, or
- Has never received an 8(a) contract, or
- Is less than half the size of the SBA-defined size standards for small business.
Typically, protégés only have one mentor at a time, although the SBA can authorize a second mentor for special circumstances. Mentor-protégé relationships can only be approved by the SBA. A written agreement details the specifics of the assistance the mentor provides and how it plans to help the protégé meet its goals.
The relationship agreement typically lasts for one year. The SBA is also empowered to end an agreement if the mentor has not provided the promised assistance or the assistance has not achieved the desired benefits to the protégé.
How Can Your Business Qualify?
At the time of this writing, details of the rule amendments are still be finalized, though the expectation they will be in sometime this summer. Attorney Edward DeLisle, a member of the Section of Public Contract Law of the American Bar Association (which helped draft comment on the proposed rule amendments), advises how a small business interested in the mentor-protégé program might proceed: “The most important thing is to understand what the rules are and be prepared to take advantage of them.
Find someone who can assist you in expanding your horizons as a small business. More of these relationships will be forming, and you want to participate in the program because your competitors will be. I recommend that businesses contact their local SBA office or visit the SBA website, as a lot of information is available there as well.”
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