You are on page 1of 29

THE SMALL BUSINESS ADMINISTRATION

MENTOR-PROTG PROGRAM:
WHAT IT IS, HOW TO USE IT TO YOUR ADVANTAGE,
AND RECENT DEVELOPMENTS

Presented By:

EDWARD T. DELISLE, ESQ.


for
National 8(a) Association
February 12, 2014
WHAT IS THE SMALL BUSINESS ADMINISTRATIONS
MENTOR-PROTG PROGRAM?

13 C.F.R. 124.520

8(a) Program Only (for now)

This mentoring program is offered under SBAs 8(a) Business Development


program serving disadvantaged firms. SBAs 8(a) program, named for a section of
the Small Business Act, is a business development initiative that helps socially and
economically disadvantaged Americans gain access to economic opportunity. The
program provides an avenue for disadvantaged Americans to achieve
entrepreneurial success and contribute to the strength and vigor of our economy.

Purpose: Enhance the capabilities of the protg, assist the protg with meeting the
goals established in its SBA-approved business plan, and to improve its ability to
successfully compete for contracts.

2
WHAT IS THE MENTOR-PROTG PROGRAM?

The program encourages private-sector relationships and expands SBAs efforts to


identify and respond to the developmental needs of 8(a) clients.

Specifically, the Mentor-Protg program is designed to encourage approved mentors


to provide various forms of business development assistance to 8(a) protg firms.

The program enhances the capability of 8(a) participants to compete more


successfully for federal government contracts through this assistance.

3
WHAT IS THE MENTOR-PROTG PROGRAM?

Benefits of SBAs Mentor-Protg program:

The SBA's Mentor-Protg Program is great way for both mentor and protg to
become more successful and grow as a small business. Under SBAs Mentor-Protg
program, protgs can gain the following benefits:

Technical and management assistance The mentors expertise, resources, and


capabilities are made available to the protg.

Prime contracting Mentors can enter into joint-venture arrangements with protgs
to compete for government contracts.

Financial assistance in the form of equity or loans Mentors can own equity interest of
up to 40% in a protg firm to help it raise capital.

Qualification for other SBA programs - A protg can obtain other forms of SBA
assistance as the result of its good standing in the Mentor-Protg program

4
WHAT IS THE MENTOR-PROTG PROGRAM?

Benefits of SBAs Mentor-Protg program, (cont.):

Provided you follow the regulations and structure your mentor protg relationship
correctly, no affiliation issues!!

13 CFR 121.103 - How does SBA determine affiliation?

Exceptions to affiliation coverage: An 8(a) BD Participant that has an SBA-approved


mentor/protg agreement is not affiliated with a mentor firm solely because the
protg firm receives assistance from the mentor under the agreement. Similarly, a
protg firm is not affiliated with its mentor solely because the protg firm receives
assistance from the mentor under a Federal Mentor-Protg program where an
exception to affiliation is specifically authorized by statute or by SBA under the
procedures set forth in 121.903. Affiliation may be found in either case for other
reasons.

5
MENTOR PROTG PROGRAM ELIGIBILITY
WHO IS ELIGIBLE TO BE A MENTOR?

Controlled by 13 C.F.R. 124.520(b)

Generally, any concern or non-profit entity that demonstrates a


commitment and the ability to assist developing 8(a) Participants may
act as a mentor.

In order to qualify as a mentor, a concern must demonstrate that it:

Possesses favorable financial health;

Possesses good character;

Does not appear on the federal list of debarred or suspended


contractors; and

Can impart value to a protg firm due to lessons learned and


practical experience gained because of the 8(a) BD program, or
through its knowledge of general business operations and
government contracting. 6
MENTOR PROTG PROGRAM ELIGIBILITY
WHO IS ELIGIBLE TO BE A MENTOR?

In order to demonstrate its favorable financial health, a firm


seeking to be a mentor must submit to SBA for review copies
of the Federal tax returns it submitted to the IRS, or audited
financial statements, including any notes, or in the case of
publicly traded concerns the filings required by the Securities
and Exchange Commission for the past three years.

Once approved, a mentor must annually certify that it


continues to possess good character and a favorable financial
position.

7
MENTOR PROTG PROGRAM ELIGIBILITY
WHO IS ELIGIBLE TO BE A MENTOR?

Generally a mentor will have no more than one protg at a


time.

However, the AA/BD may authorize a concern or non-profit


entity to mentor more than one protg at a time where it can
demonstrate that the additional mentor/protg relationship will
not adversely affect the development of either protg firm
(e.g., the second firm may not be a competitor of the first firm).

Under no circumstances will a mentor be permitted to have


more than three protgs at one time

8
MENTOR PROTG PROGRAM ELIGIBILITY
WHO IS ELIGIBLE TO BE A PROTG?

In order to initially qualify as a protg firm, a Participant must:

(i) Be in the developmental stage of program


participation; or

(ii) Have never received an 8(a) contract; or

(iii) Have a size that is less than half the size standard
corresponding to its primary NAICS code.

Only firms that are in good standing in the 8(a) BD program


(e.g., firms that do not have termination or suspension
proceedings against them, and are up to date with all
reporting requirements) may qualify as a protg.

SBA will not approve a mentor/protg relationship for an 8(a)


Participant with less than six months remaining in its program
term. 9
MENTOR PROTG PROGRAM ELIGIBILITY
WHO IS ELIGIBLE TO BE A PROTG?

A protg firm may generally have only one mentor at a time.


The AA/BD may approve a second mentor for a particular
protg firm where the second relationship will not compete or
otherwise conflict with the business development assistance
set forth in the first mentor/protg relationship and either:

(i) The second relationship pertains to a, secondary


NAICS code; or

(ii) The protg firm is seeking to acquire a specific


expertise that the first mentor does not possess.

A protg may not become a mentor and retain its protg


status. The protg must terminate its mentor/protg
agreement with its mentor before it will be approved as a
mentor to another 8(a) Participant.
10
HOW DOES A FIRM ENTER THE PROGRAM?
STEP 1: MENTOR AND PROTG DRAFT WRITTEN AGREEMENT

The mentor and protg firms must enter a written agreement setting forth an assessment of the
protg's needs and providing a detailed description and timeline for the delivery of the assistance the
mentor commits to provide to address those needs (e.g., management and/or technical assistance,
loans and/or equity investments, cooperation on joint venture projects, or subcontracts under prime
contracts being performed by the mentor). The mentor/protg agreement must:

(i) Address how the assistance to be provided through the agreement will help the protg firm
meet the goals established in its SBA-approved business plan;

(ii) Establish a single point of contact in the mentor concern who is responsible for managing and
implementing the mentor/protg agreement; and

(iii) Provide that the mentor will provide such assistance to the protg firm for at least one year.

The agreement must also provide that either the protg or the mentor may terminate the agreement
with 30 days advance notice to the other party to the mentor/protg relationship and to SBA.

11
HOW DOES A FIRM ENTER THE PROGRAM?
STEP 2: EVALUATION OF WRITTEN AGREEMENT

After it is finished, the written agreement must be submitted to, and evaluated and
approved by, the AA/BD.

The agreement will not be approved if:

SBA determines that the assistance to be provided is not sufficient to promote


any real developmental gains to the protg; or

SBA determines that the agreement is merely a vehicle to enable the mentor to
receive 8(a) contracts.

SBA must approve all changes to a mentor/protg agreement in advance.

SBA will review the mentor/protg relationship annually to determine whether to


approve its continuation for another year.

12
HOW DOES A FIRM ENTER THE PROGRAM?
STEP 2: EVALUATION OF WRITTEN AGREEMENT
WHAT IF YOUR BUSINESS IS NOT APPROVED FOR THE MENTOR PROTG PROGRAM?

Where SBA declines to approve a specific mentor/protg agreement, the


protg may request the AA/BD to reconsider the Agency's initial decline
decision by filing a request for reconsideration with its servicing SBA district
office within 45 calendar days of receiving notice that its mentor/protg
agreement was declined.

The protg may revise the proposed mentor/protg agreement and provide
any additional information and documentation pertinent to overcoming the
reason(s) for the initial decline to its servicing district office.

13
WHAT IF YOUR BUSINESS IS NOT APPROVED FOR THE
MENTOR PROTG PROGRAM?
APPEAL PROCESS

The AA/BD will issue a written decision within 45 calendar days of receipt of the
protg's request. The AA/BD may approve the mentor/protg agreement, deny it on
the same grounds as the original decision, or deny it on other grounds.

If denied, the AA/BD will explain why the mentor/protg agreement does not meet
the requirements of 124.520 and give specific reasons for the decline.

If the AA/BD declines the mentor/protg agreement solely on issues not raised in the
initial decline, the protg can ask for reconsideration as if it were an initial decline.

If SBA's final decision is to decline a specific mentor/protg agreement, the 8(a) firm
seeking to be a protg cannot attempt to enter another mentor/protg relationship
with the same mentor for a period of 60 calendar days from the date of the final
decision.

The 8(a) firm may, however, submit another proposed mentor/protg agreement with
a different proposed mentor at any time after the SBA's final decline decision.

14
HOW DOES A FIRM ENTER THE PROGRAM?
STEP 3: CONTINUED MONITORING

In its annual business plan update required by 124.403(a,) the protg must report to SBA for
the protg's preceding program year:

(i) All technical and/or management assistance provided by the mentor to the protg;

(ii) All loans to and/or equity investments made by the mentor in the protg;

(iii) All subcontracts awarded to the protg by the mentor, and the value of each
subcontract;

(iv) All federal contracts awarded to the mentor/protg relationship as a joint venture
(designating each as an 8(a), small business set aside, or unrestricted procurement), the
value of each contract, and the percentage of the contract performed and the percentage of
revenue accruing to each party to the joint venture; and

(v) A narrative describing the success such assistance has had in addressing the
developmental needs of the protg and addressing any problems encountered.

15
HOW DOES A FIRM ENTER THE PROGRAM?
STEP 3: CONTINUED MONITORING

In addition to the requirements relating to 124.403(a) annual business plan:

The protg must report the mentoring services it receives by category and hours.

The protg must annually certify to SBA whether there has been any change in the
terms of the agreement.

SBA will review the protg's report on the mentor/protg relationship as part of its
annual review of the firm's business plan pursuant to 124.403. SBA may decide not
to approve continuation of the agreement if it finds that the mentor has not provided
the assistance set forth in the mentor/protg agreement or that the assistance has
not resulted in any material benefits or developmental gains to the protg.

16
HOW DOES A FIRM ENTER THE PROGRAM?
STEP 3: CONTINUED MONITORING

In addition, the SBA will also continue to monitor the mentor/protg relationship to
ensure that the purpose of the program is being fulfilled.

Where SBA determines that a mentor has not provided to the protg firm the
business development assistance set forth in its mentor/protg agreement, SBA will
notify the mentor of such determination and afford the mentor an opportunity to
respond.

The mentor must respond within 30 days of the notification, explaining why it has not
provided the agreed upon assistance and setting forth a definitive plan as to when it
will provide such assistance. If the mentor does not respond, it faces some serious
consequences.

17
HOW DOES A FIRM ENTER THE PROGRAM?
STEP 3: CONTINUED MONITORING

If the mentor fails to respond, does not supply adequate reasons for its failure to provide the agreed
upon assistance, or does not set forth a definite plan to provide the assistance:

SBA will terminate its mentor/protg agreement;

The firm will be ineligible to again act as a mentor for a period of two years from the date SBA
terminates the mentor/protg agreement; and

The SBA may recommend to the relevant procuring agency to issue a stop work order for each
Federal contract for which the mentor and protg are performing as a small business joint venture
pursuant to paragraph (d)(1) of this section in order to encourage the mentor to comply with its
mentor/protg agreement.

Where a protg firm is able to independently complete performance of any such contract, SBA
may also authorize a substitution of the protg firm for the joint venture.

18
HOW DOES A FIRM ENTER THE PROGRAM?
STEP 3: CONTINUED MONITORING

SBA may consider a mentor's failure to comply with the terms and conditions of
an SBA-approved mentor/protg agreement as a basis for debarment on the
grounds, including but not limited to, that the mentor has not complied with the
terms of a public agreement under 2 CFR 180.800(b).

19
ARE THERE OTHER MENTOR PROTG PROGRAMS?

In addition to the SBAs program, there are several agency specific mentor-protg
programs. Some are:

Department of Defense (DoD) Mentor-Protg Program


Department of Veterans Affairs (VA) Mentor-Protg Program
Department of Homeland Security (DHS) Mentor-Protg Program
Department of Energy (DOE) Mentor-Protg Program
NASA Mentor-Protg Program
USAID Mentor-Protg Program
Department of the Treasury Mentor-Protg Program
Department of State Mentor-Protg Program

20
ARE THERE OTHER MENTOR PROTG PROGRAMS?

Each of these agency specific programs has its own rules, its own benefits and drawbacks.
For example, with the exception of the DoD Program, most dont get you around the
affiliation issue. However, many are open to other types of small businesses, not just 8(a).

In addition to these agency specific programs, as I will discuss in the Recent Developments
section, the SBA may be developing mentor-protg programs for VOSB/SDVOSB, HUBZone,
WOSB/EDWOSB, etc. pursuant to the 2013 NDAA.

21
RECENT DEVELOPMENTS
AFFILIATION

Size Appeal of Patriot Construction, Inc., SBA No. SIZ-5439

Award to the mentor of a mentor/protg team was protested by competitor.

Competitor alleged that the mentor and protg were affiliated, and therefore, not
small.

SBA Area office found that there were ties between the mentor and the protg, but
found that they were not affiliated due to their mentor protg relationship. The SBA
Area office found that the mentor/protg relationship precluded a finding of
affiliation.

On appeal, SBA OHA disagreed. It found that SBA regulations do not establish a total
exception from affiliation for 8(a) mentors and protgs; rather, 13 C.F.R.
121.103(b)(6), states that [a]n 8(a) BD Participant is not affiliated with its mentor
solely because the protg firm receives assistance from the mentor under the
agreement. However, [a]ffiliation may be found for other reasons.

22
RECENT DEVELOPMENTS
AFFILIATION

Size Appeal of Patriot Construction, Inc., SBA No. SIZ-5439

In Patriot, the principals of the companies were brothers, the protg had
subcontracted to the mentor twice, and the companies had engaged in four joint
ventures. It was also alleged that they shared the same address. Moreover, OHA
found that the companies appear to have freely shared their employees and that
such sharing went well beyond that required to perform the joint ventures

OHA found that the SBA area office had erred in finding that the mentor protg
relationship automatically precluded a finding of affiliation.

OHA remanded the case to the SBA for consideration of whether the extensive
sharing of employees between the two concerns, outside of the contracts the
approved joint ventures performed, was beyond the scope of assistance provided
under the mentor/protg agreement, and thus constituted a basis for finding
affiliation between the [mentor and protg] for other reasons.

23
RECENT DEVELOPMENTS
AFFILIATION

Size Appeal of Patriot Construction, Inc., SBA No. SIZ-5439

The takeaway? This case makes it clear that OHA does not consider the
mentor-protg program a free pass.

If you are using the program correctly, it should shield you from a finding of
affiliation based on the ties formed as a part of the mentor/protg
relationshipbut it will not protect you from a finding of affiliation based on
things that would, independently, constitute an affiliation.

24
RECENT DEVELOPMENTS
2013 NDAA

Small Business Jobs Act of 2010 authorized the SBA to establish


mentor/protg programs for its VOSB/SDVOSB, HUBZone, and
WOSB/EDWOSB small business programs.

However, the SBA did not issue regulations to establish the programs.

In an effort to again prompt the SBA to enact more programs, Section 1641
of the 2013 Fiscal Year National Defense Authorization Act:

Authorizes the SBA to establish a mentor/protg program for all small


business concerns; AND

Encourages the SBA to issue regulations to establish these programs


sooner rather than later

25
RECENT DEVELOPMENTS
2013 NDAA

Common errors about the NDAA and what it said about the mentor/protg
program:

The NDAA does not REQUIRE the SBA to enact these programs; it merely
authorizes it.

Any programs the SBA establishes will likely be modeled on the 8(a)
program, but do not need to be identical.

The NDAA does not require the SBA to enact regulations relating to the new
mentor/protg programs, if any, within 270 days. The 270 day requirement
refers to the mentor/protg programs of other agencies

26
RECENT DEVELOPMENTS
2013 NDAA

NDAA also likely to unify the mentor/protg requirements across the different
individual mentor/protg programs of individual agencies, as discussed above.

Pursuant to the NDAA:

A Federal department or agency may not carry out a mentor/protg


program for small business concerns unless the head of that agency submits
a plan to the SBA, and the SBA approves it.

Approval will be based on whether the program will assist protgs in


competing for Federal prime contracts, and whether it complies with
regulations to be issued by the SBA.

The SBA shall issue those regulations within 270 days.

In effect, Congress has instructed the SBA to create uniform requirements for
other agencies mentor/protg programs. This should ensure consistency.

27
Questions?

28
Edward T. DeLisle, Esq.
Cohen Seglias Pallas Greenhall & Furman PC
30 S. 17th St., 19th Floor
Philadelphia, PA 19103
215.564.1700
edelisle@cohenseglias.com
www.cohenseglias.com
www.fedconblog.com
@ed_edelisle (Twitter)

29

You might also like