The Small Business Administration has proposed two significant rule changes for federal contractors. One involves the popular mentor-protégé partnership. The change appears to be due to the popularity of the arrangement. Perhaps the government thinks it has been too successful. Attorney Shane McCall, a partner at Coprince McCall Potroff, joined Federal Drive with Tom Temin to provide the analysis.
Interview Log:
Tom Temin: Mr. McCall, thanks so much for joining us.
Shane McCall: Yes, thank you so much for having me.
Tom Temin: Mentor-protégé is a very common way for small businesses to get into federal contracting. In fact, if I understand correctly, the mentor can also be a small business, but one is just smaller than the other. First, can you give us an overview of the program? And then we’ll talk about the rule changes.
Shane McCall: Sure. Different federal agencies have different matching programs. We focus on the Small Business Administration’s Mentor-Protégé program. There are close to 2,000 approved Mentor-Protégés on the SBA list right now, and it’s definitely very popular. And, as you say, it’s open. The mentors are mostly large companies, but they don’t have to be. They do a lot of different things to help companies that are less experienced as protégés. If you sponsor them through the SBA program, you get the SBA’s approval and you get the benefits. The main benefit is that they allow for an exception to the partnership, which means that if the mentor provides some assistance to the small business, the assistance approved in the Mentor-Protégé agreement is not grounds for partnership. So, it’s kind of a protection from risk, and a lot of companies appreciate that. And another big benefit is that if you have an approved Mentor-Protégé agreement, the large company and the small business can form a joint venture. And if the protege company meets these requirements, the joint venture will qualify as a small business or 8A or SDVUSB service disabled.
Tom Temin: Right. So the protégé can’t just ride along and do nothing, and they can’t do all the work, because then that becomes the old camel’s nose in the tent mentality. So what does the SBA want to change? From what I read in what you’ve written, it sounds like they’re trying to get a more granular ability to evaluate protégés.
Shane McCall: Yeah, it seems to be giving agencies a little bit more guidance when they’re evaluating the past performance of a joint venture. Typically with a mentor, you have two parties in a joint venture. So you’re evaluating which one needs to have more experience and which one can have less experience. And previously, the current rules basically said that agencies could take into account the past performance and other qualifications of each joint venture party. So it just said they could take into account, and the SBA has found through some court cases that they’ve left agencies a little bit too much leeway, at least that’s how the SBA sees it. So, the agencies want to give agencies a little bit more detail and guidance when they’re evaluating past performance and similar types of metrics. For example, here’s this example. I look at this and I think it’s a little bit confusing to be honest, but the example that they gave to provide more detail, they talk about dollar values, specific dollar values. So, for some kind of hypothetical bid, the agency might require the conservatee to have one or two contracts worth $10 million or $8 million, but they can’t require the conservatee to have five contracts or require the conservatee to have a contract worth $20 million. And so in this example, they’re basically saying that they can’t require the conservatee to have the same level of projects as the mentor. That’s the understanding that’s come from a lot of GAO decisions and Court of Federal Claims decisions. And now, the SBA is interpreting it in their own way. So, obviously, it has to be less. Now, what I was confused about is, are they literally saying it has to be less than 50%? Does this example say that, or are they just saying it can be a dollar less? This is just an example. I think the SBA could make this a little bit clearer. Or maybe they don’t think that. Maybe they’re just saying it needs to be less because they don’t want to be a drag on the agency. So, with this example, you’re doing what the SBA is recommending.
Tom Temin: But it basically says two things. Number one, if some agency wasn’t doing it and someone was complaining about it, they wouldn’t say that. But I think this is also a way for me to see that the protégés on this new contract that I’m awarding have done similar work and therefore how they’ve done it on smaller contracts, so I know they can do any job.
Shane McCall: Exactly. I think the SBA was saying that you need a successor to have some experience, but you can’t demand the exact same value as a more experienced company. So they’re trying to strike a balance between needing some experience, but not demanding as much experience as the mentor. So how do you strike that balance? I think this example tries to make that point. It’s a tug of war between having some experience and not having too much experience, a Goldilocks type scenario, so to speak.
Tom Temin: I’m speaking with Shane McCall, a partner at Coprins, McCall & Pottroff, and this is what’s being proposed at the moment, but essentially they felt that the attorneys had done things wrong or gone too far in evaluating the successor.
Shane McCall: Yes. And part of the rules suggests that agencies may not have to require experience from their protégés and that that’s acceptable. So, I find it a little confusing that they’re saying that if they do require experience from their protégés, it can’t be at the same level as the mentor. You can’t hold them to the same standard.
Tom Temin: Yes, if you’re not, then you’re not a true disciple.
Shane McCall: Yes, that’s right.
Tom Temin: Don’t be a disciple. You can’t make the absurd example of making Accenture a disciple of Booz Allen.
Shane McCall: Yeah, that’s the language. Yeah, that’s the language. Look again. It says that procurement activities have discretion as to whether they require procurees to demonstrate a certain level of past performance. In my opinion, discretion can mean zero. So that kind of actually contrasts a little bit with how some of the rulings have interpreted that rule, which is, okay, sure, but they still want to leave that discretion up to the agency.
Tom Temin: Well, I’m glad you’re confused about that too. That’s a comfort to all of us. And it’s not the only mentor-protégé rule change that the SBA is considering.
Shane McCall: Well, there are some smaller ones in this proposed rule. This proposed rule mentions the Hub Zone program, but it also mentions a number of other small business programs. The SBA is seeking input on the whole mentor-protégé joint venture concept. But they’ve actually indicated that they have questions about it, that there are discussions scheduled, discussion periods, and they want to hear from people. So, I think they have questions about whether there are too many awards being made to mentors, or joint ventures.
Tom Temin: Yeah, this is a hot topic. It’s been talked about a lot lately. The whole concept of mentors and protégés seems to be becoming a little bit questionable.
Shane McCall: That’s exactly what the SBA is proposing. It came as a surprise to many in the federal contracting industry because, as you know, the SBA has been very aggressive with its project program. So it’s interesting to see the SBA questioning whether they’ve gone too far, whether the program is too broad, etc. But they haven’t been very forthcoming about the specifics of what changes they’re proposing.
Tom Temin: So what’s your schedule for commenting on these things?
Shane McCall: Well, right now, we haven’t seen any proposed rules on the broader issues, and I know there will be discussion sessions this fall, so I think we’ll see something come out, it might not be until next year.
Tom Temin: So at this point the balloon is floating.
Shane McCall: Right? Yes. They do mention that. And, you know, there was a notice about tribal discussions. They mention it in the notice. Or the SBA asks in the various notices that they send out. And this is this rule, this proposed rule that I talked about in the opening. Comments on the issue of past performance of joint ventures should be submitted by October 7th. And the other aspects of this rule that are about mentor-protégés are just to make the mentor-protégé program clearer and neater. For example, the SBA said a few years ago in different forums, like conferences, that you could have the same mentor twice in a row. And they clarified that in the rule to make that clearer. And now they’re concerned that people will think that somehow they’re going to allow the mentor-protégé relationship to go beyond 12 years. So they’re neatering that up. They’re saying that the mentor also has to be a for-profit business. There are some nuances, but it just makes things clearer for the mentor and the protégé.
Tom Temin: There’s a lot to take note of. Shane McCall is a partner at the law firm Koprince McCall Pottroff. Thank you so much for joining us.
Shane McCall, thank you for the opportunity. It’s been a pleasure speaking with you.
Tom Temin We will post this interview, along with a link to his mentor-protege blog, at federalnewsnetwork.com/federaldrive. On Friday, Shane will return with analysis of an even bigger rule change regarding hub zone contracts. Listen to Federal Drive on demand. Subscribe wherever you get podcasts.
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