Every year, federal agencies enter into agreements with private sector contractors that are worth nearly $500 billion. With money on the table that is roughly the equivalent to the GDP of Sweden, it is unsurprising that many large companies do business with the federal government. Further, because federal contracting requires compliance with a dizzying array of statutory and regulatory mandates, it may seem like the barriers to entry to the federal procurement marketplace are too high for small businesses to surmount.
To increase competition and encourage greater diversity among its contractors, federal agencies frequently take steps to give small businesses a leg up. Set-aside projects are common and take many forms, including minority-owned, service-disabled veteran-owned and women-owned small business set-asides, as well as set-asides for Historically Underutilized Business Zones. Even when a small business might have an opportunity to compete for a project, however, it may seem too difficult for a company to learn the ins and outs of federal procurement for the first time.
Mentor-Protégé Program
Enter the Mentor-Protégé Program. Although mentor-protégé arrangements have been used in a limited capacity in federal procurement for some time, in 2016 the Small Business Administration introduced a universal mentor-protégé program that applies across agencies. The program allows small business protégés who are new to the federal space to partner with larger, more experienced mentors, with the stated goal of enhancing the capabilities of protégé firms through business development assistance from the mentors.
The program allows larger firms to partner with, and even invest capital into, smaller firms, thereby allowing the large business to compete for small-business contracts that would otherwise be unavailable. In exchange, the established business provides technical, management, financial, or other assistance to the protégé, thereby increasing its capabilities and, ultimately, allowing it to better compete for projects in the future.
Although it’s more than a year old, many small businesses are still unfamiliar with the program. Here are a few practical tips for a small business interested in entering the federal marketplace, or a larger business interested in acting as a mentor.
Plan Ahead
Mentor-protégé agreements require approval by the Small Business Administration (SBA). Although not onerous, the SBA application process is exacting, requiring the protégé to submit a business plan and both parties to submit a mentor-protégé agreement, and, typically, a separate joint venture agreement. The SBA has up to 45 days to grant or deny an SBA application and may require amendment if there are areas of concern or noncompliance. Avoid jeopardizing a project by applying as early as possible.
Assess What Each Party Brings to the Table
As part of the mentor-protégé agreement, the parties are required to lay out how the arrangement will assist the protégé in meeting the business plan goals. Further, if the parties are entering into a joint venture agreement, the parties must comply with 13 CFR § 125.8. Section 125.8 mandates that all joint venture agreements include at least 12 specific provisions, including a requirement that the small business partner perform at least 40 percent of the joint venture’s work and that the small business partner perform substantive contract work—administrative or ministerial functions are insufficient. The mentor-protégé program is not designed to allow large firms access to small-business projects by using a protégé as a “fig leaf.” The SBA will require a candid assessment of the capabilities of, and benefits to, the protégé.
Prepare for Ongoing Obligations
Obtaining approval of a mentor-protégé relationship is simply the beginning. The mentor must assist for at least one year. The protégé must offer periodic reporting to the SBA, detailing the work of the joint venture and how the protégé’s work is complying with the program. Both parties must certify each year that they are continuing to comply with the program and to inform the SBA of any changes in their relationship.
ProtectING THE BUSINESS
While the phrase “mentor-protégé” may bring to mind Gershwin’s “Someone to Watch Over Me,” it is still fundamentally a business relationship. All business relationships require an honest assessment of risk and appropriate protections. In particular, parties may want to consider building into their contracts provisions related to the preservation of intellectual property, including appropriate nondisclosure provisions, and protection of employees and customers, through appropriate non-compete and non-solicitation provisions.
Consider Exit Strategies
While mentor-protégé relationships can beneficial, they are not meant to be indefinite. As noted above, the stated goal of the program is to allow protégé firms to ultimately compete on their own. The parties should give thought from the outset, therefore, about the timeline for their relationship. Do the parties envision a one-off project or a series of projects? Is the goal simply to partner in the federal space, or will the parties compete for other projects as well? Does one party bring specialized capabilities to the table so that they would be a preferred subcontractor going forward? Contemplating the end of the mentor-protégé relationship may allow the parties to best position themselves for that time.
Additionally, despite good intentions, the relationship may not work out as planned. If internal problems arise, a protégé partner that is unable to handle the project on its own may be left at the mercy of the mentor firm. Therefore, consider provisions regarding how conflicts should be addressed and the partnership dissolved, if necessary.
Federal agencies have numerous opportunities for small business that are new to the federal marketplace. If a business is considering the mentor-protégé program, the should keep in mind the above tips to maximize the potential for success.
