On Friday, August 23, the Small Business Administration issued a proposed rule that would significantly change the SBA’s HUBZone small business contracting program and other small business programs, including the 8(a) Program and the All Small Mentor-Protégé Program.

Comments are due by October 7, 2024. They should reference Docket No. SBA-2024-0007 or RIN 3245-AH68, and may be submitted through http://www.regulations.gov/.

The Small Business Administration’s All Small Mentor-Protégé Program offers an effective way for small federal contractors to partner with a larger company to win small business set-aside contracts, including 8(a) and HUBZone status. Assuming the mentor and protégé form a joint venture properly, the venture can qualify for contract opportunities set aside for small business programs, and the contracting agency must give the partnership credit for the past performance of the mentor when contracts are awarded. 13 C.F.R. § 125.8(e) states:

Capabilities, past performance and experience. When evaluating the capabilities, past performance, experience, business systems and certifications of an entity submitting an offer for a contract set aside or reserved for small business as a joint venture established pursuant to this section, a procuring activity must consider work done and qualifications held individually by each partner to the joint venture as well as any work done by the joint venture itself previously. A procuring activity may not require the protégé firm to individually meet the same evaluation or responsibility criteria as that required of other offerors generally. The partners to the joint venture in the aggregate must demonstrate the past performance, experience, business systems and certifications necessary to perform the contract.

In what the SBA described as a limitation on what contracting officers may currently do, the administration proposes a regulation change that would describe how federal agencies can require the protégé of a mentor-protégé joint venture to cite its own past performance in order to qualify or win a contract award, such that the protégé could not solely rely on the past performance of its mentor.

The SBA explained its reasoning as follows:

While the joint venture as a whole must meet the applicable limitation on subcontracting (or in other words perform a certain percentage of the contract), the protégé firm must perform at least 40% of all the work done by the joint venture partners in the aggregate. Because of that 40% requirement, some procuring activities require protégé joint venture partners to demonstrate some level of past performance as part of a joint venture’s offer. Although SBA’s current regulation provides that a procuring activity may not require the protégé firm to individually meet the same evaluation or responsibility criteria as that required of other offerors generally, it does not provide guidance on what a procuring activity could require. This rule proposes to provide such guidance. Specifically, the rule proposes to permit a procuring activity to require some past performance at a dollar level below what would be required of joint venture mentor partners or of individual offerors.

The SBA gave the following example:

. . . where offerors must generally demonstrate successful performance on five contracts with a value of at least $20 million, a procuring activity could require a protégé joint venture partner to demonstrate one or two contracts valued at $10 million or $8 million. In addition, if a procuring activity requires a protégé joint venture partner to demonstrate successful performance on two contracts valued at $10 million or more, successful performance by the protégé firm on those $10 million contracts shall be rated equivalently to successful performance by the mentor partner to the joint venture or any other individual offeror on $20 million contracts.

The SBA has taken the position that contracting agencies are already permitted to require some level of past performance of the protégé, and this new regulation merely provides guidance and guardrails for such requirements. If the new regulation is adopted, it remains to be seen whether the use of protégé past performance requirements will rise as contracting officers regard the new regulation as license to do so.

This article summarizes aspects of the law and does not constitute legal advice. For legal advice with regard to your situation, you should contact an attorney.