New SBA Rules:a cautionary tale

The U.S. Small Business Administration recently published its long-awaited final rule providing for a major expansion of its mentor-protege program.  The final rule makes changes broadening the existing 8(a) mentor-protege program;  it also includes regulations creating a new small business mentor-protege program that will be open to all small businesses .

These regulations, will go into effect in two days-Aug. 24, 2016.

One of the changes in the final rule is that in small business set-asides procurements, agencies will be required to consider projects performed by the individual members of a mentor-protege joint venture offeror when evaluating experience/past performance. While the SBA has clearly included this provision in an attempt to help mentor-protege joint ventures, arguably this change does more harm than good to mentor-protege joint ventures.

One thing the new rule solves is that it prohibits agencies from limiting consideration to projects performed by the joint venture itself when evaluating the experience/past performance of a joint venture offeror in a small business set-aside.

Because of the new regulation, these types of restriction are no longer permitted. Certainly, prohibiting these restrictions benefits mentor-protege joint ventures.

However, the new rule does not solve, and possibly worsens, a related and more pressing problem for mentor-protege joint ventures in experience evaluations — where the agency considers the experience of both the mentor and protege, but then downgrades the joint venture’s experience rating on account of the protege’s lack of experience (despite the fact that the mentor has plenty of experience

Unfortunately for mentor-protege joint ventures, the SBA’s new regulations fail to resolve this long-recognized problem. In fact, because the new regulations will require agencies to consider the past performance/experience of both the mentor and protege, the new regulations could very well exacerbate this problem (no longer will an agency have discretion to limit its review to the qualifications of the mentor, despite the fact the SBA has said doing so would be good policy in certain situations).

The new regulation will certainly provide some relief to mentor-protege joint ventures, especially those who are newly formed, since they will be able to meet experience and past performance requirements by demonstrating the joint venture partners individually have relevant experience/past performance, rather than the joint venture itself having to have its own relevant experience/past performance. However, because agencies will no longer have discretion to consider only the mentor’s experience, the new regulation may actually make life harder for mentor-protege joint ventures where the protege has very limited experience of its own.