By Alex Levine

The U.S. Department of Defense (“DoD”) recently announced its intent to request a 10-year extension of its mentor-protégé program. The move is a bid to add more permanence to a program, since its advent in 1991 has been labelled a pilot program that must be reauthorized in a National Defense Authorization Act every few years.

The DoD hopes that the move will encourage participation amongst businesses, participation which the DoD asserts has been “chilled” due to the perception that the pilot program could be ended at any time. Whether this will increase participation in the program, which currently features only 50 or so large firm participants, remains an open question.

Pilot program or not, the DoD program does offer distinct advantages to both large business mentors and small business protégés. These advantages, and the differences between various agency mentor-protégé firm programs, can be seen in this summary chart compiled by PilieroMazza. As the chart indicates, one such advantage of the DoD mentor-protégé program, versus other similar agency programs (with the exception of the SBA’s program), stems from its broad nonaffiliation treatment between mentors and protégés.

Under the DoD’s mentor-protégé program, a protégé firm may not be considered an affiliate of a mentor firm solely on the basis that the protégé firm is receiving assistance from its member under the DoD’s program. Thus, protégé firms can receive assistance from mentor firms without such assistance being considered as an indication of affiliation. This is a vital consideration for many small business government contractors that depend upon revenues from set-aside work and small business subcontracts.

This exemption, however, is not without its limitations. Case law at the SBA’s Office of Hearings and Appeals holds that the SBA will not apply the affiliation exemption when a mentor is providing assistance as a subcontractor to its protégé. While this limitation substantially weakens the benefits to mentors from participating in this program, mentors still derive significant benefits through the program, including through joint ventures, reimbursement for developmental assistance costs, credit towards applicable subcontracting goals, and the opportunity for equity investment, among other items.

Despite its 10-year extension, the DoD’s Mentor-Protégé program may yet lose some of its unique advantages. Under the 2013 National Defense Authorization Act, the SBA is tasked with creating rules that would eliminate the differential treatment of mentors and proteges in disparate federal programs by establishing a single program for all small businesses. The new, government-wide program will likely be based on the one currently in place for participants in the 8(a) program.  The new program should extend to all small businesses many of the same benefits that 8(a) protégés and their mentors now enjoy under the SBA’s program, including exemptions from affiliation.

On Feb. 5, SBA released its proposed rule establishing the government-wide program.  You can read our analysis on the proposed rule by clicking here.  Comments on the proposed rule are due April 6.

About the author: Alex Levine is an associate with PilieroMazza in the Government Contracts Group.  He may be reached at [email protected].