On July 25, 2016, SBA published the eagerly anticipated Final Rule establishing a governmentwide mentor-protégé program for all small business concerns. While there are a few departures from the details outlined in the Proposed Rule released nearly a year and half ago, the Final Rule generally adheres to the plan outlined in the Proposed Rule, which was modeled on the existing 8(a) mentor-protégé program. The Final Rule also contains changes in other areas of SBA’s regulations, such as the rules applying to the 8(a) and HUBZone programs. The Final Rule becomes effective on August 24, 2016. While the Final Rule does not specify the date on which SBA will start accepting applications for the new small business mentor-protégé program, SBA officials have signaled that it will begin accepting applications on October 1, 2016.

Application Process

In the Final Rule, SBA reiterates that it decided to keep the 8(a) mentor-protégé program separate and distinct from the new small business mentor-protégé program, which includes SDVOSBs, WOSBs, HUBZone concerns, and small businesses. Applications for the new small business mentor-protégé program will be administered by a newly created unit within the Office of Business Development, whose sole function will be to process mentor-protégé applications and review the mentor-protégé agreements and the assistance provided under them once approved. The new unit will process and make determinations with respect to all small business mentor-protégé agreements, with the ultimate decision-making authority vested in the Associate Administrator of Business Development. At least initially, SBA does not intend to utilize “open and closed” enrollment periods, but reserves the right to revisit the concept if the new unit becomes overwhelmed with applications and oversight responsibilities.


Mentors must be for-profit concerns of any size. The Final Rule also changes the long-standing requirement that mentors must demonstrate “good financial condition.” Now, a mentor must only demonstrate that it can fulfill its obligations as specified under the mentor-protégé agreement. Mentors are also limited to having a total of three protégés at one time. A firm that is a protégé under a mentor-protégé relationship may also concurrently serve as a mentor in a second mentor-protégé relationship, where the firm can demonstrate that the second relationship will not compete or otherwise conflict with the first mentor-protégé relationship.


Protégés must qualify as small for the size standard corresponding to its primary NAICS code or identify that it is seeking business development assistance with respect to a secondary NAICS code and qualify as small for the size standard corresponding to that NAICS code. However, the protégé must have prior experience in the secondary NAICS code and bring more to any potential joint venture with its mentor other than its small business status. The protégé may have up to two mentors where it can demonstrate that the second relationship pertains to an unrelated, secondary NAICS code or the first mentor does not possess the specific expertise that is the subject of the mentor-protégé agreement with the second mentor. Additionally, protégés do not need to undergo a size determination before participating in the program, as the normal size protest procedures act as a sufficient “check” on participants’ size certifications.

Mentor-protégé relationships approved under the 8(a) Program may also transfer to the small business mentor-protégé program after the protégé graduates from the 8(a) Program. Firms seeking to transfer its mentor-protégé relationships can do so by providing notification to SBA; no formal approval process is necessary. As an extension of this rule, SBA has also amended the 8(a) mentor-protégé regulations to now allow 8(a) participants in the last six months of their program terms to apply for an 8(a) mentor-protégé relationship, since the relationship may be transferred to the small business mentor-protégé program after the protégé graduates from the 8(a) Program.

Additionally, 8(a) protégés will now be able to participate in the 8(a) mentor-protégé program so long as the protégé is small under its primary NAICS code or is seeking business development assistance with respect to a secondary NAICS code under which it is small, and can demonstrate that the business development assistance received through the proposed mentor-protégé relationship will advance the goals and objectives set forth in its business plan. The Final Rule eliminates the term-specific and size requirements that the 8(a) protégé was required to demonstrate.

Joint Ventures

The Final Rule clarifies that, while joint ventures need not be incorporated or established as a separate LLC, the arrangement and various responsibilities of the parties must be reduced to a written agreement. Additionally, if the joint venture exists as a formal separate legal entity, it may not be populated with direct labor but may be populated with administrative employees. Existing populated joint ventures may continue to perform contracts that have already been awarded, and may receive awards of any pending proposals. However, after the effective date of the Final Rule (August 24, 2016), proposals submitted by populated joint ventures will no longer be covered under the affiliation exception – meaning that the joint venturers may be found to be affiliated for that particular contract if they continue to submit proposals under a populated joint venture after August 24th.

Joint ventures must also be separately identified in SAM so that awards made to joint ventures can be properly accounted for – the joint venture must register itself in SAM with a separate DUNS number and CAGE number than those of the individual venturers, and the entity type in SAM must be identified as a joint venture, with the individual joint venture partners listed.

Additionally, if a joint venture is pursuing an IDIQ or multiple award contract where the level of effort or scope of work is not known, the joint venture need only provide a general description of the anticipated major equipment, facilities, and other resources to be furnished by each joint venturer, without a detailed schedule of cost or value of each. In the alternative, the joint venture may specify how the parties to the joint venture will furnish such resources to the joint venture once a definite scope of work is made publicly available. Likewise, for IDIQ or multiple award contracts, the joint venturers need only provide a general description of the anticipated responsibilities of the parties with regard to negotiation of the contract, source of labor, and contract performance, or specify how the parties to the joint venture will define such responsibilities once a definite scope of work is made publicly available.

In addition, regarding performance of work, for any mentor-protégé joint ventures, the joint venture must perform the applicable percentage of work required by 13 C.F.R. § 125.6, and the small business partner to the joint venture must perform at least 40% of the work performed by the joint venture.

Mentor-Protégé Programs of Other Departments and Agencies

Mentor-protégé programs established by other agencies (except the Department of Defense) may continue to operate for a one year period after the effective date of the new rule (August 24, 2016). However, the SBA must approve those agency programs in order for them to continue beyond one year.

SBA has also authorized procuring activities to provide incentives in the contract evaluation process to a firm that will provide significant contracting work to its SBA-approved protégé firm. This incentive will be at the discretion of the procuring agency.

Benefits of Mentor-Protégé Relationships

Mentor-protégé joint ventures may qualify as a small business for any federal government contract or subcontract where the protégé qualifies as small for the size standard corresponding to the NAICS code assigned to the procurement. Additionally, SBA has clarified that the individual identified as the project manager of the joint venture need not be an employee of the protégé firm at the time the joint venture submits an offer, but if he or she is not, there must be a signed letter of intent that the individual commits to be employed by the protégé firm if the joint venture is the successful offeror. However, the individual identified as the project manager cannot be employed by the mentor and become an employee of the protégé firm for purposes of performance under the joint venture.

During the mentor-protégé relationship, the protégé firm is shielded from a finding of affiliation where a large business mentor owns 40 percent of the protégé. Once the mentor-protégé relationship ends, any protection from a finding of affiliation also ends. While there is no need for a former mentor to divest itself of its 40 percent ownership interest after the relationship ends, if it does not divest, the former protégé will be found to be ineligible for any contract as a small business where the 40 percent ownership interest causes affiliation under SBA’s size rules.

Written Mentor-Protégé Agreement

The mentor-protégé relationship must be formalized in a written agreement, outlining specifically the benefits intended to be derived by the projected protégé firms. The Final Rule also allows for subcontracts between mentors and protégés, going in either direction, to be included as a benefit. Protégés must also identify any other mentor-protégé relationship it has through another federal agency or SBA and provide a copy of each mentor-protégé agreement, so SBA may identify how the assistance identified on the new application is different from the assistance provided on the preexisting agreement. However, if certain specified assistance was identified in a mentor-protégé agreement of another agency, but that assistance had not yet been provided, a firm is able to choose to terminate the mentor-protégé relationship with the other agency and use the not yet provided assistance as part of the assistance that will be provided through the 8(a) or small business mentor-protégé relationship approved by SBA. 

The Final Rule will continue to authorize two three-year mentor-protégé agreements with different mentors, but will allow each to be extended for a second three years, provided the protégé has received the agreed-upon business development assistance and will continue to receive additional assistance. All small businesses, including 8(a) participants, will be limited to having two mentors. Although an 8(a) participant can transfer its 8(a) mentor-protégé relationship to a small business mentor-protégé relationship after it leaves the 8(a) Program, it can have only two mentor-protégé relationships in total. If it transfers its 8(a) mentor-protégé relationship to a small business mentor-protégé relationship after it leaves the 8(a) Program, it may enter into one additional mentor-protégé relationship. It cannot enter into two additional small business mentor-protégé relationships. 

Size of 8(a) Joint Ventures

Unsuccessful offerors on a competitive 8(a) set-aside contract may protest the size of an apparently successful 8(a) joint venture offeror. SBA also confirmed that district offices have the flexibility to determine 8(a) joint venture eligibility dependent upon their workload. As long as the determination occurs any time prior to award, SBA has complied with the requirement to approve the joint venture.

Agency Consideration of the Past Performance and Capabilities of Team Members

In the Final Rule, SBA requires that agencies must consider the past performance of the members of a joint venture when considering the past performance of an entity submitting an offer as a joint venture for any small business set-aside or reserved contract. This rule will apply to all small business, 8(a), SDVOSB, HUBZone, and WOSB joint ventures.

Recertification When an Affiliate Acquires Another Concern

The Final Rule requires a firm to recertify when an affiliate of that firm acquires another concern. Acquisition by an affiliate must be deemed an acquisition by the concern in question. This rule is meant to stop the practice of circumventing the recertification rules by the creation of affiliates to acquire or merge with other firms.

This requirement was not included in the Proposed Rule, and was apparently added in response to a decision from OHA issued this past January, which held that recertification was not required when a firm’s affiliate had undergone an acquisition. See Size Appeal of Digital Management, Inc., SBA No. SIZ-5709 (2016).

Establishing Social Disadvantage for the 8(a) Program

In order to establish a claim of social disadvantage, an applicant to the 8(a) Program must present a combination of facts and evidence which, by itself, establishes that the individual has suffered social disadvantage that has negatively impacted his or her entry into or advancement in the business world. SBA may disregard a claim of social disadvantage where a legitimate alternative ground for an adverse action exists and the individual has not presented evidence that would render his or her claim any more likely than the alternative ground. The applicant’s statements must present a complete picture of the social disadvantage. SBA will continue to rely on affidavits and sworn statements, so long as those statements present a clear picture of the disadvantage. Definitive proof is not necessary.

Control of an 8(a) Applicant or Participant

The management experience of the disadvantaged individual need not be related to the same or similar industry as the primary industry classification of the applicant.

8(a) Application Processing

The Final Rule eliminates the requirement from 13 C.F.R. § 124.203 that an applicant must submit IRS Form 4506T in every case, and clarifies that SBA may request additional documentation to substantiate the application when necessary.

In addition, 8(a) applications must now be filed electronically; hard copy applications are no longer accepted. SBA has eliminated the requirement for a wet signature application.

SBA will also now have the discretion to defer a referral to OIG when an application presents evidence of possible criminal conduct. This will allow applications that list older, relatively minor criminal violations to avoid unnecessary processing time when the offense does not impact the applicant’s business integrity or is not relevant for a present good character determination.

In addition, applicants are no longer required to submit narrative statements in support of their claims of economic disadvantage, as economic disadvantage determinations are based solely on an analysis of objective financial data relating to the individual’s net worth, income, and total assets.

Affiliation For Entity-Owned Concerns

For 8(a) contracts, an entity-owned business concern (i.e., those 8(a) participants owned by Indian tribes, ANCs, NHOs, and CDCs) is not subject to affiliation for 8(a) contracts unless one or more entity-owned firms are found to have obtained, or are likely to obtain, a substantial unfair competitive advantage on a national basis in a particular NAICS code with a particular size standard. A finding of affiliation may not necessarily be made when an entity-owned concern appears to have obtained an unfair competitive advantage in a local market, but remains competitive, but not dominant, on a national basis.

For non 8(a) contracts, entity-owned concerns (those concerns owned by Indian Tribes, ANCs, NHOs, CDC’s, or wholly-owned entities of Indian Tribes, ANCs, NHOs, or CDCs) will not be considered to be affiliated with other concerns owned by these entities because of their common ownership or common management. Affiliation will also not be found based upon the performance of common administrative services so long as adequate payment is provided for those services. The Final Rule specifies what constitutes “common administrative services”:

  • Bookkeeping
  • Payroll
  • Recruiting
  • Human resource support
  • Cleaning services
  • Other duties that are unrelated to contract performance or management and can be reasonably pooled or otherwise performed by the holding/parent company without interfering with control
  • Record retention not related to a specific contract (e.g., employee time and attendance records)
  • Maintenance of databases for awarded contracts
  • Monitoring for regulatory compliance
  • Template development
  • Assisting accounting with invoice preparation as needed
  • Efforts at the holding company/parent level to identify possible procurement opportunities for specific subsidiary companies—until the opportunity becomes concrete enough to assign to the subsidiary
  • Assistance with preparing the generic part of an offer

“Common administrative services,” for purposes of the exception to affiliation, do not include the following, which may only be performed by the offeror for the contract at issue, not by a parent or sister company:

  • Contract administration services that encompass actual and direct day-to-day oversight and control of the performance of a contract/project
  • Negotiating directly with the government agency regarding proposal terms, contract terms, scope and modifications
  • Project scheduling
  • Hiring and firing of employees
  • Overall responsibility for the day-to-day and overall project and contract completion
  • Business development after an opportunity is identified
  • Drafting technical and contract-specific portions of preparing an offer
  • Controlling employee assignments and the logistics for contract performance

Management of Tribally-Owned 8(a) Participants

Individuals responsible for the management and daily operations of a Tribally-owned concern cannot manage more than two 8(a) Program participants at the same time. 

Native Hawaiian Organizations (“NHOs”)

Members or directors of an NHO need not have the technical expertise or possess a required license to be found to control an applicant or 8(a) participant owned by the NHO. The NHO, through its members and directors, must merely have managerial experience of the extent and complexity needed to run the concern. Individual NHO members may be required to demonstrate more specific industry-related experience in appropriate circumstances to ensure that the NHO in fact controls the day-to-day operations of the firm.

The economic disadvantage of NHOs will now be determined under a similar methodology as that of Indian Tribes, in that NHOs will be required to present information relating to the economic disadvantaged status of Native Hawaiians and the per capita income of Native Hawaiians.

Sole Source 8(a) Awards

8(a) firms owned by Indian Tribes and ANCs are exempt from competitive threshold limitations on 8(a) sole source awards ($7 million for manufacturing and $4 million for all other industries). However, the head of an agency may not award a sole source 8(a) contract for an amount exceeding $22 million unless the contracting officer for the contract justifies the use of a sole source contract in writing and the justification is approved by the appropriate agency official. Additionally, the procuring agency must include a statement in its offering letter to the SBA that the necessary justification and approval under the FAR has occurred.

Change in Primary Industry Classification

SBA now has the ability to change the primary industry classification contained in an 8(a) firm’s business plan where the greatest portion of the firm’s total revenues during a three-year period have evolved from one NAICS code to another. However, SBA will not implement such a change without engaging in discussions with the 8(a) firm.

If an entity-owned 8(a) firm’s primary NAICS code is changed, and the entity already has another participant in the 8(a) Program that has designated that NAICS code as its primary industry, the second firm will be able to continue to participate in the 8(a) Program, but will no longer be permitted to receive any additional 8(a) contracts in the industry identified as the primary NAICS code of the first 8(a) participant.

8(a) Program Suspensions

8(a) Program participants may elect to suspend their program participation under two new circumstances:  (1) where the participant’s principal office is located in an area declared a major disaster area, or (2) where there is a lapse in federal appropriations. If a firm chooses to suspend its program term during these two circumstances, it will not miss out on contract opportunities that the firm might otherwise have lost due to a disaster or a lapse in federal funding.

Benefits Reporting Requirement

Entity-owned 8(a) participants are required to report benefits as part of the participant’s submission of its annual financial statements. Benefits reporting is not tied to continued program eligibility.

Reverse Auctions

All of SBA’s regulations, including those related to set-asides and referrals for Certificates of Competency, apply to reverse auctions.

Reconsideration of Decisions of SBA’s Office of Hearings and Appeals (“OHA”)

SBA is now recognized as a party that may file a request for reconsideration in an OHA proceeding in which it has not previously participated.

HUBZone Program

SBA has committed to issuing decisions on HUBZone applications within 90 calendar days after receipt of a complete application package “whenever practicable.” SBA is also allowed to request additional information or clarification of information contained in an application or document submission at any time. The burden of proof to demonstrate eligibility for the program is on the applicant – SBA may draw adverse inferences from incomplete or missing information that has otherwise been requested.

Additionally, an applicant must be eligible for the program not only on the date it submits its application, but also up to and including the time the SBA issues its decision regarding the applicant’s eligibility. Changed circumstances after the application has been submitted must be disclosed and will be considered.

HUBZone firms are now allowed to joint venture with other small businesses, so long as each firm is small under the NAICS code assigned to the procurement. This is in addition to HUBZone firms being able to joint venture with their large business mentors under an SBA-approved small business mentor-protégé relationship.

The regulations also clarify that, for approved HUBZone mentor-protégé relationships, SBA will not consider the employees of the mentor in determining whether the protégé is complying with the HUBZone eligibility requirements.

The changes in the Final Rule will have significant impact on the small business government contracting community, especially as opportunities created through the new small business mentor-protégé program are developed and explored. Please do not hesitate to contact Pam Mazza or Katie Flood if you have any additional questions or if we can assist with anything in regards to the new rules.

About the Authors: Pam Mazza is the managing partner of PilieroMazza. She may be reached at [email protected]. Katie Flood is an associate with PilieroMazza in the Government Contracts Group. She may be reached at [email protected].