As we discussed in the first part of this post (click HERE for the article), the Small Business Administration (SBA) this week rolled-out major changes to its 8(a) small business development program. 76 Fed. Reg. 8221 (Feb. 11, 2011). The new rules, ten years in the making, overhaul SBA policy in several areas. Part 1 covered their impact on 8(a) eligibility issues — today we take up their impact on 8(a) mentor-protégé and joint venture agreements.
The revised SBA 8(a) regulations create new opportunities to pursue government contracts and form business relationships between “mentor” or large firms and developing 8(a) businesses. SBA’s hope is that by expanding contracting opportunities for these firms – and by requiring 8(a) firms to perform more of this work – it will more effectively foster the development of 8(a) firms. Additionally, with these changes, look for 8(a) concerns to take up a larger chunk of federal small business contracts.
Effective March 14, 2011, the joint venture and mentor- protégé agreements must now address the following new rules, which should significantly impact the ability of 8(a) firms to compete for government business:
- Adds 40% Requirement for “Unpopulated” JVs: The revised regulations set – for the first time – a minimum percentage of work that the 8(a) participant in a joint venture must perform. The rule now requires that in an “unpopulated” joint venture the 8(a) partner perform at least 40% of the work performed by the joint venture (as either a member of the JV or as a subcontractor). This work must be more than “administrative or ministerial” functions. § 124.513(d)(1)-(2). Note that no specific work requirement is set for “populated” joint ventures. Instead, in a “populated” JV the 8(a) participant must only “demonstrate what it will gain” from performance of the contract.
- Limits on Non-8(a) Subcontractors: In a “populated” joint venture, a non-8(a) joint venture partner may not act as a subcontractor to the joint venture awardee, or to any other subcontractor of the joint venture. Instead, where a non-8(a) member seeks to do more work it must do so through the joint venture (where it is limited to performing 60% of the total work). § 124.513(d)(2)(ii).
- Management Responsibilities: The new rules also require 8(a) participants to manage the performance of joint venture contracts. In an “unpopulated” joint venture this means that an employee of the 8(a) firm must serve as project manager. In a “populated” contract, the JV must “demonstrate that performance of the contract is controlled by the 8(a) managing venturer.” § 124.513(c)(2).
- Reporting Performance of Work Reporting: The 8(a) member of a joint venture must now report annually and at the conclusion of any contract to the local SBA office explaining how the performance of work requirements were met. § 124.513(i)(1)-(2).
- “3 in 2” Rule Change: Previously the regulations limited a specific joint venture to submitting no more than three offers over a two-year period. The new rule changes this requirement to allow a joint venture to be awarded three contracts over a two-year period. In addition, JV partners may form an additional joint venture entity and that new entity may be awarded three additional contracts (SBA warns, however, that this may lead to a finding of affiliation). § 121.103(f).
- Multiple Mentors/Protégés Allowed: Although protégé firms were traditionally limited to having one mentor at a time, the new rule permits protégé firms with multiple lines of business to have a second mentor relationship pertaining to an unrelated NAICS code. § 124.520(c)(3). In addition, mentors may now have up to three protégé firms where the additional firms will not “adversely affect” the development of the protégés (for instance, by competing directly against each other). § 124.520(b)(2).