Navigating the SBA Mentor-Protégé Program: Power and Pitfalls

Winning a government contract can be tough. Many small businesses lack the qualified workforce, infrastructure, and resources available to larger companies. This is one reason the SBA Mentor-Protégé program is becoming wildly popular. Pairing experienced federal contractors with small businesses provides numerous benefits to emerging organizations and can also benefit more established federal contractors by providing opportunities for contracts that would otherwise be off limits. However, establishing clear expectations and responsibilities early in the relationship is critical for success.

What’s in it for both parties?

Small businesses benefit from the Mentor-Protégé program by working on more substantial prime contracts and obtaining past-performance credit. As the Protégé, these emerging organizations also gain time to build their qualified workforce and infrastructure.

Ideally, the Protégé will learn improved internal business management practices from the established contractor (the Mentor), such as strategic planning, pricing, and talent sourcing, along with how to navigate the federal contract bidding and award process. 

Larger federal contractors also benefit from the arrangement. The joint venture (JV) may pursue any small business contract/set-aside that the Protégé would qualify for, including set-asides for 8(a), service-disabled veteran-owned, women-owned, and HUBZone businesses, as well as certain coveted GWACs.  While excluded from pursuing these opportunities on their own, larger contractors may capture a portion of this spend as a Mentor in a JV.

Successful Pairings 

Entering into the Mentor-Protégé program requires several considerations for both parties.  Two primary agreements will need to be executed: the Mentor Protégé Agreement and the Joint Venture Operating Agreement. While each of these has specific requirements, several items are left for the parties to determine on their own. For example, the parties will need to agree on profit sharing percentages, administrative roles and responsibilities, and the project scope that each party will be responsible for.

Thought and effort taken at the inception of the venture to develop the relationship’s foundation often separates successful JVs from those that struggle. For example, while the Protégé must be the “Managing Venturer,” this neither relieves the Mentor of responsibility nor bars them from being involved in the management of the JV. Prior to pursuing any awards, the parties should determine who will oversee the JV (for example, by establishing a board of directors), which decisions can be made unilaterally by the Managing Venturer, and which decisions will require unanimous approval.

GSA Schedule Contracts for JVs

In 2022, the General Services Administration (GSA) expanded the Startup Springboard program, defining a clear avenue for JV companies with less than two years of corporate experience to be eligible for a GSA Multiple Award Schedule (MAS) contract. This gives JVs the chance to obtain a MAS contract without violating the “two-year rule.” JV members can hold their own MAS contract and up to three additional JV MAS contracts with different partners.

Potential Pitfalls

 JVs considering obtaining a GSA schedule should be aware of how the new requirements impact their business. For example, GSA now requires the JV to identify which member provides each awarded product or service on the MAS contract. The identified member company is the only party able to provide those products or services. This requirement can potentially impact an MPJV’s compliance with SBA regulation 13 CFR 125.8, which requires that the Protégé perform at least 40% of the work.

Unpopulated JVs must provide a Commercial Sales Practices (CSP) document for the JV itself and for each JV member company under a MAS contract not covered by Transactional Data Reporting (TDR). Changes to a JV member’s CSP may impact both the JV and the member’s MAS contracts. The biggest impact on JV members is that pricing offered by the JV itself or a JV member can trigger the Price Reductions Clause (PRC) on the JV’s and/or the member’s MAS contract.  These companies should carefully negotiate their Basis of Award (BOA) to protect the JV and each member from potentially triggering the PRC.  

Some Best Practices

Given the complexities and potential pitfalls of a JV, consider the following practices to help achieve your JV goals:

1. Engage a CPA with experience helping federal contractors manage accounting and compliance; this will help you understand the intricacies of doing business with the government. 
2. Assess and update software and other business systems to meet contractual billing and reporting needs. 
3. Create contract briefs to identify significant items, compliance requirements, and limitations. 
4. Develop a process for subcontract administration: for example, design a calendar of operations for both parties to ensure timely intercompany billing, monthly financial closing, and the meeting of reporting deadlines. 
5. Create written policies and procedures for the venture to help manage business risk. 

Successful JV agreements might also feature monthly or quarterly member meetings to review financial results, cash flow, and business strategy. Ultimately, the success of the venture depends on both parties’ ability to craft and execute a plan, navigate accounting complexity, and manage the division of responsibilities.

Aprio’s Government Contracting services help businesses of all sizes maximize value and minimize risk while navigating the complex federal marketplace. The Aprio team assists over 1,000 government contractors annually, offering comprehensive consulting solutions beyond traditional tax and assurance. From proposal support and contract compliance to GSA Schedules and sustainability services, we provide tailored strategies to meet industry regulations and seize new opportunities. Schedule a consultation today and achieve what’s next at Aprio.com. 

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