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Preserving Small Business Status in Mentor-Protégé Joint Ventures

Authored by summer associate Thomas O’Dea

8(a) small businesses that enjoy the benefits of a mentor-protégé relationship with a larger entity need to be mindful of the very specific requirements of the Small Business Administration’s (“SBA”) guidance regarding joint-venture agreements. The SBA’s Office of Hearings and Appeals (“OHA”) recently found that an 8(a) small business that entered into a mentor-protégé relationship with a larger entity was disqualified from obtaining a design-build contract reserved for small businesses. SIZE APPEAL OF: KISAN-PIKE, A JOINT VENTURE, APPELLANT, SBA No. SIZ-5618, 20142014, WL 6904349 (November 24, 2014). Even though the SBA approved the mentor-protégé agreement, this approval did not ensure continued small business status for the smaller entity.

Generally, the SBA presumes that an 8(a) small business in a mentor-protégé relationship with a larger business is not affiliated with that larger business. 13 CFR § 124.520. However, that presumption does not apply to other agreements such as joint ventures. If affiliated, the small business is ineligible to obtain contract awards reserved for small businesses. To avoid affiliation the mentor and protégé must strictly comply with the SBA’s Joint Venture Requirements found in 13 CFR § 124.513(c) and (d).

Among other things, the joint venture agreement must provide the following: (1) an itemization of all major equipment, facilities, and other resources supplied by each party to the joint venture; (2) a detailed schedule of cost or value of each piece of equipment, facility, or resource supplied by each party; (3) a detailed explanation of each party’s responsibilities with regard to negotiations, labor, and performance, and; (4) a detailed explanation of how any 8(a) partner will perform at least 40% of the work in a more substantial way than just administrative functions.

The OHA’s decision demonstrates that general references to these requirements in a joint venture agreement is not sufficient, and that the mentor and protégé must include details to show compliance with the applicable regulations.





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