Viewpoint: Mentor-Protégé Agreements: Benefits for Big and Small

 In GDI, Defense, Information

Viewpoint: Mentor-Protégé Agreements: Benefits for Big and Small

2/14/2020
By Rob Kampen

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During the last three fiscal years, the Defense Department award­ed more than $77 bil­lion to small busi­ness­es through set-asides under pro­grams gen­er­al­ly man­aged by the Small Business Administration. Consequently, large busi­ness­es are pre­clud­ed from com­pet­ing for these con­tracts.

But the SBA’s All Small Mentor Protégé Program offers oppor­tu­ni­ties for large busi­ness­es to mentor small busi­ness­es where the two enti­ties may pursue these set-aside con­tracts togeth­er. The intent of the pro­gram is to encour­age large busi­ness­es to work with small busi­ness­es to increase and expand the small firms’ capa­bil­i­ties. In doing so, the large busi­ness­es may com­pete for this pool of pre­vi­ous­ly inac­ces­si­ble con­tracts.

While con­tract awards are the most sought-after prize, the pro­gram offers many other ben­e­fits for both mentor and pro­tégé.

The reg­u­la­to­ry pur­pose of the pro­gram is to “enhance the capa­bil­i­ties of pro­tégé firms” and improve their “abil­i­ty to suc­cess­ful­ly com­pete for fed­er­al con­tracts.” That being said, a recent SBA report also rec­og­nized that the pro­gram is intend­ed to ben­e­fit both men­tors and pro­tégés. This same report indi­cat­ed that as of April 2019 there were 759 active mentor-pro­tégé agree­ments.

The real ben­e­fit of this pro­gram comes from the mentor and pro­tégé being able to enter a joint ven­ture and com­pete for fed­er­al small busi­ness set-aside con­tracts with­out being found affil­i­at­ed. While eli­gi­bil­i­ty for these set-aside con­tracts usu­al­ly requires a com­pa­ny to be small under SBA’s size stan­dards, one excep­tion to this rule is when two firms are “approved by SBA to be a mentor and pro­tégé,” accord­ing to the rule.

Qualification for this excep­tion requires SBA’s approval of the pro­posed mentor-pro­tégé agree­ment. Once the agree­ment is approved, the mentor and pro­tégé may form joint ven­tures to pursue small busi­ness oppor­tu­ni­ties with­out wor­ry­ing about the size of the mentor. Equally ben­e­fi­cial is that the agree­ment itself is not the basis to find affil­i­a­tion between the mentor and pro­tégé, as that would under­mine the pur­pose of the pro­gram.

As one can deduce, men­tors are usu­al­ly large busi­ness­es and pro­tégés are usu­al­ly small busi­ness­es. While men­tors can also be small busi­ness­es, the reg­u­la­to­ry con­text infers that men­tors are pri­mar­i­ly large firms. As with most gov­ern­ment pro­grams, how­ev­er, it is not so simple as men­tors being large and pro­tégés being small.

Each mentor must sat­is­fy four SBA-man­dat­ed require­ments. First, a mentor must be “capa­ble of car­ry­ing out its respon­si­bil­i­ties to assist the pro­tégé firm under the pro­posed mentor-pro­tégé agree­ment.” Second, men­tors must pos­sess good char­ac­ter. Third, the mentor must not be on the fed­er­al list of debarred or sus­pend­ed con­trac­tors. Finally, the mentor must be able to “impart value to a pro­tégé firm due to lessons learned and prac­ti­cal expe­ri­ence gained or through its knowl­edge of gen­er­al busi­ness oper­a­tions and gov­ern­ment con­tract­ing,” the reg­u­la­tions state.

While not a pre­req­ui­site, it is worth noting that SBA reg­u­la­tions gen­er­al­ly require that men­tors have no more than one pro­tégé at a time. There is not an out­right ban on mul­ti­ple pro­tégés. Instead, SBA has capped the number of pro­tégés one mentor can have at the same time to three to limit any neg­a­tive impact one mentor-pro­tégé rela­tion­ship may have on anoth­er.

Protégés, mean­while, must qual­i­fy as small under its pri­ma­ry North American Industry Classification System code. If the pro­tégé is look­ing to expand into a second code, it must iden­ti­fy this code as one where it is seek­ing busi­ness devel­op­ment assis­tance. This is not, how­ev­er, carte blanche approval to enter into a new market as “SBA will not approve a mentor-pro­tégé rela­tion­ship in a sec­ondary code in which the firm has no prior expe­ri­ence,” the rules state.

As with men­tors, pro­tégés are also restrict­ed in the number of men­tors allowed at one time. While the gen­er­al cap is for one mentor at a time, SBA may approve a second so long as the addi­tion­al mentor will pro­vide unique forms of assis­tance. The agency places a life­time cap of two men­tors for each pro­tégé.

Even if a com­pa­ny qual­i­fies as a mentor or pro­tégé, why would it want to enter a mentor-pro­tégé agree­ment? More specif­i­cal­ly, with the pro­gram “designed to enhance the capa­bil­i­ties of pro­tégé firms” why would a mentor want to par­tic­i­pate? There are four dis­tinct ben­e­fits derived from a mentor-pro­tégé agree­ment.

Money is likely the most obvi­ous reason for men­tors to par­tic­i­pate in the pro­gram. The Defense Department set aside more than $77 bil­lion in small busi­ness con­tracts in the last three fiscal years. That is $77 bil­lion that large busi­ness­es have no way of touch­ing — unless they are part of a mentor-pro­tégé agree­ment. And that is just defense. SBA’s agency-spe­cif­ic prime con­tract goals for the 2019 fiscal year ranged from 11.65 per­cent to 71 per­cent of total pro­cure­ment dol­lars going to small busi­ness­es.

The mentor-pro­tégé agree­ment is just the first step, how­ev­er. To fur­ther pro­tect small busi­ness­es, the SBA only allows the mentor to com­pete for set-aside con­tracts through a joint ven­ture with its pro­tégé. Each joint ven­ture agree­ment must con­tain pro­vi­sions stat­ing that the small busi­ness owns at least 51 per­cent of the joint ven­ture entity.

Additionally, prof­its of the joint ven­ture must be com­men­su­rate to the work per­formed. Equally impor­tant, “the small busi­ness part­ner … must per­form at least 40 per­cent of the work per­formed by the joint ven­ture.” While this pre­cludes the large busi­ness from reap­ing all the profit, it can still be on the receiv­ing end of a sig­nif­i­cant por­tion of any set-aside con­tract value.

Money aside, there are sev­er­al other ben­e­fits that may come with being a mentor. First, men­tors gain a valu­able oppor­tu­ni­ty to direct­ly engage with pos­si­ble acqui­si­tion tar­gets.

SBA reg­u­la­tions allow men­tors to obtain up to a 40 per­cent equity inter­est in the pro­tégé firm. Even if a mentor does not make this invest­ment up front, there is noth­ing pre­clud­ing invest­ments occur­ring a year or more into the mentor-pro­tégé agree­ment. During that time, mentor employ­ees may gain valu­able infor­ma­tion from work­ing side-by-side with the pro­tégé. This knowl­edge not only facil­i­tates other due dili­gence efforts, but it could also help smooth any post-acqui­si­tion tran­si­tions.

Second, the mentor-pro­tégé arrange­ment allows ded­i­cat­ed pro­fes­sion­al devel­op­ment oppor­tu­ni­ties for mentor employ­ees. The pro­gram reg­u­la­tions iden­ti­fy the fol­low­ing as areas of mentor-pro­vid­ed assis­tance: tech­ni­cal and/or man­age­ment assis­tance; finan­cial assis­tance; trade edu­ca­tion; busi­ness devel­op­ment; and gen­er­al admin­is­tra­tive assis­tance. These are just the over­ar­ch­ing cat­e­gories; with a wide range of assis­tance oppor­tu­ni­ties within each cat­e­go­ry.

The Roman philoso­pher Seneca is often attrib­uted with the trans­lat­ed phrase: “While we teach, we learn.” Each of the iden­ti­fied assis­tance cat­e­gories pro­vide oppor­tu­ni­ties for a rising star in an orga­ni­za­tion to teach the pro­tégé, and there­fore learn. Whether it is an engi­neer ready to cut their teeth on man­ag­ing a project, an accoun­tant look­ing for prac­ti­cal expe­ri­ence before their next exam, or a local­ized trade expert look­ing to become a region­al or inter­na­tion­al expert, the oppor­tu­ni­ties for pro­fes­sion­al growth are myriad in a mentor-pro­tégé rela­tion­ship.

Third, men­tors can stim­u­late inter­nal growth or ideas through the insights of a pro­tégé. Startups tra­di­tion­al­ly thrive by bring­ing new and inno­v­a­tive prod­ucts or ser­vices to a market. As a mentor, a com­pa­ny will gain first-hand knowl­edge and access of the protégé’s inno­v­a­tive prod­ucts and ser­vices. Not only does this help a com­pa­ny gauge the pulse of new busi­ness activ­i­ty, but it also fos­ters inter­nal growth and devel­op­ment through inter­ac­tions with these inno­v­a­tive prod­ucts and ser­vices.

The ben­e­fits to a pro­tégé are often, but not always, the flip side of the mentor ben­e­fits. Where a mentor invests, a pro­tégé gets cash infu­sions. Where a mentor offers train­ing, the protégé’s knowl­edge base increas­es. Where a mentor sees what new ideas a pro­tégé brings to the indus­try, the pro­tégé gains immea­sur­able insight that comes from the chal­lenges and expe­ri­ences of the mentor’s own path to suc­cess. But these are not the only ben­e­fits.

Many pro­tégés do not have in-depth cor­po­rate poli­cies, pro­ce­dures or sys­tems. One form of mentor assis­tance is draft­ing, com­pil­ing or pro­vid­ing cor­po­rate doc­u­ments such as record reten­tion poli­cies, annual review forms or pro­pos­al tem­plates. Mentors can also pro­vide guid­ance on pro­ce­dures or sys­tems best suited for the pro­tégé. What should an inter­nal audit process look like? What system should be used to ade­quate­ly doc­u­ment and track con­tract dead­lines? Each of these, and others, are areas where the mentor’s expe­ri­ence will help a pro­tégé avoid some of the tra­di­tion­al grow­ing pains of a small busi­ness.

Protégés, like many small busi­ness­es, expe­ri­ence the conun­drum of need­ing finan­cial resources but not having the expe­ri­ence, his­to­ry, credit, or any other pre­req­ui­site to access those resources. Mentors can help alle­vi­ate many of these con­cerns. For exam­ple, a mentor’s con­tract­ing his­to­ry may help an oth­er­wise unqual­i­fied pro­tégé obtain higher bond­ing limits. A mentor’s finan­cial his­to­ry may also help men­tors receive more favor­able credit limits or lend­ing terms. Not only does the mentor’s pres­ence pro­vide imme­di­ate assis­tance to the pro­tégé, but it also helps the pro­tégé estab­lish a trend line demon­strat­ing its capa­bil­i­ty of han­dling larger finan­cial respon­si­bil­i­ties.

Even with a mentor’s sys­tems and finan­cial back­ing, a pro­tégé will not get very far if cannot win a con­tract. Here, men­tors can pro­vide lessons learned as well as best prac­tices for pur­su­ing con­tract oppor­tu­ni­ties. Whether through par­tic­i­pa­tion in indus­try days, respond­ing to a sources sought notice, or chang­ing the con­tent, format or method of pro­pos­al sub­mis­sion, men­tors can impart sig­nif­i­cant wisdom on the pro­tégé. As with other forms of assis­tance, this help will ben­e­fit the pro­tégé for quite some time.

Many pro­tégés view busi­ness devel­op­ment as the biggest obsta­cle to suc­cess. Mentors, by reg­u­la­to­ry def­i­n­i­tion, have found a way to con­quer this chal­lenge. Whether it is enter­ing a new region, break­ing into a new market, or becom­ing famil­iar with gov­ern­ment con­tract­ing, the men­tors have valu­able knowl­edge they can pass on to the pro­tégés. As with each other area of assis­tance, the scope of busi­ness devel­op­ment train­ing should be cus­tomized to the protégé’s needs.

Mentors and pro­tégés each unique­ly ben­e­fit from the All Small Mentor Protégé Program. Not only does it allow men­tors to pursue small busi­ness set-asides through joint ven­ture agree­ments, but men­tors can also eval­u­ate acqui­si­tion tar­gets, devel­op their employ­ees, and gain insight on indus­try inno­va­tions. Hundreds of men­tors have already ben­e­fit­ed from the pro­gram. Protégés may gain access to a mentor’s poli­cies, pro­grams, per­son­nel and finan­cial resources, plus increase their expe­ri­ence in con­tract pro­pos­als and busi­ness devel­op­ment.

Most impor­tant­ly, men­tors and protégé’s can embrace their inner Rod Tidwell and shout for the agen­cies to “show me the money!” 

Rob Kampen is an expe­ri­enced gov­ern­ment con­tract­ing attor­ney based in Kansas City. He can be reached via linkedin.com/in/robertkampen.

Topics: Defense Contracting, Defense Department, Viewpoint

Source: NDIA

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