Establishing fair evaluation criteria for Mentor-Protégé Joint Ventures after the SH Synergy decision
Bottom Line Up Front
After the Synergy decision, agencies have significant flexibility in shaping evaluation criteria that are consistent with SBA regulations, and they should avoid evaluation criteria that either penalize mentor-protégé joint ventures or that unfairly advantage them. To do so, the best path way forward is to:
Background
In April 2023, the Court of Federal Claims issued a decision in a case entitled SH Synergy that sustained protests against GSA’s Polaris GWAC. Among other things, the court found that GSA’s evaluation criteria violated the SBA’s mentor-protégé regulations in 13 CFR 125.8(e). Since then, GSA has used evaluation criteria that seem to prefer joint ventures over other small-business concerns. In this section, I describe some of the history behind the regulations, explain two cases interpreting and applying those regulations, and how those cases are being applied.
A brief regulatory history of 13 CFR 125.8(e)
In 2016, the SBA adopted regulations establishing a government-wide mentor-protégé program for all small business concerns. As part of those regulations, SBA included a provision — 13 CFR 125.8(e) — which was intended to respond to the practice of agencies that “were considering only the past performance of a joint venture entity, and not considering the past performance of the very entities that created the joint venture entity.”?
In the SBA’s view, this practice “made it extremely hard for newly established (and impossible for first-time) joint venture partners to demonstrate positive past performance [because each] partner to a joint venture may have individually performed on one or more similar contracts previously, but the joint venture would not be credited with any experience or past performance of its individual partners.”
As a result, 13 CFR 125.8(e) provided that “[w]hen evaluating the past performance and experience of an entity submitting an offer for a contract set aside or reserved for small business as a joint venture established pursuant to this section, a procuring activity must consider work done individually by each partner to the joint venture as well as any work done by the joint venture itself previously.”
In 2020, the SBA amended the regulations concerning mentor-protégé joint ventures (MPJV) with the goals of consolidating overlapping MPJV programs and “eliminat[ing] confusion among small businesses and procuring activities.” As part of that amendment, the SBA expanded the scope of 125.8(e) to include capabilities and business systems, and added the following two sentences to the requirements of 13 CFR 125.8(e):
“A procuring activity may not require the protégé firm to individually meet the same evaluation or responsibility criteria as that required of other offerors generally. The partners to the joint venture in the aggregate must demonstrate the past performance, experience, business systems and certifications necessary to perform the contract.”
Based on language from the ABA’s Public Contract Law Section, these provisions were intended to avoid situations where, for example, “solicitations have had evaluation criteria requiring that both the mentor and protégé each individually meet the solicitation’s experience/past performance criteria.”?
When adopting the rule, the SBA explained that “it is unreasonable to require the protégé concern itself to have the same level of past performance and experience (either in dollar value or number of previous contracts performed, years of performance, or otherwise) as its large business mentor.”
Notably, however, the SBA departed from the ABA’s recommendation that the government be prohibited from “downgrad[ing] or otherwise unfavorably evaluat[ing] a proposal based on any lack of experience/past performance of the protégé individually.” Instead, the SBA explained ?that:
[A] solicitation provision that requires both a protégé firm and a mentor to each have the same level of past performance (e.g., each partner to have individually previously performed 5 contracts of at least $10 million) is unreasonable, and should not be permitted. However, SBA disagrees that a procuring activity should not be able to require a protégé firm to individually meet any evaluation or responsibility criteria. SBA intends that the protégé firm gain valuable business development assistance through the joint venture relationship. The protégé must, however, bring something to the table other than its size or socio-economic status. The joint venture should be a tool to enable it to win and perform a contract in an area that it has some experience but that it could not have won on its own.
(emphasis added).
In other words, through the language in 13 CFR 125.8(e), the SBA intended to prevent the government from penalizing a MPJV with a relatively inexperienced protégé while still enabling the government to individually evaluate the protégé’s capabilities and experience.?
AttainX
In January 2023, GAO interpreted the new language of 125.8(e) in AttainX and sustained a protest of an award made by GSA because GSA failed to properly evaluate a “similar experience” factor consistent with the SBA regulations. There, the government made an award to MiamiTSPi, a MPJV between protégé Miami Technology Solutions, LLC, and mentor Technology Solutions Provider, Inc (TSPi), based on a finding of MiamiTSPi’s “similar experience” to be “Acceptable.”
The protestor challenged the award, arguing that GSA unreasonably evaluated the similar-experience factor because MiamiTSPi failed to submit a project from either the JV itself or the managing member. Instead, MiamiTSPi only submitted past experience from the minority member (TSPI) and a separate JV that TSPi was part of. GAO sustained the protest, noting that “[t]he agency therefore did not evaluate a project example from the joint venture, MiamiTSPi, or from MTS, the managing protégé member of the joint venture.”
GAO went further, though, to explain that even though the solicitation did not require that the protégé include past experience, the failure to consider the protégé’s experience violated the SBA regulations. As GAO explained:
Notwithstanding the fact that the solicitation does not require examples from the joint venture itself or the individual members, the SBA regulations require the agency to evaluate each joint venture member individually when the joint venture itself does not demonstrate it has the required experience; the agency does not have license to ignore SBA regulations in its evaluation… Because MiamiTSPi did not submit experience for the joint venture and the agency’s evaluation is based on a consideration of only one joint venture member’s experience, we conclude that the agency failed to properly evaluate MiamiTSPi’s quotation in accordance with SBA regulations.
(emphasis added)
In other words, following AttainX, an agency should first evaluate the experience of the MPJV. If the MPJV should look at the experience of the MPJV’s members and evaluate the experience of both MPJV members, not just the mentor’s experience.
SH Synergy
In April 2023, the Court of Federal Claims decided SH Synergy, LLC, which sustained a protest against the GSA’s Polaris GWAC and received significant media attention. Although there were numerous issues involved in Synergy, the court specifically ruled that the Polaris solicitation violated the requirements of 125.8(e) by “applying the same evaluation criteria both to projects submitted by protégés and to those projects submitted by offerors generally.”
In Synergy, GSA proposed to evaluate offers “based on how well the proposals score on the Solicitations’ standardized points system” and required that “both protégé firms and offerors generally must submit projects with the same contract value, specifically $10 million, to receive maximum points for the project.”
The court found that requirement violated 125.8(e) because “the Polaris Solicitations convey the expectation that the protégé firm’s Relevant Experience Project should be able to demonstrate the same contract value, the same breadth of relevant or emerging technology experience, and the same variety of government customers as projects submitted by offerors generally.”
Consistent with the SBA’s view in 2020 that “a solicitation provision that requires both a protégé firm and a mentor to each have the same level of past performance (e.g., each partner to have individually previously performed 5 contracts of at least $10 million) is unreasonable,” the court found that the evaluation criteria used for Polaris was unlawful.?
Based on this conclusion, the court held that “the agency must adjust the evaluation criteria it applies to assess a protégé firm’s Relevant Experience Project” and offered three “alternative evaluation methods” that would satisfy the 125.8(e) requirements. We will discuss these alternatives below, but the court admonished GSA to ensure that “whatever adjustments GSA makes to the evaluation criteria applicable to the protégé may not force protégé firms to experience a heightened or more onerous burden than what offerors generally face.”
GSA’s actions post-Synergy
Following Synergy, GSA has taken actions that caused some to worry about other agencies’ application of 125.8(e). For example, as part of the OASIS+ procurement, GSA “made it easier for protégé firms to propose Qualifying Project Experience (“QP”) [because] under the newly released RFP, ‘Qualifying Projects submitted in the name of the protégé must only meet or exceed 50 percent of the minimum average annual value specified within Attachment J.P-1.’”
According to their analysis:
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The court’s interpretation of Section 125.8(e) could complicate agencies’ efforts to strike a fair balance between giving protégé companies a leg up while not unfairly disadvantaging other competitors, such as other small businesses or joint ventures comprised of two small businesses. An earlier version of the Polaris solicitation arguably tilted too far in favor of MPJVs by not requiring the protégé company to submit any past-performance references, thus allowing MPJVs with a large business to max out their scores by relying entirely on the experience of the large mentor. GSA ultimately took corrective action in response to several GAO bid protests challenging that scheme, and adopted the current version of the Polaris solicitations. But, as we’ve seen, the court found GSA swung the pendulum too far away in the other direction, so if the agency goes forward with Polaris, it will have to revise the solicitation to benefit protégés in accordance with the SH Synergy holding. This is all unless SBA makes a regulatory change to Section 125.8(e), which could either codify SH Synergy or reverse it, depending on what SBA believes to be good policy.
Agencies have wide discretion in shaping evaluation criteria after Synergy to comply with the regulations and ensure fair competition.
After Synergy, agencies are confronting the question of how to best comply with the requirements of 13 CFR 125.8(e). As discussed below, agencies fortunately have a range of options. The risk, however, is that the government incorrectly relies on Synergy to conclude that MPJVs should be favored over other small-business concerns.
Instead, the SBA rule, the court’s opinion, and sound public policy suggest that an agency should still require MPJVs to compete on a level-playing field with other offerors, while not penalizing individual protégés for having less experience than offerors. And furthermore, consistent with the Synergy decision, agencies can consider whether a protégé's lack of past performance jeopardizes the project given the protégé’s obligation to perform at least 40% of the work performed by the joint venture.
In the Synergy decision, the court explicitly suggested three alternatives for GSA to consider when restructuring the Polaris evaluation criteria:?
Under any of these alternatives, the court explained, GSA could avoid evaluating protégé firms with a heightened or more onerous burden.
As the court noted, however, these are not the only ways to ensure compliance with 125.8(e). Significantly, as discussed below, there are at least four other options for agencies to consider that can avoid creating an unfair advantage for MPJVs.
In the aftermath of Synergy, perhaps the straightest path for compliance is to evaluate past performance for all offerors holistically, rather than using a self-scoring mechanism like that in Polaris, and allowing an MPJV to demonstrate past performance either as an entity or as the members of the MPJV in aggregate.[1]
For example, in a May 2023 decision, the GAO upheld a solicitation that included the following provision:
For Offerors that are joint ventures, if the joint venture does not demonstrate prior experience, then the prior experience performed as a Prime for each party to the joint venture may be considered.
Similarly, in a December 2022 decision, the GAO upheld a solicitation that included a comparable provision:
The solicitation here instructed offerors in teaming arrangements to “provide complete information as to the arrangement including any relevant and current recent past performance information on previous teaming arrangements with the same partner.” The RFP informed offerors that, for an offeror in a teaming arrangement, including a joint venture, “recency, relevancy and quality of past performance information from all entities will be evaluated based on the percentage of work that each entity will perform [in accordance with] the teaming arrangement documentation,” resulting in an overall past performance rating for the teaming arrangement.
Adopting a holistic approach to past performance meets the spirit of the SBA’s regulation: making it possible for MPJVs to compete based on the strengths of each of its members while ensuring that the MPJV’s members “bring something to the table.”?
Although agencies need to consider past performance before making an award, if agencies plan to use self-scoring or a similar approach, they may want to consider using a multi-phased evaluation process. Using a multi-phased approach would enable an agency to better control for variation among MPJVs and other small-business concerns with regard to evaluation of past performance.
One of the central problems in the Polaris solicitations was that, according to the court in Synergy, they “convey the expectation that the protégé firm’s Relevant Experience Project should be able to demonstrate the same contract value, the same breadth of relevant or emerging technology experience, and the same variety of government customers as projects submitted by offerors generally.”
This expectation existed because “both protégé firms and offerors generally must submit projects with the same contract value, specifically $10 million, to receive maximum points for the project.” Requiring a protégé to have the same size or scope of past performance as a mentor is exactly what the SBA believed to be unreasonable.
The OASIS+ procurement attempted to avoid this concern by offering a lower award threshold for protégés. But this approach could end up unfairly favoring MPJVs over other offerors.?
Instead, agencies could simply choose to avoid minimum award thresholds altogether and opt to evaluate the past performance based on their relevance to the specific requirements, whether in size, scope, or complexity.
Or, if agencies feel that a minimum threshold is necessary, agencies might consider a minimum award threshold that is based on the protégé’s ability to perform a minimum of 40% of the award under 13 CFR 125.8(c). In other words, if a particular requirement is likely to cost at least $100 million, it may be reasonable to require a protégé to have performed projects with awards of at least $20 million.[2]
Another potential option might be to slightly adjust the court’s suggestion of “award[ing] a small point premium to protégé projects for each evaluation criterion satisfied,” and instead consider award point premiums for all small contractors, not just protégés.
Such an approach would be consistent with requirements of 125.8(e); a protégé would not be evaluated the same as offerors generally and a protégé would not be required to have the same experience as a mentor.?
This approach would also be consistent with FAR Part 19’s policy of ensuring “maximum practicable opportunities in its acquisitions to small business, veteran-owned small business, service-disabled veteran-owned small business, HUBZone small business, small disadvantaged business, and women-owned small business concerns businesses.”?
Given the analyst’s concerns above about the potential of MPJV’s “unfairly disadvantaging other competitors, such as other small businesses or joint ventures comprised of two small businesses,” giving a point premium to all small businesses would benefit protégés that “bring something to the table” and while holding harmless other small-business competitors.
Conclusion
As discussed above, contracting officers retain wide discretion in setting evaluation criteria that conform to the SBA’s regulations in 13 CFR 125.8(e) without privileging MPJVs over other small business concerns. Synergy teaches that agencies must not require protégés to have the same depth and breadth of experience and past performance as mentors or other offerors, generally. It also teaches that agencies may want to consider past performance holistically rather than attempting to reduce past performance to a point system.
[1] ?In May 2023, after the Synergy decision, GAO denied a request for reconsideration of its decision in AttainX, holding that the SBA regulations “do not ‘mandate a specific degree of consideration for the mentor and the protégé firm,’ but do ‘require agencies to consider the experience of both the mentor and protégé members of the joint venture.’”
[2]?Under the regulations, a MPJV would need to perform at least 50% of the work under the award ($50 million) and the protégé would need to perform at least 40% of the MPJV’s workshare (40% of $50 million), or $20 million.