SBA's Mentor-Protege Program Tutorial Needs An Upgrade ASAP

SBA's Mentor-Protege Program has been making headlines lately, thanks to SBA's recent formal proposals--and less-formal "trial balloons"--to make changes in the MPP regulations. Unfortunately, however, I've heard nothing about potential updates to SBA's online Mentor-Protege Program Tutorial. That's a shame because, in its current form, the MPP Tutorial is chock-full of outdated, questionable and in some cases outright incorrect information.

First things first: what is the MPP Tutorial? MPP applicants must complete a handful of requirements to be approved. Among these requirements, both the prospective mentor and prospective protege must complete an online training module, known as the MPP Tutorial.

Conceptually, the MPP Tutorial is not a bad idea. Prospective mentors and proteges come to the MPP with varying levels of knowledge and experience in the federal market generally, and with SBA small business programs specifically. A well-designed tutorial could be very helpful. Unfortunately, though, SBA's execution leaves quite a bit to be desired--to the point that I've reluctantly had to tell prospective mentors and proteges that, yes, they must complete the MPP Tutorial, but that in my opinion they should double-check pretty much anything they learn in the MPP Tutorial before relying on it.

What are some of the biggest the problems in the current iteration of the MPP Tutorial? Let's take a look.

So . . . About Those Small Business "Allocations"

The MPP Tutorial gets the party started early with this misleading statement from the Tutorial's "Introduction" section. Contrary to the statement made here, the government does not "allot" at least 23% of contracts to small businesses. As the Congressional Research Service explains in this report, "Agency goal attainment is an aspirational pursuit without punitive consequences for failure to meet goals."

For what it's worth, the SBA's Small Business Data HUB says that approximately 17.4% of Fiscal Year 2023 government contracting dollars were awarded via small business set-aside and sole source contracts. Which brings me to another problem with this statement: the 23% goal is based on dollars, not the number of contracts. And if that sounds like a meaningless technicality, consider this hypothetical: an agency with $100 million in total spending could meet its 23% goal by awarding a single $23 million contract to one small business while awarding 77 $1 million contracts to large businesses. Contracts and dollars aren't the same thing!

"Are We Sure That's a Key Takeaway?"

Based on the discussion above, I'm not going to spend much time here except to say that I have absolutely zero clue where the 10% "answer" came from. If I put on my SAT standardized test hat, I suppose the "best" answer would be "C. 23%." As I suggested above, though, since the system is based on unenforceable goals, not mandatory set-aside percentages, the actual legally-required percentage of small business set-asides is zero.

"Are You Experienced?"

There are a few problems here. First, while SBA requires both mentors and proteges to complete the MPP Tutorial, SBA is clearly speaking only to the protege when it says that "you must be a small business" to particpate in the MPP. This habit of speaking only to the protege in a training in which 50% of participants aren't proteges is an issue repeated throughout the MPP Tutorial, time and time again.

Mentors, of course, should be smart enough to understand what's going on, but that doesn't excuse SBA's failure to speak to its full audience. It's like if the officiant at a wedding told both the husband and wife, "you may kiss the bride," when that particular instruction only makes sense for one of them.

And about that "industry experience" thing. Under the MPP regulations, a protege need only demonstrate industry experience if the protege is applying to the MPP under a secondary NAICS code. Most proteges apply under their primary NAICS codes. In those cases, industry experience isn't required--although in practice, a prospective mentor may be unlikely to agree to a MPA with a completely inexperienced protege.

Finally, and this is something I may examine in more depth in a future article, the SBA's Size Standards Tool unfortunately is not a great way to determine whether your business is small. Why not? The SST ignores affiliation, which is the reason why many otherwise-small businesses don't qualify as small. The SST may help a business get halfway to an answer on its small business size status, but that's about it. In my view, contractors shouldn't view the SST as anything more than a starting point in helping determine small business status.

Goaling Update, Please!

Whaddya know, unlike the Introduction, this part of the MPP Tutorial discusses a 23% small business goal! Unfortunately, a couple of the subcategory goals mentioned here are outdated. The Administration has significantly raised the SDB goal, which was 12%--not 5%--in Fiscal Year 2023. Additionally, Congress has raised the SDVOSB goal to 5%, not the 3% mentioned here.

Oh, and if we're going to be nitpicky (and yes, clearly, I am), the government doesn't aim to "set-aside" these percentages. It aims to award certain percentages of dollars. For example, every dollar awarded to a small business counts toward the 23% goal, regardless of whether that dollar originated from a small business set-aside or an unrestricted vehicle.

Sorry, Kids, Self-Certification Ain't A Thing Anymore

If you're thinking about self-certifying as an SDVOSB based on the information provided in the MPP Tutorial, think again. Contrary to the outdated information presented here, self-certification was completely eliminated as of January 1, 2024. As SBA itself says on its SDVOSB/VOSB page, with respect to contracts set-aside for veteran-owned businesses, "[t]here is no self-certification provision for these unique opportunities."

It's All About Capacity

My main concern here is the incorrect statement that a protege can form a joint venture only if it "lacks the capacity required in the contract." While some prior SBA regulations included this requirement, lack of capacity is not a requirement under current law. Mentors and proteges are free to use joint ventures to bid contracts whenever they believe it would be advantageous to do so--regardless of whether the protege independently possesses the capacity to perform the full contract on its own.

Deja Vu All Over Again

Actually, the answer is "A, C, and D, unless you're applying in a secondary NAICS code." As we've already discussed, experience isn't required when the NAICS code selected is the protege's primary NAICS.

We Are Living in a Material World

This one's rather subjective, but I'm going to say it anyway--in my view, there's absolutely nothing wrong with a mentor that is "just looking for access to federal small business set-aside contracts." In fact, such access is the only reason many mentors participate in the SBA MPP in the first place!

After all, what else should a mentor be looking for? I can't really think of anything, other than the warm fuzzies of helping a small business, which isn't necessarily an overwhelming rationale from a capitalistic standpoint. Again, as I see it, there's absolutely nothing wrong with a mentor joining the SBA MPP simply because it wishes to access small business contracts through joint ventures.

In my mind, the better question is not whether the mentor wants to access set-asides, but whether the mentor understands and agrees that in order to gain such access, it must diligently provide targeted assistance to aid in the protege's business development. That's where the focus of the MPP Tutorial should be--not the misguided notion that mentors will join the SBA MPP for some reason other than to gain a business advantage.

About That Regulatory Reference . . .

Now we're getting to parts of the MPP Tutorial that could outright harm the mentor and protege by providing them erroneous advice about compliance with mandatory regulations. Here, the Tutorial tells mentors and proteges to see 13 C.F.R. 125.8 for the list of requirements for joint venture agreements.

That's good advice--if, and only if, the joint venture is pursuing a small business set-aside contract. The SBA has not one, but five regulations imposing requirements for joint ventures: one applicable to small business set-aside contracts, and one each for 8(a), VOSB/SDVOSB, WOSB/EDWOSB, and HUBZone contracts.

While you'd think the requirements would be the same (or, really, you'd think the SBA would just have one regulation), they're not. Simply put, if you draft your joint venture agreement around 13 C.F.R. 125.8, then use your joint venture to bid on an 8(a), VOSB/SDVOSB, WOSB/EDWOSB, or HUBZone contract, your joint venture likely will be invalid. If an eligibility protest is filed, you'll probably lose the contract.

The excerpt above has some other problems, like an outdated reference to DUNS, which was replaced in April 2022. The suggestion that all joint venture agreements should follow 13 C.F.R. 125.8, however, is much more serious in that it could cause mentor-protege joint ventures to lose awards.

More Joint Venture Problems

Continuing with the theme of "joint venture guidance that could cost a joint venture a contract," this excerpt offers a couple of problems.

First is an outdated reference to the "project manager." SBA has replaced this term--in all five joint venture regulations--with the term "Responsible Manager." SBA has also explained that, contrary to the statement that this person must be your employee, "[t]he individual identified as the Responsible Manager of the joint venture need not be an employee of the small business at the time the joint venture submits an offer, but, if he or she is not, there must be a signed letter of intent that the individual commits to be employed by the small business if the joint venture is the successful offeror." (This quote comes from 13 C.F.R. 125.8, but there are similar provisions in the other joint venture regulations).

Even more concerning is the statement that the protege "will receive projects from the joint venture . . . commensurate with your ownership interests" in the joint venture.

Joint ventures perform projects together, not separately, so the notion of one party receiving a certain percentage of projects makes no sense. To the extent this statement intends to refer to workshare, instead of projects, the five joint venture regulations allow the protege to perform as little as 40% of the joint venture's work, not 51%. And to the extent the word "projects" is erroneous, and the MPP Tutorial intends to say "profits," the five regulations call for profits to be split commensurate with workshare, not ownership.

However you slice it, this statement is a mess and relying on it could make a mentor-protege joint venture ineligible.

What Statements?

Interestingly, while this excerpt refers to 13 C.F.R. 125.8, which governs small business set-aside contracts, the language included regarding financial statements comes from the four regulations governing socioeconomic contracts, such as the 8(a) joint venture regulation, 13 C.F.R. 124.513.

The requirement to submit annual financial statements does not exist in 13 C.F.R. 125.8. Instead, SBA has subsituted a requirement to submit annual statements explaining how the parties to the joint venture are meeting the performance of work requirements (that is, how the parties are ensuring that the protege is performing at least 40% of the joint venture's work).

Following the MPP Tutorial's guidance regarding annual financial statements, then, could make a joint venture ineligible for small business set-aside contracts.

But we're not done!

The requirement for a "project end performance of work [statement]" does come from 13 C.F.R. 125.8, the small business regulation. But for the four socioeconomic programs, SBA has a different requirement: submitting a "project-end profit and loss statement, including a statement of final profit distribution."

Following the MPP Tutorial's guidance regarding performance of work statements, then, could also make a joint venture ineligible for socioeconomic contracts!

We're Done with DUNS

As I noted above, DUNS was replaced in April 2022. I'm a Cubs fan, so I'm in the habit of not expecting miracles, but I feel like SBA's had enough time to make a corresponding replacement to this outdated reference.

One final bit of outdated information: PTACS were rebranded as APEX Accelerators in November 2022. APEX Accelerators provide wonderful and valuable assistance to contractors; the easier it is for contractors to find and connect with them, the better. If the SBA could correct this reference before the two-year anniversary of the rebranding, that woud be cool.

A Few Final Words

I hate criticizing SBA because SBA does so much to support small businesses. Most of what the SBA does, it tends to do very well. Unfortunately, the MPP Tutorial, in its current form, doesn't live up to those high standards. For the sake of prospective mentors and proteges alike, I hope the SBA will update its MPP Tutorial soon.

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Boring but important disclaimer: The information in this article is not, nor is it intended to be, legal advice. You should consult an attorney for individual advice regarding your own situation.