On June 1, 2021, the Biden administration announced that it is "launching an all-of-government effort to expand contracting opportunities for underserved small businesses across the country." The initiative includes a new goal of "increasing the share of contracts going to small disadvantaged businesses by 50 percent by 2026—translating to an additional $100 billion to [small disadvantaged businesses (SDBs)] over the 5-year period." This new goal for expanding federal contracting opportunities for SDBs appears to track generally with proposals made by President Biden during his campaign and in the initial summary of the fiscal year 2022 budget discretionary funding request (each of which promised a tripling in the SDB federal contracting goal from 5% to 15%), as well as in the fiscal year 2022 budget released on May 28, 2021.
This increase in federal spending on contracts directed to SDBs will present expanded opportunities and incentives for both small businesses participating in the Small Business Administration (SBA) 8(a) Business Development (BD) Program and non-8(a) contractors to consider mentorship opportunities and expand their federal contracting partnerships and opportunities.
For small business concerns participating in the SBA 8(a) BD program, this proposed increase in federal spending on contracts directed toward SDBs should result in a noticeable increase in the number of federal contracts that will be set aside for 8(a) participants. One of the purposes of the 8(a) BD program is to assist eligible SDBs to compete for federal contracts in order to grow their business. This is largely accomplished through sole-source and competitive procurements that have been set aside for 8(a) concerns.
Participants in the 8(a) BD program are not the only contractors that have the opportunity to benefit from this increase in 8(a) set-aside awards, however. Non-8(a) companies can greatly benefit from participation in the SBA's mentor-protégé program, which allows contractors, either large or small, to serve as mentors to protégé firms (in this case, 8(a) companies) in order to provide business development assistance (including technical, management, and/or financial assistance) and to improve the protégé's ability to successfully compete for federal contracts.
To encourage non-8(a) companies to become mentors, the SBA allows a mentor to enter into a joint venture with the protégé to compete for 8(a) set-aside contracts. With a significant increase in 8(a) contracts anticipated, many companies—including incumbent contractors that have recently graduated from the 8(a) program—may be able to retain a large portion of the work by pursuing a recompete through a mentor-protégé joint venture. As long as the joint venture has met the requirements for the content of the joint venture agreement and for the performance of work—e.g., meeting the limitations on subcontracting, the 8(a) protégé performing at least 40% of the work performed by the joint venture, and the work performed by the 8(a) protégé being more than simply administrative or ministerial—then the joint venture receives an exclusion from affiliation for an 8(a) set-aside contract.
In addition to this benefit, mentors are also permitted to receive an equity interest of up to 40% in the protégé firm without creating affiliation. Thus, a mentor could potentially own 40% of an 8(a) protégé and perform up to 60% of the work on an 8(a) contract through the mentor-protégé program. Many 8(a) protégés will benefit from these arrangements because they will position the 8(a) to leverage the resources, technical capabilities, and experience of larger contractors to win work that the 8(a) may not otherwise be capable of winning on its own.
With the expected increase in the number of federal contracting dollars that should soon be directed toward SDBs, the SBA's mentor-protégé program offers an opportunity for 8(a) and non-8(a) companies to benefit. Both 8(a) and non-8(a) contractors should begin to give serious consideration to forming a mentor-protégé relationship and joint venture if they have not already done so. As more contracts are set aside for 8(a) concerns, the competition for finding suitable mentors and protégés will likely increase. Therefore, it would be wise to start considering what strategic relationships and partnerships can be developed today to take advantage of these new opportunities.