The U.S. Small Business Administration (SBA) regulations require a joint venture intending to bid on a Service-Disabled Veteran-Owned Small Business (SDVOSB) set-aside contract to satisfy certain requirements, the most important of which is that all members to the joint venture be “small.” The joint venture also must provide that the service-disabled veteran (SDV) receive 51% of the profits of the joint venture. These requirements are different from those applicable to 8(a) Mentor-Protégé joint ventures. Although Mentors need not be “other than small,” most Mentor companies are large businesses. Also, for unpopulated Mentor-Protégé joint ventures, the SBA regulations provide that the profits should be allocated to the members of the joint venture commensurate with the work performed by each member. An 8(a) member of a Mentor-Protégé joint venture need only perform 40% of the work performed by the joint venture; accordingly, an 8(a) member of a Mentor-Protégé joint venture only needs to receive 40% of the profits of the joint venture.
These differences in the regulations notwithstanding, conventional wisdom has been that a Mentor-Protégé joint venture is eligible to bid on any type of set-aside contract, including a SDVOSB set-aside contract. The reason for this view is because the SBA regulations state that a Mentor-Protégé joint venture may bid for “any Federal government prime or subcontract.” In a recent case, however, the SBA’s Office of Hearings and Appeals (OHA) says this language has limited application. In the Matter of EKCG, LLC, SBA No. VET-255 (April 6, 2016), OHA explains that the SBA regulations provide that a Mentor-Protégé joint venture is exempt from the doctrine of affiliation. This means that the SBA cannot find that a small business Protégé is affiliated with its Mentor. Thus, where the Mentor is “other than small,” SBA will not aggregate the size of each member of the joint venture to find the joint venture itself “other than small.” Because of this affiliation exception, OHA explained Mentor-Protégé joint ventures are considered small for any type of federal procurement.
OHA, however, held that was the entire meaning and extent of the affiliation exemption. While the affiliation exemption allows a Mentor-Protégé joint venture to be considered small for any procurement, OHA stated the exemption does not mean that the Mentor-Protégé joint venture is exempt from other eligibility requirements for certain set asides. Stated another way, OHA’s decision means that a Mentor-Protégé joint venture will always qualify for small business set asides because size is the only eligibility characteristic a company must demonstrate to compete in this type of set-aside. A Mentor-Protégé joint venture also will always qualify for an 8(a) set-aside because the Mentor-Protégé regulations stem from SBA’s 8(a) Program and regulations. A Mentor-Protégé joint venture, however, will not automatically be eligible for a SDVOSB, and by extension, a HUBZone or Women-Owned Small Business (WOSB), set-aside, because these types of joint ventures have other requirements unrelated to size that a joint venture must satisfy in order to be eligible to receive a set-aside contract award.