In two recent episodes of Spilling the Tea on GovCon, Teresa Moon explored different aspects of the Small Business Administration’s Mentor-Protege Program with industry experts. The conversations featured legal expert and small business advocate Steve Koprince as well as accounting professionals Michelle Jenkins and Emily Zirbel from Anglin Reichman Armstrong, providing comprehensive insights into both the legal and financial considerations of these important relationships.
Understanding the Basics
Steve Koprince emphasized that one of the most common misconceptions is confusing mentor-protege agreements with joint ventures. “A mentor-protege agreement is a business development agreement,” Koprince explained, while a joint venture agreement creates a separate entity for pursuing contracts. Having a mentor-protege agreement doesn’t automatically create a joint venture.
The purpose of the program, as explained by Emily Zirbel, is to enhance capabilities of protege firms by requesting approved mentors to provide business development assistance. This assistance aims to improve the protege firms’ ability to successfully compete for federal contracts. The program allows for various types of assistance, including technical and management assistance, financial and accounting support, contracting guidance, business development, and general administrative help.
Koprince noted that while the mentor-protege program can lead to joint ventures, they serve different purposes. The mentor-protege agreement focuses on business development and growth, while joint ventures are specifically formed to pursue contracts together.
Program Limitations and Requirements
The program has specific requirements for both mentors and proteges. For mentors, Zirbel explained that they must be a for-profit business (not a non-profit or governmental entity), have sufficient resources to assist the protege, and can have up to three concurrent proteges at one time.
For proteges, the requirements are more extensive. They must be small in their primary NAICS code, though Zirbel noted they can qualify if small in a secondary NAICS code they wish to develop. Importantly, proteges don’t need to hold any specific certifications like 8(a) or HUBZone status to participate.
Koprince added that proteges are generally limited to two mentors in their lifetime, making the selection of mentors crucial for long-term success. He emphasized the importance of choosing wisely: “You likely only have two companies that are going to be your mentors in the lifetime of your business.”
Financial Considerations
Michelle Jenkins highlighted important financial aspects of joint ventures that many businesses overlook. Even before winning any contracts, JVs must maintain proper financial infrastructure. This includes maintaining business licenses, tax filings, and bank accounts.
Jenkins introduced the concept of populated versus unpopulated joint ventures. In an unpopulated JV, the partner companies maintain separate workforces and have subcontract agreements with the JV. This arrangement affects pricing structures since there’s no direct payroll or fringe pool within the JV itself. Populated JVs, conversely, directly employ workers and operate more like traditional companies.
The financial structure chosen can significantly impact pricing strategies and proposal development. Jenkins emphasized the importance of understanding these differences early in the JV formation process to ensure proper setup and compliance.
Expert Support
Both podcast episodes emphasized the importance of having experienced advisors. The accounting experts from Anglin Reichman Armstrong detailed several areas where they assist proteges, including the development of policies and procedures, training in accrual accounting, and understanding indirect rates.
Zirbel emphasized that their support varies based on the business’s lifecycle stage. New businesses might need help with basic policies and procedures, while more mature companies might need assistance with incurred cost submissions or revising indirect rate strategies.
The experts stressed the importance of education alongside service delivery. As Zirbel noted, many proteges “don’t know what they don’t know,” making it crucial to have advisors who can both identify needs and teach proper government contracting accounting practices.
Legal Protections
Koprince stressed the importance of careful legal review of all agreements. He cautioned against assuming that agreements from mentors are automatically compliant with SBA rules, noting that even large, experienced companies can have outdated or incorrect language.
Protection of intellectual property deserves special attention, according to Koprince. He warned against one-sided non-disclosure agreements that protect only the mentor’s interests, emphasizing that protection should be mutual and fair.
The legal expert also advised against skipping straight to joint venture discussions without first establishing a solid business development foundation through the mentor-protege agreement.
Looking to the Future
Recent SBA communications have indicated possible changes to the program, particularly regarding mentor-protege joint ventures’ participation in multiple award contracts and contracts exceeding five-year durations.
Koprince advised that while changes may be coming, businesses shouldn’t let uncertainty prevent them from participating if the program makes sense for their organization. He emphasized the need for concrete data, rather than just perceptions, to support any major program changes.
The experts agreed that regardless of potential changes, the fundamental value of the mentor-protege program remains strong for companies seeking to grow in the federal marketplace.
Whether you’re considering entering a mentor-protege relationship or forming a joint venture, having the right team of advisors can help ensure you navigate these complex arrangements successfully while maximizing the benefits for your business.
You can watch both podcast episodes now on Parabilis’ YouTube page.