By Brent Carpenter, Attorney
This article was originally published in the April 20, 2018 edition of the Daily Journal of Commerce Oregon.
For small businesses owned by socially and economically disadvantaged individuals, the U.S. Small Business Administration (“SBA”) offers several opportunities to expand into the field of federal government contracting. The SBA administers the 8(a) Business Development Program (“8(a) Program”) in order to assist businesses owned by socially and economically disadvantaged individuals in competing for federal government contracts.
In order to qualify for the program, a socially and/or economically disadvantaged individual must own or control at least 51% of the business. The SBA presumes that individuals who are African-American, Hispanic American, Asian-Pacific American, Native American, or Subcontinent-Asian American are socially disadvantaged. However, individuals who are not a member of these groups may show social disadvantage through, for example, gender, physical handicap, or “long-term residence in an environment isolated from the mainstream of American society.” Individuals must also prove economic disadvantage through documentation of their income, assets, and net worth. Further, the business must be “small” according to SBA’s small business concerns size standards.
The 8(a) Program is for a set duration of nine years, consisting of a four-year developmental stage and a five-year transition stage, at the end of which the firm graduates from the program. SBA monitors a firm’s progress through the program through reviews, planning, and evaluations to keep the firm on track to graduation. Among other support, the program provides procurement and financial assistance as well as surety bonding. 8(a) firms are eligible for sole-source contracts and are encouraged to participate in competitive procurements.
The SBA also offers the Mentor-Protégé Program, which allows businesses to mentor 8(a) firms. Mentors may be in the transitional phase or graduates of the 8(a) Program, but often are non-8(a) small businesses. In order to participate in this program, 8(a) firms must be in the developmental phase of the 8(a) program, not have previously received an 8(a) contract, be less than half the applicable SBA size standard in size, and be in good standing the 8(a) Program. The Mentor-Protégé Program allows mentors to provide technical and management assistance to protégés. Further, mentors are allowed to own up to a 40% equity interest in protégés. Finally, in addition to the loans and other assistance provided by the 8(a) Program, protégés in good standing may qualify for additional financial assistance.
Another valuable opportunity provided by the 8(a) Program and the Mentor-Protégé Program is the opportunity for an 8(a) firm to form a joint venture with a non-8(a) small business and compete for and perform larger prime contracts. A joint venture is a commercial enterprise undertaken for profit by two or more firms which otherwise are distinct legal entities. 8(a) firms may form joint ventures with small businesses, whether or not those small businesses are Mentors in the Mentor-Protégé Program, in order to bid on and perform prime contracts. A joint venture is a separate entity, which must be properly registered and licensed. Additionally, the SBA must approve the joint venture prior to contract award. For purposes of approval, the proposed joint venture must show that the 8(a) firm does not have the ability to perform the contract itself, that the joint venture agreement is fair, equitable, and will substantially benefit the 8(a) firm. The 8(a) firm must also own or control at least 51% of the joint venture entity and exercise management control over the joint venture generally and over the performance of the contract specifically. Subcontracting limitations apply to joint venture contract performance as well, with the requirement that the 8(a) firm perform at least 40% of the contract work.
Together, the SBA’s programs for socially and economically disadvantaged individuals allow for those individuals’ firms, as well as the small businesses with which they form joint ventures, to compete for larger prime contracts. Beyond the intrinsic value of increased diversity in federal contracting, the hope is that the resultant increased competition will lead to decreased cost to taxpayers.
Brent Carpenter is an attorney in Jordan Ramis PC and focuses his practice on construction law. Contact him at 503-598-7070 or email@example.com.