Government contracting can be a lucrative opportunity for small businesses, but breaking into the federal marketplace often comes with steep challenges. From navigating complex procurement processes to demonstrating past performance and securing necessary resources, many small firms find themselves at a disadvantage against larger, more established competitors. One powerful strategy to overcome these hurdles is forming a joint venture (JV) with another company, whether a large business or another small one. This collaboration allows small businesses to pool resources, share expertise, and bid on contracts they might not win alone. In this post, we’ll explore how small businesses can leverage JVs for federal work, with a focus on the U.S. Small Business Administration’s (SBA) Mentor-Protégé Program (MPP) as a key enabler.
What Is a Joint Venture in Government Contracting?
A joint venture is essentially a business arrangement where two or more companies combine their strengths to pursue a specific contract. In the federal space, JVs are particularly useful for small businesses because they can help qualify for set-aside contract opportunities reserved for small, disadvantaged, or specific categories of businesses like 8(a), HUBZone, service-disabled veteran-owned, or women-owned enterprises. Under SBA rules, a JV between a small business (protégé) and an experienced partner (mentor) can be treated as a small business entity, allowing it to compete for these reserved contracts without running afoul of affiliation rules that might otherwise disqualify the team due to the mentor’s size or influence.
Importantly, mentors in these arrangements aren’t limited to large corporations; they can also be other small businesses with proven government contracting experience. The key is that the partnership must provide genuine developmental benefits to the small business, not just serve as a pass-through for contracts.
The SBA Mentor-Protégé Program: A Gateway to Effective Joint Ventures
The SBA’s Mentor-Protégé Program is designed to pair small businesses (protégés) with experienced contractors (mentors) to foster growth and success in federal contracting. Through the MPP, protégés gain access to mentorship in areas like internal management systems, accounting, marketing, strategic planning, financial assistance (such as equity investments or loans), federal procurement navigation, international trade education, and business development. Mentors, in turn, benefit by expanding their networks and potentially accessing set-aside markets they couldn’t enter alone.
Key Benefits of Forming a JV Through the MPP
One of the standout advantages of the MPP is the ability to form JVs that qualify as small businesses for federal contracts. Here’s how it works:
- Access to Set-Aside Contracts: The JV can bid on any small business contract where the protégé individually qualifies as small. This includes set-asides for specific programs like 8(a) or HUBZone.
- Leveraging Past Performance: Protégés often lack the track record needed for big wins. In a JV, they can use the mentor’s experience and past performance to strengthen bids, building their own credentials for future opportunities.
- Affiliation Protection: Normally, close partnerships could lead to “affiliation” findings, where the SBA deems the businesses as one entity and disqualifies them from small business status. The MPP provides an exception, as long as the agreement focuses on real development—not just contract acquisition.
- Resource Sharing: Beyond contracts, JVs enable sharing of administrative support, like human resources or security clearances, which can be game-changers for small firms.
Can the JV Have its Own Employees?
Small businesses must be cautious with how they structure their joint ventures to avoid unintended affiliation. For instance, if the joint venture is established as a separate legal entity (known as a “populated” JV), it generally cannot hire employees to perform the actual contract work for set-aside contracts unless all partners are similarly situated. The only permissible employees for such JVs are those handling administrative functions, including one or more Facility Security Officers, but not for performing contracts awarded to the joint venture. Violating this can lead to the JV being deemed ineligible or triggering affiliation, where the sizes of all partners are aggregated, potentially disqualifying the team from small business opportunities. Additionally, joint ventures are limited to a two-year period for awards without causing general affiliation between partners, though they can submit offers within that timeframe for later awards.
Qualifications for Participation
JVs must comply with strict rules on formation, management, and funding to avoid affiliation risks. The SBA emphasizes that the partnership should drive genuine growth for the protégé. Not every business can join the MPP, as discussed below.
- Protégé Requirements: Your business must be small under SBA size standards, have industry experience, and be organized for profit or as an agricultural cooperative. You can’t have more than two mentors over your business’s lifetime, and you must identify a prospective mentor before applying. Additionally, the protégé and mentor cannot be affiliated at the time of application, based on factors like ownership, management, or contractual ties.
- Mentor Requirements: Mentors must be for-profit entities or agricultural cooperatives, capable of assisting the protégé, of good character, not debarred or suspended, and able to provide value through experience in business operations and government contracting. A mentor can have up to three protégés at once.
Full eligibility details are in Title 13, Parts 121.103 and 125.9 of the Code of Federal Regulations. (Note: always verify current regulations).
How to Apply and Get Started
The MPP isn’t a matchmaking service. You’ll need to find a mentor first. Once identified, follow these steps:
- Register on SAM.gov and obtain a Unique Entity Identifier (UEI).
- Determine your business’s NAICS code.
- Complete the SBA’s online MPP tutorial and save your certificate.
- Prepare a business plan.
- Draft a Mentor-Protégé Agreement.
- Submit your application to SBA.
The SBA reviews applications. A mentor-protégé agreement can last up to six years, with possible extensions, and protégés can have two mentors at once if there’s no conflict.
Maintaining the Partnership: Annual Evaluations
Once a mentor-protégé arrangement has been approved, the relationship requires ongoing commitment. You must maintain it for at least one year, with annual evaluations to track benefits and progress. Failure to submit these can lead to termination. If issues arise, protégés can seek SBA intervention, or use tools like agreement amendments or mentor substitutions, with prior SBA approval to stay compliant.
Final Thoughts
Forming a joint venture through the SBA Mentor-Protégé Program can be a transformative step for small businesses eyeing federal contracts. By partnering with a mentor, whether large or small business, you not only gain immediate bidding advantages but also build long-term capabilities. If you’re ready to explore this path, start by reviewing your eligibility and reaching out to potential mentors. With the right partnership, the federal marketplace becomes far more accessible.
For assistance with small business and other government contracting issues, contact Pannier Law, P.C. at (310) 971-5093 or visit www.pannierlaw.com.
Disclaimer: This article is provided for information purposes only. It does not constitute legal advice. It is not intended to form an attorney-client relationship. Any legal advice should be sought from an attorney. Consult a qualified attorney for advice specific to your situation.
About the Author: William Pannier is the founder of Pannier Law, with over 20 years’ experience as a Government Contracts attorney.