By: Michael H. Payne and Edward T. DeLisle

The U.S. Small Business Administration published a package of final rules on February 11, 2011, that will revise the regulations of its 8(a) Business Development program to better ensure that the benefits flow to the intended recipients and help prevent waste, fraud and abuse. The rules were published in The Federal Register and will become effective on March 14, 2011.

The revisions are the first comprehensive overhaul of the 8(a) program in more than 10 years. The regulations incorporate technical, as well as substantive, changes that mirror legislation enacted since the last revision in June of 1998. The rules cover a variety of areas ranging from clarifications on determining economic disadvantage to requirements on Joint Ventures and the Mentor-Protégé program. Some of the components of the 8(a) program that the revised regulations will affect include:

Joint Ventures – The new rules require that the 8(a) firm must perform 40 percent of the work of each 8(a) joint venture contract that is awarded, including those awarded under a Mentor/Protégé agreement, to ensure that these companies are able to “build capacity.” In other words, the SBA has discarded the vague “significant portion” test in favor of a requirement for a protégé to perform 40 percent of the work performed by the joint venture partners.

Economic Disadvantage – The rules provide more clarification on factors that determine economic disadvantage as it relates to total assets, gross income, retirement accounts and a spouse of an 8(a) company owner when determining the owner’s ability to access capital and credit.

Mentor-Protégé Program – The rules add consequences for a mentor who does not provide assistance to its protégé, ranging from stop-work orders to debarment.

Ownership and Control Requirements – The rules provide flexibility on whether to admit 8(a) program companies owned by individuals with immediate family members who are owners of current and former 8(a) participants.

Tribally-Owned Firms – The rules require firms owned by tribes, Alaska Native Corporations, Native Hawaiian Organizations and Community Development Corporations to report benefits flowing back to their respective communities.

Excessive Withdrawals – The rules amend the regulations on what amount is considered excessive as a basis for termination or early graduation from the 8(a) program.

Business Size for Primary Industry – The rules require that a firm’s size status remain small for its primary industry code during its participation in the 8(a) program.

Other interesting changes include a revision to the prior practice of allowing a mentor-protégé joint venture to only submit bids or proposals on three solicitations in two years. Under the new regulations, instead of being limited to three bids or proposals over a two-year period, a mentor-protégé joint venture is limited to three contract awards. This is a far more reasonable way to limit participation. In addition, the new regulations also make it possible, with SBA approval, for joint venture partners who meet other small business requirements to form a second or a third joint venture, each with the ability to receive an additional three awards.

We will provide a more in-depth analysis of the new rules prior to the March 14, 2011 effective date and will also post a copy of the amended Code of Federal Regulations when it is published. The 8(a) program is a nine-year business development program for small businesses where the owner(s) fits the SBA’s criteria of being socially and economically disadvantaged and the same owners control the firm. The 8(a) program helps these firms develop their business and provides them with access to government contracting opportunities, allowing them to become solid competitors in the federal marketplace. It also provides specialized business training, counseling, marketing assistance and high-level executive development to its participants. In FY09, small businesses received $18.6 billion in 8(a) contract dollars.

Michael H. Payne is the Chairman of the firm’s Federal Practice Group and, together with other experienced members of the group, frequently advises contractors on federal contracting matters. Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group who represents contractors on a whole range of small business issues including teaming arrangements and compliance with the SBA’s rules and regulations.