SBA proposes 8(a) mentoring program

New rules proposed by the Small Business Administration for its 8(a) minority business-development program would encourage experienced companies to shepherd start-ups.

The mentor-protege program would team successful 8(a) companies that have left or are about to leave the program with participants that are just starting out. William Fisher SBA acting associate administrator for minority enterprise development said the proposal is a way to help new companies at a time when the government's budget for technical assistance is decreasing.

Facing Controversy

The plan also would allow mentors to own up to 33 percent of protege companies and through the proteges continue to work on set-aside contracts for which they would in many cases not be eligible otherwise. This aspect of the proposal is controversial enough that SBA noted potential objections to it when it requested comments earlier this month.

SBA's mentor-protge program would be the first to pair new companies with other small businesses. "We have a desire - to the extent we can influence it - to put in place provisions that will assist firms in being successful in the 8(a) program and after they leave " Fisher said.

Similar programs in the Defense Department NASA and the Federal Aviation Administration are designed to team small firms with large established companies.

"Teaming is the name of the game " said Wayne Carter whose company DC Information Systems Silver Spring Md. has one more year in the 8(a) program and has been a protege through the DOD program. Carter said it can take a company up to five years to build its marketing capabilities and with competition increasing for information technology contracts "it's going to be impossible for the smaller companies to really come in and survive."

Fledgling minority-owned companies see another benefit as well. They say set-asides are disappearing as former 8(a) companies convert their business to General Services Administration schedule contracts or other governmentwide vehicles. Because the proposed program would allow mentors to continue to work on 8(a) contracts with their proteges some business owners think more contracts will remain set-asides.

"They really are taking a big chunk of 8(a) opportunity away in the IT arena " said Jean Wu president of Integrated Management Services Inc. a Northern Virginia 8(a) firm that specializes in information security. "If they get to invest in another company they will obviously somehow get back into the marketplace again but the proteges will be the lucky few that get to benefit from this."

However Wu whose company has been in the 8(a) program for five years and has had many informal advisers said SBA should give mentors greater financial incentives to sign up. DOD for example reimburses mentors for the money they spend coaching their proteges giving mentors a "business reason" to take on such projects she said.

Fernando Galaviz vice chairman of the National Federation of 8(a) Companies agrees. But he said his group has an "added concern" that firms will take on proteges just so they can get contracts and will end up controlling proteges as "front" companies rather than helping them. One way to guard against this he said is for SBA to require the protege to be the prime contractor on any 8(a) contract that these protege teams win.

"Let's not forget the golden rule " said Galaviz who runs The Centech Group Inc. Arlington Va. "He who has the gold makes the rules."

Devon Hewitt a lawyer with Shaw Pittman Potts & Trowbridge in McLean Va. who represents many small companies said she also questions whether the proposal might benefit the mentors more than the proteges. However she continued potential mentors have problems of their own that the SBA proposal might help solve. She noted that many 8(a) firms continue to have trouble making the transition from the program which awards sole-source contracts and has limited competitions to the more competitive open marketplace. Being a mentor "offers a better transition " as long as its relationship with the protege is monitored Hewitt said.

Fisher said SBA did not have any estimates of how many firms might sign up to be mentors or proteges but that many companies have expressed interest in the idea during informal discussions.

According to the proposed rule published in the Aug. 14 Federal Register each mentor would be allowed to have only one protege in part to avoid the "perception" that "the mentor is `chasing' many different 8(a) contracts through its various proteges." Galaviz said his trade association estimates 30 to 40 companies might be interested in the program.