Mentor-Protégé Joint Venture to Apply to All Small Businesses

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© adrian_ilie825 – Fotolia.com

For a business that qualifies for the 8(a) set-aside program (for companies owned by the socially and economically disadvantaged), you can form a joint venture between a protégé and a mentor. If the relationship is approved by the SBA, then the size standard of the protégé applies to the joint venture.

The reason this is important is because otherwise, if any of the partners in a joint venture are a large business, the joint venture team is considered large and does not qualify for any set-asides.

One of the provisions of the FY 2013 National Defense Authorization Act (NDAA) was that the SBA was authorized (but not required) to extend these mentor-protégé joint venture privileges to other set-aside categories like service-disabled veteran-owned, HUBZone or woman-owned businesses, or even general small businesses, as long as they’re in a mentor-protégé relationship.

The DoD’s mentor-protégé program pre-dates this change, but what I didn’t realize until reading last week’s guest post by Alex Levine of PilieroMazza was that it is a pilot program that must be reauthorized in the NDAA every few years.

As we learned from Levine’s post, the DoD intends for this to now be a permanent activity. This is significant, as this is the only mentor-protégé program that has money attached to it. The mentor receives money towards performing the functions of the mentor-protégé agreement – expenses, training, marketing staff or whatever.

The bigger picture here is in trying to make the DoD mentor-protégé program permanent, changes must be made to the Code of Federal Regulations (CFRs). After it’s improved and implemented into the CFR, then the FAR Council can modify all the different FAR regulations and regulating bodies to eventually affect all other types of small businesses.

Right now, SBA has proposed the regulations as a draft and are soliciting comments up until April 6, 2015. From there they may make changes, and publish a final set of new regulations (or possibly another interim version if there are substantial changes).

Keep in mind this is just the start of the process. It may not come into fruition until 2016 or even 2017.


DOD Seeks to End the 25-Year “Pilot” Status of the DoD Mentor-Protégé Program

Alex Levine, Associate, PilieroMazza PLLC

Alex Levine, Associate, PilieroMazza PLLC

This is a guest post by Alex Levine, Associate, PilieroMazza PLLC

The U.S. Department of Defense (“DoD”) recently announced its intent to request a 10-year extension of its mentor-protégé program. The move is a bid to add more permanence to a program, since its advent in 1991 has been labelled a pilot program that must be reauthorized in a National Defense Authorization Act every few years.

The DoD hopes that the move will encourage participation amongst businesses, participation which the DoD asserts has been “chilled” due to the perception that the pilot program could be ended at any time. Whether this will increase participation in the program, which currently features only 50 or so large firm participants, remains an open question.

Pilot program or not, the DoD program does offer distinct advantages to both large business mentors and small business protégés. These advantages, and the differences between various agency mentor-protégé firm programs, can be seen in this summary chart compiled by PilieroMazza. As the chart indicates, one such advantage of the DoD mentor-protégé program, versus other similar agency programs (with the exception of the SBA’s program), stems from its broad nonaffiliation treatment between mentors and protégés.

Under the DoD’s mentor-protégé program, a protégé firm may not be considered an affiliate of a mentor firm solely on the basis that the protégé firm is receiving assistance from its member under the DoD’s program. Thus, protégé firms can receive assistance from mentor firms without such assistance being considered as an indication of affiliation. This is a vital consideration for many small business government contractors that depend upon revenues from set-aside work and small business subcontracts.

This exemption, however, is not without its limitations. Case law at the SBA’s Office of Hearings and Appeals holds that the SBA will not apply the affiliation exemption when a mentor is providing assistance as a subcontractor to its protégé. While this limitation substantially weakens the benefits to mentors from participating in this program, mentors still derive significant benefits through the program, including through joint ventures, reimbursement for developmental assistance costs, credit towards applicable subcontracting goals, and the opportunity for equity investment, among other items.

Despite its 10-year extension, the DoD’s Mentor-Protégé program may yet lose some of its unique advantages. Under the 2013 National Defense Authorization Act, the SBA is tasked with creating rules that would eliminate the differential treatment of mentors and proteges in disparate federal programs by establishing a single program for all small businesses. The new, government-wide program will likely be based on the one currently in place for participants in the 8(a) program.  The new program should extend to all small businesses many of the same benefits that 8(a) protégés and their mentors now enjoy under the SBA’s program, including exemptions from affiliation.

On Feb. 5, SBA released its proposed rule establishing the government-wide program.  You can read our analysis on the proposed rule by clicking here.  Comments on the proposed rule are due April 6.

This post originally appeared on the PilieroMazza Legal Minute blog at http://www.pilieromazza.com/blog/dod-seeks-to-end-the-25-year-pilot-status-of-the-dod-mentor-protg-program and was reprinted with permission.

Alex Levine is an associate with PilieroMazza in the Government Contracts Group.


Acquisitions Reform – Same Old Training, Same Old Results

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© ArtFamily – Fotolia.com

Since our four-part series about the acquisition reform report, there’s clearly been a lot of discussion about these issues. The perception is that it’s the acquisition workforce that is the predominant issue – not in terms of competence, but in terms of innovation.

The acquisition workforce tends to focus on following the FAR clauses and getting everything right from a compliance standpoint, yet is not really trained on how to go out of the box in order to foster innovation and obtain better products, solutions and service levels.

I also saw one statistic somewhere that said that pretty close to half of the acquisition workforce has less than five years experience, which means that they’re essentially just learning their craft. That’s a pretty serious matter, given that these are the people who are negotiating and creating acquisitions for literally billions or even trillions of dollars.

So how do we address this perceived deficiency? Is it just a perceived deficiency or is it a real one?

As a sidebar to that, what constitutes adequate training for acquisitions? We can send someone to the Defense Acquisition University for training and certification, but that gets us right back to what we already have – a workforce that has training in FAR clauses, but not training in innovation, new methods and new things.

If we’re not going to just repeat the past, then we need people with training in new stuff. We don’t need the same old same old training. We need something different in order to transform how people are operating.

We’re all in this dilemma. I don’t know how to solve it, but it’s clear that with new people coming on, it’s not enough just to give them the fundamentals of FAR clause and compliance training. That strategy is not working.

Requirements specification is a lost art, and that’s not what the contracting specialists are focusing on. If someone has no proper specifications about what they’re buying, what they want, and what constitutes success after they’ve bought it, than no amount of contracting innovation is going to make a damn bit of difference.


For Overseas Contract Closeouts, Get It In Writing

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© Maksym Dykha – Fotolia.com

The GSA has a rigorous process for closing out government contracts, which are detailed in the Federal Acquisition Regulation (FAR). In carrying out this process, acquisitions professionals will pore over written contracts with a fine tooth comb.

Now I don’t know how many of you are contracting in the overseas market, especially in what’s called OCO environments (overseas contingency operations). One of the dilemmas of this kind of contracting is that very often the circumstances are highly urgent.

Increasingly, the military is using contractors to “plug the gaps” during these OCOs. No longer do you see, as in the movies, the SeaBees and engineers come in and “build the airstrip” – what they do nowadays is contract that out to someone who does it faster, better, and according to specs, and who specializes in airstrips so knows what works and what doesn’t.

Plus of course it doesn’t hurt that the wheels of commerce (us contractors), get the work and pay our employees.

Contractors are expected to act, even if only on a contracting officer’s word. As we learned recently when working with some agencies regarding contract closeouts from the original overseas actions, you’re going to have some problems if you have no written specific authorizations for what was done during the OCO.

You MUST follow up and get it in writing.

Even when things are urgent, even when actions are done under fire, of course first off follow directions, get the job done, and listen to your customer, but then follow-up and get it in writing. Otherwise they could come back and say, “You weren’t authorized to do that, why did you spend that money?”

You can try saying, “Well, Joe the contracting officer told me to do it,” but if you don’t have it in writing you can get into serious trouble. The problem is, Joe may be gone or not accessible, or have a slightly different memory of what was asked for. Or even a really different memory, clouded by time, and by the same urgency you both experienced.


Federal Contractors, Get Ready for the New Budget

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© apinan – Fotolia.com

A federal budget was passed during the lame duck session in mid-December, meaning that with the exception of the Department of Homeland Security (who are still on continuing resolution until the end of February), everybody else now has an official budget.

Under a continuing resolution, Congress authorizes that government agencies can continue their current activities, but cannot start anything new. They can renew old stuff, create a continuing contract (so there might be re-contracting competitions), but can’t do any new stuff.

We didn’t have a budget in 2014, because with the election no one wanted to commit to a budget. So they passed a continuing resolution. In the meantime, the world has changed. There has been action on things like immigration, cyber security, and homeland security.

So now what’s going to happen is that these budgets are going to filter down to the people who have requirements, which will then become contracting actions. We can expect that probably by February or March, people will be issuing new task orders, new contracts, etc.

At this point departments are dividing up their budgets to decide who gets what. Let’s say the Department of the Army got $50, but their original budget was $55. Now they have to split up that new figure amongst all the different sub-functions within their realm. Eventually the money all gets down to the people who are ready to work.

As contractors, now is the time – right now – to talk to your customers (existing and new potential ones). Because if they’re going to get money and commit to new things, you can start laying the groundwork for how they funnel that money.

As it always comes back to in our discussions, success in federal contracting is about building relationships. This is the point when you have to mine those relationships. You’ve got a customer, you have a solution, and they have money – if all these criteria are met, you’re good to go.


The Most Important Moment of a Trade Show

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© artisticco – Fotolia.com

The Interservice/Industry Training, Simulation and Education Conference (I/ITSEC) is the world’s largest modeling, simulation and training conference.

TAPE exhibited again at this year’s event. It took a lot of work, but it was a fun and wonderful experience. I/ITSEC is always an interesting show and we got to see a lot of new stuff that’s going on.

Overall attendance was down, not unexpected given government travel restrictions and budgetary constraints. (The federal budget itself wasn’t approved until a couple of weeks after this event.)

It all came down to 45 minutes

For all the preparation, our results at I/ITSEC all came down to about 45 minutes, spent visiting with a very important person for the work we’re doing, and work we’re going after in the future. If we hadn’t been at the event, if we hadn’t been at the booth, that conversation would never have happened. Frankly, while not really “revenue-bearing,” it definitely made the whole exhibit and show worthwhile. It’s this kind of interaction that doesn’t really happen even in an office call – the atmosphere is much more relaxed and open to conversation.

We made other important contacts with different folks as well, and a lot of business-to-business connections.

To get the most benefit from a trade show booth, you always have to be sensitive to what is your goal. For us it was to meet a couple of VIPs in a more private setting, and we were able to do that. We invested a lot of money for those visits, but they could easily pay dividends down the road.

Trade shows are training grounds

One key thing we did at I/ITSEC, and then a week later at National Veterans Small Business Engagement, was to bring some new employees. They got to hear more experienced staff talk about what we’re trying to “sell” and to what audience, and who we think we are at our company.

It’s important for everyone in a trade show booth to hone that message, focus it, get it down on paper, and then deliver it. In a trade show environment, when somebody shows up at your booth you have no idea who they are, what they’re interested in, or even their specific function at their agency.

That means you not only have to have these core messages down, you must be able to adjust and adapt quickly them as you get into the conversation. Sometimes you have literally 20 seconds – a true elevator speech – so you just start talking and hope that you find something that clicks, because that person would just as soon move on and get someone else’s free samples.

Learn more about finding customers at trade shows.


GAO Identifies WOSB Program Flaws

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© Voyagerix – Fotolia.com

The SBA performs only “minimal oversight” of third-party certifiers for the woman-owned small business program, and thus “lacks reasonable assurance that only eligible businesses receive WOSB set-aside contracts,” says the GAO in a recent report on the WOSB Program.

The GAO report identifies numerous weaknesses in the WOSB certification system, and provides a number of recommendations to strengthen WOSB Program oversight.

The WOSB program provides two options for self-certification. First, the WOSB can use what I call “trust but verify,” by submitting a number of required documents to the WOSB Document Repository, then submitting a good faith written certification of compliance. Upon award of a WOSB set-aside contract, the documents are to be reviewed to verify eligibility. Second, the WOSB can obtain a formal certification from a SBA-approved third-party certifier. The WOSB submits its documents to the third-party certifier, which verifies (or declines to verify) eligibility. If the WOSB is certified by a third-party certifier, the certificate takes the place of many of the documents required to be submitted to the WOSB Document Repository, but the business still must self-certify for WOSB set-asides.

Four entities currently provide third-party certifications under agreements with the SBA. But according to the GAO, the SBA has failed to reasonably oversee the efforts of these WOSB third-party certifiers. The problems identified by the GAO include:

  • “SBA has not put in place formal policies to review the performance of third-party certifiers, including their compliance with a requirement to inform businesses of the no-cost, self-certification option.”
  • “The agency has not developed formal policies and procedures for reviewing required monthly reports submitted to SBA by certifiers or standardizing reporting formats for the certifiers.”
  • The SBA has not “addressed most issues raised in the [monthly] reports.”
  • “Although SBA examinations have found high rates of ineligibility among a sample of businesses that previously received set-aside contracts, SBA has not determined the causes of ineligibility or made changes to its oversight of certifications to better ensure that only eligible businesses participate in the program.”

The GAO recommends that the SBA take prompt action to “provide reasonable assurance that only eligible businesses obtain WOSB set-aside contracts.” These recommended actions include developing and implementing procedures for annual examinations of WOSBs, analyzing the reasons why high numbers of ineligible businesses have previously received WOSB contracts and taking steps to address the causes, and implementing ongoing reviews of some portion of self-certified WOSBs.  A letter from the SBA, which is attached to the GAO report, states that the SBA “generally agrees with the recommendations in the GAO report.”

Like most agencies, the SBA must work with limited resources and personnel, which can make oversight more difficult. Nevertheless, if WOSB third-party certificates are to be trusted–by WOSBs and Contracting Officers alike–it is imperative that the SBA exercise effective oversight of those third-party certifiers. Hopefully, the GAO report will lead to some positive changes.

Bill’s comments: 

There’s nobody really assigned as a Government watchdog for the WOSB program, asking, “Is this really a woman-owned company?” The 3rd party certifiers are often requiring massive documentation, not really justified by the requirements. See also, our discussions on the Center for Veterans Enterprise, the organization charged with certifying VOSBs and SDVOSBs.

A separate issue is that the GAO is still criticizing agencies for not meeting the set-aside standards – not actually using the WOSB program. That is a much more serious issue at this time, that few if any agencies met the 5% set-aside goal, even in a year like FY2013, when overall the Government did meet the 23% set-aside goal.


Acquisition Needs Realistic Program Requirements and Budgets

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© mylisa – Fotolia.com

We’ve been reviewing the four themes outlined in the bipartisan report, Defense Acquisition Reform: Where Do We Go From Here? A Compendium of Views by Leading Experts, including incentivization of the acquisition workforce, and attracting and training a qualified acquisition workforce.

Theme #3: Realism in program requirements and budgets

Requirements have always been the key to avoiding extra costs and delays. But getting good requirements up front has never been easy. And with limited budgets and limited money to spend, and certainly staffing that’s been reduced over time, it’s been a constant problem that can only get worse.

The fact that this was included as one of the key factors in acquisition reform points out the issue, but without making it easy to figure out the solution.

Ultimately, we need to balance getting better, more precise requirements against not specifying a solution that thereby constrains industry ingenuity and innovation on the other end.

We want the government to give their industry partners the opportunity to be innovative, but to also be able to specify a solution that is at least close to what the government thinks is going to be workable, and that will fit within their budgetary restraints.

Here is an example of this issue in action: The government has something they want to do, e.g., build a tank. You have a certain amount of functional activity you know the tank is supposed to do, i.e., it has to carry ammunition and troops. But then there are other questions to answer:

How fast does it need to go? How long does it need to drive for in order to get from where it starts to the battlefield, and how much does it have to do after it arrives? How many rounds of ammunition should it carry? What does its crew need to do? Can it go on roads? Does it need to have a certain center of gravity to not destroy the road? What about electronic counter-measures and safety for the crew, and armor sizing?

So you see that while conceptually what I wanted was a tank, now I’ve identified many more details. Yet I don’t necessarily want to tell the people bidding how to do everything, because I’d like some innovation and improvement to come in from their bid.

The more requirements I specify, the more I’m droning down into one constrained solution, because I’ve told people so much of what I want. The less I specify requirements, the more likely they are to have a range of solutions, but thereby a range of costs and a range of capabilities that they’re delivering against that more loose set of requirements. I might end up in a tank with a gun that shoots left, which might not be so good.

More specific requirements are also more costly to generate, because they need to be developed in precision. There’s a joke in the acquisition community about $1,000 wrenches. A wrench may only cost $12.99 at your local hardware store, but if you’ve over-specified in your requirements, the only way to build it to those specs will be with costly and foolish materials. Meanwhile, the $12.99 wrench would have been just fine. Maybe not perfect, but okay.

We have to have requirements at some level, and we have to understand that the more specific the requirements, the less diverse solutions we’re going to get.


Attracting and Training a Qualified Acquisition Workforce

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© Photographee.eu – Fotolia.com0

I’ve been taking a closer look at a recent bipartisan report about defense acquisition. Four themes emerged, including incentivization.

The second theme was about attracting and training a qualified acquisition workforce. In my summary post, I equated this to what we’ve already been discussing about the interplay between education, certification and experience.

This being a time of austerity and budget crunches, there is a tendency for contracting officers and their staff to be people who’ve risen through the ranks and learned on the job – versus having the related degrees or certifications.

Like anywhere else, when you start comparing credentials and/or education to on-the-job experience, there are going to be both equivalencies and trade-offs. However, the fact of the matter is that when you’re talking about complex procurement and acquisitions, the price of inexperience and lack of specific education is delays.

So it isn’t that you fail in an acquisition, it’s that the acquisition gets delayed. How many times have all of us, in industry and on the other side in government, had an acquisition that should have made it from draft to final in three months, but it takes six months? Or worse, the requirements are redone because there have been so many changes. These delays create a lot of costs, especially on the industry side.

Attracting a more educated, more credentialed, more experienced acquisition workforce comes with a different expense. There will be more churning and turnover as people search for more prestigious opportunities, leaving some other organization bereft of their senior staff. Then there is the financial cost of hiring in subject matter experts from industry who do have all the credentials.

Yet if you’re going to “grow your own” and promote from your own ranks, we could all be putting up with more delays, problems and mistakes along the way.

Like many of the recommendations in this report, all of these options come down to be, in essence, a double-edged sword. It’s more desirable to have a more educated, credentialed and experience acquisitions workforce, but the question is where is it coming from?

One thing you need is a larger pool of junior people. You do not want to be promoting simply in terms of longevity, but people who will be the most successful contracting officers and senior contracting officials. You can find them from industry or some other agency, but then someone somewhere has to rebuild their acquisition workforce.

I wish I had the solution for you, but like with all of these issues, there is no simple answer.


Alternative Financing: How to Maximize Your Chances of Securing an SBA Loan

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© Sergey Nivens – Fotolia.com

This is a guest post by Richard Lewis, Financial Engineering Counselors, Ltd.

Securing the financing you need to grow your small business can be a challenge. Over the past decade, banks have increased lending to big business by 36%, but over the same period, bank lending to small businesses has declined by almost 15%, and loans of less than $100,000 have dropped precipitously by more than 33%.

Fortunately, small businesses can find alternative financing sources, including a Small Business Administration (SBA) loan. There are several different types of SBA loans, including:

Be sure to check which type of loan is right for your needs before beginning the application process.

SBA loans have been around for more than 60 years. These loans, which were established to promote small business growth, typically have lower interest rates and monthly loan payments.

Unfortunately, the process of applying for an SBA loan can be complicated and it can take a long time to complete the process. Once you do, there can also be an extended period of time before you actually obtain your funding. You can speed up the approval process by observing some simple guidelines. Here are five you need to be aware of:

  1. Your credit rating counts: Good credit is important for any loan, and that includes SBA loans. Follow good credit rules, like being sure to pay your bills before the deadlines. Obviously, you’ll want to avoid credit-killing actions like foreclosures and bankruptcies.
  2. Keep your financial documents up to date and organized: This includes all of your financial and accounting documents, as well as your tax records. You might consider using some good accounting software designed for small business if you don’t already to bring greater organization to your records. Having your financial records organized and accessible will move the process along more quickly.
  3. Spell out the purpose of the loan as clearly as possible: Lenders want to know that you’re a good loan risk, and that means they’ll be interested in what you plan to do with the money. Take the time to outline this in the clearest possible fashion, whether your loan is to add vehicles to your sales fleet or expand the size of your brick and mortar store.
  4. Explain how you’ll pay back the loan: You’ll need to demonstrate that you have good cash flow. You can do this through your most recent tax records. Lenders will also want to know how much other debt you have. If the loan is for a start-up business, you should pull together a smart financial plan and include credible projections which demonstrate your ability to make your monthly payments.
  5. Be prepared to describe your history: Lenders will want to know about your finances, but they’ll also be interested in whether you personally are a good risk. That has to do with your relevant experience, how much time you’ve been in business and the degree of professional success you’ve had.

Applying for any loan, whether traditional or through alternative financing, can be confusing. The good news is that there are experienced professionals who can walk you through the process, answer your questions and maximize your chances of success through long-standing partnerships with banks, finance companies and professional service firms.

This post originally appeared on the Financial Engineering Counselors website at http://www.fecltd.net/blog/?p=102 and was reprinted with permission.

Richard Lewis is a government contractor financing consultant. You can contact him at 703-992-8988.


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