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SBA Wants to Expand its Mentorship Program to Help Small Businesses — and Stop Fraud

The Small Business Administration wants to establish a government wide mentor-protégé program to match small contractors with more experienced ones — in the process, closing some loopholes that masked fraud in such programs in the past.

The proposed rule, released Thursday, would essentially expand benefits currently offered only to those certified as small disadvantaged businesses under the SBA’s 8(a) program to small businesses owned by women and service-disabled veterans, and those located in highly underutilized business zones. Those benefits include development support and help in navigating the federal procurement morass, but also the ability to establish joint ventures that can then bid on contracts set aside for small businesses.

Here’s the problem: For years, these joint ventures have been used for fraud, with the small business doing a minimal amount of the work. That led to the temporary suspension of GTSI Corp. for wrongfully collecting funds set aside for small business by way of a joint venture.

The SBA tried to address the problem in 2011, specifying that the small business had to do at least 40 percent of the work assigned to the joint venture.

It was a step in the right direction, Adam Robinson told me in November 2010. But as the CEO of Govplace Inc. also noted at the time, “the trick is enforcing the work-share allocation and preventing these from simply becoming front companies.”

Indeed, the 2011 regulation change didn’t solve the problem entirely, in part because joint ventures could be staffed with their own employees, performing contracts awarded to the joint venture only. That made it very difficult for the SBA to determine how much work was being performed by the small business — and opened the door for large businesses to take advantage.

This latest proposed rule would fix that as well, requiring that employees of joint ventures performing contracts be employees of the partner companies.

“SBA believes that the benefits received by a protégé from a joint venture are more readily identifiable where the work done on behalf of the joint venture is performed by the protégé and the mentor separately,” SBA Administrator Maria Contreras-Sweet wrote in the proposed rule. “In such a case, it is much easier to determine that the protégé firm performed at least 40 percent of all work done by the joint venture, performed more than merely ministerial or administrative work, and otherwise gained experience that could be used to perform a future contract independently.”

Too soon to tell whether that alone would fix the problem — and if you have suggestions, now’s the time to make them, when the SBA is accepting comments at

As Robinson said in 2010: “There is a long, rich history of smart business folks figuring out how to maneuver around regulations. But with each iteration, I think the gray areas get a little smaller.”

February 5, 2015

| Senior Staff Reporter- Washington Business Journal

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