New 8(a) Regulations Effective March 14, 2011

New 8(a) regulations effective March 14, 2011:

Joint Ventures - SBA must approve agreement prior to award of 8(a) contract

JV may not be awarded more than 3 contracts over a 2 year period without a finding of general affiliation

Mentor-Protege Program changes - mentor can have as many as 3 proteges at once, protege can have another mentor for a secondary NAICS code, mentor must demonstrate financial health, non-profit mentor is okay, cannot be a mentor and a protege at the same time, assistance must be tied to protege's approved business plan.

Mentor and protege may JV as a small business provided the protege qualifies as small for the procurement.

The SBA must approve the Mentor Protege Agreement before the two firms submit an offer as a JV in order to receive exclusion from affiliation.

Once protege leaves the M/P program, only ongoing contracts are protected by affiliation exclusion

Consequences to mentor for failure to provide assistance agreed to in plan - termination of agreement, ineligible to be Mentor, possible substitution of Protege firm for JV on the contract.

Economic disadvantage rules - total personal assets cannot exceed $4 million initially/$6 million for continuing eligibility.  IRAs the only excluded asset, residence and business are included.

Economic disadvantages rules - net worth $250k initially; $750k continuing eligibility.  Excludes IRAs (new exclusion); excludes FMV of primary residence, excludes value of business. Personal income - $250k initially, $350k continuing.  Averaged over previous 3 years. Income received from S Corp, LLC or partnership excluded from net worth where used by owner to pay taxes or funds reinvested into company.

SBA can consider spouse financial condition if spouse has a role in the busines, or has loaned money or provided credit support to, or guaranteed a loan to business.  Must submit separate financial information for spouse unless legally separated.

Excessive withdrawals - withdrawal excludes officer salaries (unless firm circumventing regulations by payment of salaries).  Firms with sales up to $1 million - $250,000; firms with sales of $1 million - $2 million - $300,000; firms with sales over $2 million - $400,000

8(a) Joint Ventures - "populated" or "unpopulated": 

• If a populated JV, JV must demonstrate how performance of the contract is controlled by the 8(a) managing venturer, and the non-8(a) JV partner may not act as subcontractor
• If an unpopulated JV (or has only administrative personnel) - project manager must be employee of 8(a) managing venturer, 8(a) partner must perform at least 40% of the work performed by the joint venture (compare "significant portion" prior language).  8(a) must receive profits commensurate with work performed

NAICS Code and Size Standard - 8(a): if participant exceeds size standard for its primary NAICS for 3 successive program years, SBA may graduate the firm from the 8(a) program.

Can avoid graduation by changing to a secondary NAICS code in adjusted business plan if the firm demonstrates that through growth its primary industry is changing.

Military call-up of 8(a) owner: owner can elect suspension if called to active duty to preserve full 9-year program term

Review/audit rules - new thresholds

Contact us for more information or for details on the new regulation.