On January 12, 2022, the U.S. Attorney’s Office for the District of Colorado announced a $1.15 million civil settlement in a case implicating misuse of the Small Business Administration’s (SBA) Mentor-Protégé Program. The settlement is to be partially paid by both the SBA-approved mentor and protégé relating to conduct associated with winning and performing two set-aside awards.
Native American Services Corp. (NASCO) was the mentor to Mirador Enterprises, Inc. (Mirador), a small business and participant in the SBA’s 8(a) Program. The contracts at issue in this settlement were two Army set-asides for construction projects at Fort Carson—one set-aside for small businesses and one for 8(a) participants. At the time that Mirador submitted offers as a prime contractor for each of these procurements, Mirador qualified both as a small business and as an 8(a).
The problem, as alleged by DOJ, was that NASCO prepared the bids with the intent that NASCO would primarily perform the contracts. DOJ further alleged that, after the Army made award to Mirador, NASCO took the lead in the performance of these two contracts and provided assistance that far exceeded what was permitted under the Mentor-Protégé relationship.
Once the government raised concerns about NASCO’s “improper level of involvement,” the parties purportedly doubled down and took steps to conceal how they were actually performing. As laid out in DOJ’s press release:
- The parties tried to make it appear that NASCO was transferring employees to Mirador, but these employees remained under NASCO’s control;
- NASCO provided information to Mirador employees to make them appear more involved or knowledgeable about the contracts than they actually were; and
- NASCO drafted correspondence for Mirador’s signature, to be submitted to the government.
Of the $1.15 million civil settlement, NASCO will pay $750,000 and Mirador $400,000.
There are two takeaways from this settlement.
First, mentors have to be careful not to cross the line with regard to the level and type of assistance that is being provided to its protégé. In this example, based on the facts DOJ alleged, the mentor appears to have acted primarily in its own interest with no attempt to benefit the protégé—except, perhaps, financially if the protégé made a profit from its two prime contracts even if the mentor was primarily performing them. But, as explained in the DOJ press release, the purpose of the Mentor-Protégé Program is to assist the protégé in gaining experience, developing capacity and winning government contracts through partnerships with more experienced companies. The Program is not intended to simply provide protégés with a modest monetary gain while the mentor capitalizes on set-aside contracts to which it would not otherwise have access.
Second (and related to the first point), mentors should be using the mentor-protégé agreement to guide the assistance being provided. One easy way for mentors to ensure that their protégé relationships do not run afoul of SBA regulations, as in this case, is to refer back to the SBA-approved mentor-protégé agreement. The assistance to be provided by the mentor should be accurately and fully described in the agreement and have received SBA approval. If the parties find that the mentor-protégé agreement no longer covers the types of assistance that would most benefit the protégé, the parties can propose an amendment to the mentor-protégé agreement and seek SBA’s approval of such changes prior to providing the revised assistance. If the SBA seems unlikely to approve the proposed assistance—such as in the situation alleged above—that should give mentors pause to re-consider the proposed assistance in light of SBA regulations.
Crowell stands read to discuss proposed arrangements under mentor-protégé agreements for compliance with this SBA regulatory regime.