On October 25, 2023, the Department of Defense (DoD) published a Proposed Rule amending the Department of Defense Federal Acquisition Regulation Supplement (DFARS) and permanently authorizing the DoD Mentor-Protégé Program (DoD MP Program). In addition, the Proposed Rule makes several changes to the program—the most prominent of which include (a) lowering barriers to entry and (b) adding additional benefits for prospective mentors and protégés. Before we dive in to the Proposed Rule, a brief history of the DoD MP Program is in order.
As established in 1991, the DoD MP Program began as the first operational federal MP program. Unlike the Small Business Administration’s (SBA) MP Program, this agency-specific program was designed to grow the defense industrial base (DIB) by assisting small businesses and other entities in obtaining, performing, and serving as suppliers under DoD contracts and subcontracts. Since its inception, the DoD MP Program has been in a continuous pilot stage, requiring extensions through congressional reauthorization—most recently in the National Defense Authorization Act (NDAA) for FY 2020—that allowed new MP agreements to be formed through FY 2024 and permitted the reimbursement of incurred costs under existing agreements through FY 2026. That pilot program is over.
On December 23, 2022, Christmas came early for the DoD MP Program when Congress passed legislation permanently authorizing the program in the NDAA for FY 2023. That authorization was informed by an earlier assessment in 2022 of the DoD MP Program by the DoD Defense Business Board. That study found that while the number of DOD contract obligations to small businesses increased from FY 2011 to FY 2020, “the number of small businesses contracting with DoD declined.” The study also found that the overall pool of small and other than small businesses that do business with DoD declined, and as a result, “lower[s] the diversity of the U.S. [Defense Industrial Base] DIB and could lead to resourcing and readiness problems in the future.” A primary challenge the study identified was the DoD MP Program’s inability to draw optimal participation due to its lack of permanency.
The Proposed Rule implements Section 856 of the NDAA for FY 2023 by modifying DFARS Subpart 219.71 and DFARS Appendix I by removing all references to “pilot” and making the DoD MP Program permanent by making several intended enhancements to the finer points of the program. The expected impact of the rule is to incentivize DoD contractors to furnish eligible small business concerns with assistance designed to:
- Improve the capabilities of small business concerns to perform as subcontractors and suppliers under DoD contracts and other contracts and subcontracts
- Increase the participation of small business concerns as subcontractors and suppliers under DoD contracts, other federal government contracts, and commercial contracts
By lowering the dollar threshold for mentor eligibility, the Proposed Rule is positioned to increase the number of eligible mentors in the DoD MP Program. The regulations currently require that mentors demonstrate the capability if imparting value to a protégé firm, which may be demonstrated by receiving DoD contracts and subcontracts equal to or greater than $100 million during the previous fiscal year. The Proposed Rule significantly lowers that $100 million floor to $25 million, thereby allowing a broader pool of participants to serve as mentors. Further, the Proposed Rule expands the type of development assistance a mentor may provide a protégé under the DoD MP Program. Once limiting that assistance to simply “control,” the Proposed Rule adds “control, manufacturing, test[,] and evaluation” with respect to “[e]ngineering and technical matters such as production inventory control.” This expansion is expected to provide additional avenues for protégés to gain experience supporting the DIB.
Mentors can also benefit from the Proposed Rule’s additional source of developmental assistance they can receive from the protégé firm. The current regulation governing DoD MP Program agreements limits the sources of assistance mentor firms may obtain for protégé firms to five: small business development centers; entities under the Procurement Technical Assistance Cooperative Agreement Program; historically Black colleges and universities; minority institutions of higher education; and women’s business centers. See DFARS Appendix I-106(d)(6)(i)-(v). While these sources of assistance are beneficial, they are generally available through the SBA and not unique to the DoD to serve as a “selling” point to participate in the DoD MP Program. The Proposed Rule changes that by adding a sixth and inherently DoD-unique source, manufacturing innovation institutes, which consist of nine public-private partnerships designed to address challenges faced by American manufacturing innovators in technology areas.
The duration and term of a DoD MP Program agreement is also extended under the Proposed Rule. Current regulations state that a MP agreement may not be greater than two years unless justification is provided. The Proposed Rule dials up that standard term from two years to three years. This change is expected to allow participants additional time to reap the benefits under the DoD MP Program and provide more continuity in strengthening the DIB.
Additional incentives provided by the Proposed Rule for mentors under the DoD MP Program include:
- Credit toward the attainment of its applicable subcontracting goals for unreimbursed costs incurred in providing developmental assistance to its protégé firms
- Reimbursement pursuant to the execution of a separately priced contract line item(s) added to a DoD contract
- Reimbursement pursuant to entering into a separate DoD contract upon determination by the director, Office of Small Business Programs, of the cognizant military department or defense agency that unusual circumstances justify using a separate contract
Regardless of whether your business serves as a mentor or a protégé, the Proposed Rule is ripe with opportunity. Any opportunity, however, must be approached with the same kind of business savvy that has allowed the company, as a mentor or a protégé, to grow into servicing the DIB. This means that the relationships being encouraged must be approached with appropriate caution and the right legal assurances to ensure that the relationships evolve and work out as planned, which will help prevent downside risks and liability if things go sideways between the parties. The Proposed Rule is currently open for comment until December 26. While it remains to be seen what the final rule will include, the proposed changes are welcome additions to provide mentors and protégés with broader access in a now-permanent DoD MP Program.
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