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DBE Final Rule

Section 26.35 What Role do Business Development and Mentor-Protege Programs Have in the DBE Program?

In the SNPRM, both mentor-protege programs and business development programs (BDPs) were cast as tools to use for diversification. They still may be used for that purpose, as noted in Sec. 26.33. However, the Department believes that they may have a broader application, and their use in the final rule is not limited to diversification purposes. BDPs, in particular, are good examples of race-neutral methods recipients can use to promote the participation of DBEs and other small businesses in their contracting programs.

There were few comments on these provisions. Recipients wanted flexibility, and suggested that these kinds of programs should be optional. Their comments said that such programs were resource- intensive, and that Federal financial assistance for them would be welcome. One contractors' organization offered its own mentor-protege plan as a model. A few comments voiced suspicion of mentor-protege plans, on the basis that they allowed fronts and frauds into the program.

The final rule makes the use of BDPs and mentor-protege programs optional for recipients. An operating administration can direct a particular recipient to institute a BDP, but BDPs are not mandatory across the board. The operating administration would negotiate with the recipient before mandating a BDP.

One feature added to this provision allows recipients to establish a kind of mini-graduation requirement for firms that voluntarily participate in BDPs. One of the purposes of a BDP is to equip DBE firms to compete in the market outside the DBE program. Therefore, a recipient could ask BDP participants to agree--as a condition of receiving BDP assistance--to agree to leave the DBE program after a certain number of years, or after certain business development objectives had been achieved.

Standing alone, mentor-protege programs are not an adequate substitute for the DBE program. While they can be an important tool to help selected firms, they cannot be counted on to level the playing field for DBEs in general. An effective mentor-protege program requires close monitoring to guard against abuse, which further limits the number of DBEs they can assist. Even with these limits, a mentor- protege program that has safeguards to prevent large non-DBE firms from circumventing the DBE program can be a useful component of a recipient's overall strategy to ensure equal opportunities for DBEs.

The final rule includes safeguards intended to prevent the misuse of mentor-protege programs. Only firms that a recipient has already certified as DBEs (necessarily including a determination that they are independent firms) can participate as proteges. This is intended to preclude non-DBE firms from creating captive DBE firms to serve as proteges. A non-DBE mentor firm cannot get credit for more than half its goal on any contract by using its own protege. Moreover, a non-DBE mentor firm cannot get DBE credit for using its own protege on more than every other contract performed by the protege. That is, if Mentor Firm X uses Protege Firm Y to perform a subcontract, X cannot get DBE credit for using Y on another subcontract until Y had first worked on an intervening prime contract or subcontract with a different prime contractor.

To make mentor-protege relationships feasible, the rule provides that mentors and proteges are not treated as affiliates of one another for size determination purposes. Mentor-protege programs and BDPs must be approved by the concerned operating administration before they take effect. Recipients who already have such programs in place would make them part of their revised DBE programs sent to the concerned OA within 180 days of the effective date of part 26.

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