Let Your Mentor-Protégé Agreement Lapse, Lose the Set-Aside: Lessons From A Difficult Court Decision

Article by: Ryan Bradel, Partner

Most small business government contractors know the general rule cold: a company’s size for a small business set-aside is determined as of the date of its initial offer. But there are critical exceptions. The most impactful is the one for mentor-protégé joint ventures. Under a rule SBA crafted in 2020 as part of a wider update to the mentor-protégé program, such joint ventures must be eligible at the time of any final proposal revision as opposed to the time of the initial offer.

This reading of the rule was confirmed in a recent decision by the Court of Federal Claims Primary Health Care v. United States — Fed. Cl. –, No. 25-1795C (2026).

Here’s the back story: In late 2022, Distinctive Home Care (a large business) and Anglin Consulting Group (a small business) signed an SBA-approved mentor-protégé agreement. Shortly thereafter, the two formed a mentor-protégé joint venture — Primary Health Care, LLC — and submitted an initial offer on a Defense Health Agency (“DHA”) small business set-aside procurement, self-certifying that it was an eligible mentor-protégé joint venture and small under the relevant NAICS code.  In January 2024, Distinctive, the large business mentor, notified SBA that it wished to terminate the mentor-protégé agreement.  However, even though the mentor-protégé agreement had been terminated, the joint venture entity continued to exist and submitted a final revised proposal on the DHA procurement.

Ultimately, DHA selected the joint venture for award. At that point a competitor filed a size protest alleging that the joint venture was not an eligible mentor-protégé joint venture.  The cognizant SBA Area Office determined that because the joint venture did not have a valid mentor-protégé agreement underlying it at the time of final proposal revisions, it was not eligible for a small business set-aside award.  The joint venture appealed to the SBA’s Office of Hearings and Appeals (“OHA”), which confirmed the Area Office’s decision.  The joint venture then filed a bid protest with the Court of Federal Claims challenging OHA’s determination.

The Court of Federal Claims’ Judge Schwartz found that the SBA’s interpretation of its rule was plausible—and thus not arbitrary.  Therefore, the SBA’s interpretation must stand.  This decision is unsurprising given that there is little ambiguity in 13 CFR § 121.103(h)(2)(ii) which, as to the size of joint ventures, clearly says that a mentor-protégé joint venture must meet the applicable requirements, which include a mentor-protégé agreement that is in effect, “as of the date of the final proposal revision for negotiated acquisitions and final bid for sealed bidding.”

Notwithstanding this apparent clarity, Judge Schwartz gave the protesting joint venture credit for its “creative” argument before ultimately deciding that the SBA’s determination was the correct one.  The joint venture had argued that the general rule that a small business’s eligibility is determined as of the date of its initial offer, see 13 C.F.R. 121.404, made any subsequent events irrelevant. On that theory, protester argued that the requirement that a mentor-protégé joint venture meet the eligibility standards as of the date of final proposal revisions could not render the company ineligible for a change in circumstances between the initial offer and the final revision.  Judge Schwartz found that argument could not survive the clear evidence that the SBA, in revising the rule in 2020, “specifically intended to foreclose the argument [the protester] is making now, namely, that an offeror can ‘point back to its initial offer’ when the relationship between joint venturers has changed.”

Judge Schwartz’s decision also contained a brief discussion of Loper Bright Enters. v. Raimondo, 603 U.S. 369 (2024), a Supreme Court decision that upended administrative law by eliminating the deference judges owe an agency’s interpretation of a statute.  However, Loper Bright left undisturbed the deference that a judge must give an agency’s interpretation of its own regulations under Skidmore v. Swift & Co., 323 U.S. 134 (1944), Auer v. Robbins, 519 U.S. 452 (1997), and Kisor v. Wilkie, 588 U.S. 558 (2019).  Thus, according to Judge Schwartz, “SBA’s reasonable interpretation of its regulations is founded in its expertise and thus entitled to judicial deference.”

The case involved some unusual circumstances that the Court’s decision does not fully explain: Why did the large business mentor wish to pull out of the mentor-protégé agreement during DHA’s consideration of proposals?  Why did the protégé then leave the joint venture?  It seems that the relationship between mentor and protégé had soured—not an uncommon occurrence, and a reminder to choose your joint venture partners carefully.  But it also raises the question whether the joint venture partners were aware of the impact that terminating the agreement might have on the joint venture’s continued eligibility.  Was this a case of failure to pay attention to rule updates and applicable deadlines?  Or were the joint venture partners aware of the risk of ineligibility but took it anyway because the relationship had become untenable?

Whatever the answers to these questions, unfortunate circumstances can always serve as a warning to the prudent contractor.  Here are the takeaways from this case:

• Calendar your mentor-protégé agreement against the procurement timeline — not just the proposal due date. The eligibility to which you certified at the initial offer can evaporate if the agreement lapses before final proposal revisions. On long-running procurements (and federal procurements run long), build in renewal or extension well ahead of any FPR date, and confirm the agreement remains SBA-approved and in force.
• Understand that “snapshot-in-time” is narrower than it sounds. It locks your size. It does not freeze your joint venture’s structural eligibility. The continued existence of the mentor-protégé relationship — and the joint-venture-agreement provisions that depend on it — are tested later, at final proposal revisions.
• Don’t terminate a mentor-protégé agreement mid-procurement without understanding the fallout. A termination (or even letting one quietly expire under its mandatory 30-day-notice clause) can be fatal to the venture’s eligibility for the contract it’s actively pursuing. If the relationship genuinely needs to end, get advice on the procurement consequences first.