Government Contracts Monitor

GAO Recommends DOD Act to Ensure that Its Pilot Mentor/Protégé Program Enhances the Capabilities of Protégé Firms

April 19, 2017

The Government Accountability Office (GAO) has identified a number of problems in DOD’s Pilot Mentor-Protégé Program, including a lack of standard operating procedures that DOD components are required to follow to approve Mentor-Protégé Agreements (MPAs), resulting in many MPAs not including required elements necessary to ensure the Protégé's eligibility and Program compliance. GAO further found that DOD lacks performance goals and measures needed to facilitate effective program assessment and ensure that the Program is achieving its intended purposes to help disadvantaged small businesses compete and perform under DOD and other contracts and subcontracts. Most troubling, GAO found that revenues and employment levels for former Protégés decreased in the two years after their program participation ended. GAO recommended that DOD (1) conduct periodic review of the components’ processes for approving MPAs and address the identified deficiencies, and (2) develop performance goals and related measures consistent with the Program’s stated purpose, so as permit meaningful assessment of the Program’s value and identify and correct Program performance issues. DOD concurred with GAO’s recommendations, and stated that DOD (1) has drafted a new Standard Operating Procedure (SOP) addressing GAO’s recommendations, and (2) is evaluating ways to develop measure providing a better indicator of program effectiveness for active mentor-protege relationships and the two years following program participation.

GAO’s Report, entitled Small Business Contracting: DOD Should Take Actions to Ensure that Its Pilot Mentor-Protégé Program Enhances the Capabilities of Protege Firms, examines (1) DOD’s procedures for approving MPAs, (2) DOD’s performance measures for the Program, and (3) the differences between DOD’s Program and SBA’s new All Small Mentor-Protégé Program and the agencies’ efforts to harmonize the two programs. GAO also identified certain characteristics of DOD Program protégé firms, as well as the types of developmental assistance that DOD mentors have agreed to provide to their protégés.

GAO found that, while DOD’s Office of Small Business Programs (OSBP) manages DOD’s Program, including developing and overseeing policies and procedures, DOD components have the authority to approve and administer individual MPAs. DOD’s regulations and OSBP procedures do not prescribe the steps DOD components should follow, and OSBP has allowed DOD components to develop their own detailed procedures, resulting in differing criteria. For example, OSBP has developed a template MPA and checklist to assist in ensuring MPAs include the required Program elements. However, OSBP does not require use of these tools, and does not periodically review DOD component MPA approval actions because OSBP does not want to micro-manage the components.

As a result, GAO’s review of a randomly selected probability sample of 44 of the 78 active MPAs in place as of June 2016 found that 27% were lacking required elements, including protégé NAICS codes necessary to determine protege Program eligibility, and anticipated start and end dates. Astoundingly, 25% of the MPAs did not include signatures of the mentor and protégé. GAO concluded that these missing elements suggest that the DOD components’ procedures for approving MPAs do not provide reasonable assurance that agreements comply with DOD requirements.

GAO further reviewed DOD’s required reports, including semi-annual mentor and annual protégé reports, and required annual reviews by the Defense Contract Management Agency (DCMA), which ensure the validity of the information in the annual reports. While DOD collects and reports information on protégé annual revenue, employments levels, and prime and subcontract awards, DOD has not established goals for these measures. OSBP stated that this is because these measures do not reflect the “primary focus” of the Program, which is to assist small businesses become part of the defense supply chain. Mentors also report information to DOD as to how protégé capabilities were enhanced, certifications they obtained and technology transferred. However, DOD has not developed performance measures or goals related to this information, and does not include this information in DOD’s annual reports to Congress. As a result, DOD is not using the information that it collects to fully assess how well the Program is enhancing the capabilities of eligible small businesses to perform, and therefore is not fully addressing the purposes of the Program. Congress also does not have the information needed to make informed decisions as to whether to reauthorize the Program, terminate it or make it permanent.

OSBP stated that DOD is working to develop measures that provide a better indication of program effectiveness. However, OSBP estimated that it would take about two years for DOD to develop and established baselines for these measures. GAO concluded that until DOD establishes appropriate performance goals and related performance measures, it will be difficult to analyze the effectiveness of the Program, and to identify and prioritize potential improvements.

As to protégé characteristics, GAO found that 77% of DOD protégés have 50 or fewer employees, more than three-quarters have annual revenue less than $10M (with 57% being less than $5M), and 57% have been in business less than 10 years (but 33% have been in business more than 15 years). An estimated 39% of proteges had obtained at least one DOD prime contract in the two years preceding the start of their MPA, while an estimated 74% had obtained at least one DOD subcontract. In addition, an estimated 53% indicated having received subcontract awards from their mentors in the two fiscal years before the proposed MPA was submitted. An estimated 13% had no previous contracting experience.

As to developmental assistance, GAO found all mentors anticipated providing general business experience, 83% anticipated awarding subcontracts to their protégés, and 80% anticipated obtaining assistance for their protégés through historically black colleges and universities, minority institutions of higher education, Procurements Technical Assistance Centers (PTACs) or Small Business Development Centers (SBDCs). Surprisingly, only 2% anticipated extending loans, while an estimated 20% anticipated providing progress payments and 18% anticipated providing advance payments.

The bottom line is that GAO found a number of problems with DOD’s Mentor-Protégé Program, and made specific recommendations that DOD has agreed to implement. Program participants should expect to see a new SOP implemented in the coming months, and more diligent attention to MPAs complying with Program requirements. Program participants also should expect to see more attention to ensuring that committed developmental assistance is actually being provided and is affirmatively benefitting protégés. Longer term, look for DOD to establish and start implementing new performance goals and measurements. Also, look for DOD and SBA to start harmonizing their respective programs, once SBA completes the implementation and shake-down of its new All-Small Mentor-Protégé Program later this year.