A Salt Lake City government contractor agreed to a $928,000 settlement to resolve false-claims allegations related an SBA program for disadvantaged business. (Click here for the full article). This all stems around the SBA’s mentor-protégé program, a program that has been around for many years. The program is designed to help small business gain experience with larger construction projects by teaming with a mentor by way of a joint venture. In theory, the larger company provides the financial and bond support, while the smaller disadvantaged business gets valuable mentorship along with a much larger contract it would otherwise not be able to obtain. It’s a win-win for both parties. However, it’s been suspected that many larger companies enter into these mentor-protégé agreements for one reason; to get a piece of the pie set aside for small business without really mentoring the protégé.
Regardless if that is a true statement, it’s obvious from this article that there is big money in these government programs. The contactor that settled $928,000 denied the allegations and made no admission of guilt. It settled because it was a better decision financially than to battle out in court. If nearly a million dollar settlement is the better decision than to fight in court then either 1) the contractor didn’t have much of a case or 2) there were and are millions more to be made.
There are many different issues to debate but the general take away from this, at least from a small business and bonding perspective, is to pick your partners carefully. Yes, the mentor-protégé program offers some real benefit and can lead to large project experience and large project profits. However, it can also lead to a situation like this, where the protégé feels it is being used by the mentor to gain access to contracts set aside for small business.
From a bonding standpoint, we look at several different criteria when determining the creditworthiness of a contractor. Simply having a large job on a resume by way of a joint venture with a mentor does not alone result in the small contractor qualifying for larger performance and payment bonds. Doing things the old fashioned way does: make money, reinvest that money in your company, strengthen internal controls, manage cash flow, consult with your bond agent, upgrade financials, etc. This will all result in an increase to your bond program.