New 8(a) Regulations Limit JVs, Allow Higher Income SBA has overhauled rules governing the 8(a) program, imposing new restrictions on joint ventures and raising limits on a business owner’s annual income and wealth. The final rule, published in the Feb. 11 Federal Register, is the first rewrite of 8(a) regulations in more than 10 years. It becomes effective March 14. In a joint venture between an 8(a) firm and a non-8(a) partner, the 8(a) firm will be required to do at least 40% of the work done by the joint venture. Since the JV is required to perform at least 50% of the work on a contract, that means the 8(a) partner must perform at least 20% of the total contract. The current rule requires only that the 8(a) firm do a “significant portion” of the work. The non-8(a) partner may not take a second bite of the apple by serving as a subcontractor to the joint venture. The 8(a) partner in the JV must receive profits commensurate with the amount of work it performs. SBA has indicated that the new JV rules were a response to suspicions that Alaska Native Corporations were passing through virtually all work to a large partner. Legislation is pending in Congress to restrict the size of sole source contracts awarded to Alaska Native and tribally owned 8(a) firms. Alaska Native Corporations and tribally owned companies will be required to report how their 8(a) contracts benefited their communities. The Alaska firms have argued that their payments to impoverished Native people justify their special procurement preferences, but congressional investigators found that some Alaska companies paid only a few hundred dollars in dividends to Native shareholders. Income and Assets> The owner of a company entering the 8(a) program will not be considered economically disadvantaged if his annual income exceeds $250,000, averaged over a three-year period. To remain eligible for the program, the owner’s annual income may not exceed $350,000. An individual may rebut a finding that he is not economically disadvantaged by showing that the high income was the result of an unusual event, such as an inheritance. Since the 8(a) owner usually must be the highest paid employee, SBA said the higher income limits will allow 8(a) firms to pay competitive salaries to other top-level executives. An owner will not be considered economically disadvantaged if his assets exceed $4 million at the time of application for the 8(a) program. To remain eligible, an owner’s assets cannot exceed $6 million. Individual retirement accounts will not be used in calculating a business owner’s net worth. The final rule sets higher limits for an owner’s “excessive withdrawals” that can get a company kicked out of the program. For companies with sales under $1 million, withdrawals under $250,000, not counting the owner’s salary, will not be considered excessive. For those with sales between $1 million and $2 million, the amount is $300,000; and for those with sales over $2 million, it is $400,000. Mentor-Protégé Program A mentor in the 8(a) mentor-protégé program may have three protégés at one time. Mentor-protégé joint ventures would be considered small businesses for subcontracts as well as prime contracts. Protégés would be allowed two mentors if the second mentor has expertise that the first one lacks. No 8(a) firm could serve as a mentor and a protégé at the same time. Other Provisions *The rule imposes new restrictions on consultants and other representatives working for 8(a) firms. It prohibits arrangements giving the representative a percentage of contract value. *The disadvantaged manager of an 8(a) company must live in the United States and spend part of each month physically present at the company’s principal place of business to ensure that he or she is actually running the company. *If an 8(a) owner is called to active duty in the armed forces, he or she could temporarily suspend participation in the 8(a) program without penalty. *An agency that awards an 8(a) contract is responsible for oversight of the contractor, including its compliance with 8(a) rules. This clarification responds to criticism by the Government Accountability Office that the lines of responsibility for oversight were blurry. *Members of an 8(a) partici-pant’s immediate family would be permitted to own other 8(a) companies as long as they are in a different industry, the family member is qualified to run the company and the family member can show that his company is separate and independent. The current rule prohibits family members from owning more than 20% of another 8(a) firm. SBA said it believes “this narrow exception” is justified and will only apply to a few companies.