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Small Business Standouts of Etowah County

Several small businesses in Etowah County recently were recognized for their efforts by The Chamber of Gadsden & Etowah County at its fourth annual Small Business of the Year awards luncheon in mid-October.

Kicking off the recognitions were the milestone awards, which included the Kiwanis Club of Gadsden for its more than 100 years in the community; Crestwood Memorial Cemetery for its 75 years of operation; Brown Oil Co. for its more than 50 years and The Messenger Newspaper for serving the community more than 25 years.

Life Insurance Co. of Alabama was recognized with the Community Improvement Award for its office renovations.

GadRock, a fitness and training center in Gadsden, took home the Emerging Business of the Year award, while Body Maxx Fitness 4 Life, a personal training facility, won the Minority and/or Women Owned Business of the Year.

JSC Appliance Repair was the winner of the Small Business of the Year with 10 or fewer employees, while Copperleaf Properties, a real estate company, won the Small Business of the Year with 11 to 50 employees. Winning the Small Business of the Year with 51 to 100 employees category was Amedysis Hospice Care.

The Non-Profit of the Year was the Gadsden Public Library, and The Factory, an event venue, took home the Voter’s Choice Award.

“Small business is the backbone to every strong economy,” said Heather Brothers New, president of the chamber. “Every dollar spent with a small business stays in the local economy, and statistics show those dollars turn over as many as seven times. Our community has vibrant small businesses, and it is our honor to celebrate them.”

Almost half of the Alabama’s workforce is employed by small businesses, according to the U.S. Small Business Administration’s Office of Advocacy.

SB129 Promises Fair Deal for Alabama Franchise Owners

An important bill that could affect thousands of small business franchises made its way through the Alabama Senate in the regular session but remained in a House committee when the session ended.

Called the Alabama Small Business Protection Act, SB129, it addresses the needs of franchise owners — which make up a huge share of small businesses in the state.

Franchisees are the little guys in the franchise license deal with franchisors.

The bill proposes changes it says would keep franchisors from unfair treatment of their franchisees.

As soon as the bill was aired, lobbyists for franchisors began actively opposing the bill and voicing opposition in the media. “SB 129 would take private franchise contracts like mine and turn them into state law,” Pauline McKean, a FASTSIGNS franchise owner in Mobile, wrote in a Yellowhammer.com opinion piece.

A number of franchisees have been recruited as associate members of the largest group representing big franchisors, the International Franchise Association, and they are used in campaigns against franchise reform. The IFA has been most active nationally in its opposition to city and state campaigns to raise wages.

The Alabama bill proposes no such wage measures, but it is still getting opposition from the IFA and critics who call it unnecessary government regulation, says the bill’s sponsor, Sen. Chris Elliott, R-Fairhope.

“Opposition comes from the national Franchise Association. These are big franchisors,” says Elliot. “They set up sub-associations to make it look like they are conservative organizations, but when you peel the onion, there is nothing more than an effective, well planned campaign by the IFA.

“What this bill is trying to do is to leave them (franchisors) all kinds of ability to police the franchisee and the brand standards but just get rid of the franchisor’s ability to arbitrarily threaten franchisees with non-renewal of the license.

“The bill really just talks about a couple pretty simple things. It sets the venue (for legal hearings) in Alabama. So you don’t have to file outside the state. It’s pretty typical for the venue to be set in the corporate headquarters of the franchisor, and it stacks the deck against the small business guy unless the claim is a half million dollars or more.

“The bill also precludes the franchisor from canceling at a whim. All too often in disagreements between a franchisor and franchisee, the franchisor says he is just not going to renew the license, in order gain some level of compliance. That is fundamentally unfair. This law says you can do it but you have got to pay the franchisee.”

The bill requires franchisors to pay just compensation to a franchisee if the franchisor terminates the licensing agreement “except for good cause.” It also requires that when selling a franchise, the franchisor must disclose “any effort to sell or establish more franchises than is reasonable to expect the market or market area for the particular franchise to sustain.”

CFA chairman John Motta wrote in the Wall Street Journal on June 4 “Alabama Senate Bill 129 does nothing to destroy the franchise model, but allows franchisees more freedom in running their businesses.

“No entity currently protects franchisees because their franchise agreements, which are nonnegotiable, deprive them the right to their day in court.

“The Protect Alabama Small Business Act has nothing to do with unions or government interference with businesses, and everything to do with protecting the life savings of franchisees.”

The bill has been endorsed by the Alabama Franchisee Association, and a number of major Alabama franchise owners have written letters of support.

“In Alabama, franchisee business owners are at a real disadvantage. Currently, there is no basic protection for franchisees in Alabama. These small businesses invest in and support local Communities, yet Alabama franchisees risk losing everything due to the disproportionate power and unjust practices of corporate franchisors,” wrote the Alabama Franchisee Association.

“In the hotel industry, I have seen the franchisors add enormous transfer fees when a property is being sold. These fees are in excess of the value of the new franchise,” wrote Beau Benton, president of Larry Blumberg & Associates Inc., a Dothan-based company that is one of the largest franchisees in the state, with 2,500 employees working in Marriott, Hilton, IHG and Hyatt hotels in Huntsville, Birmingham, Trussville, Prattville, Montgomery and Dothan.

“Current franchise agreements, which are drafted by franchise lawyers and whose disclosure documents are hundred of pages long, present a ‘take it or leave it’ situation wherein franchises cannot negotiate the terms of their contract. Furthermore, franchise agreements are often substantially changed via franchise operations manuals, which are not within the four corners of the signed agreement,” wrote Scott Applefield, president of Dothan-based Winco LLC and Moonshot DDL, owners of Bojangles chicken and biscuit and Full Moon barbecue franchises.

“We feel this bill is long overdue given that some franchisors impose non-negotiable, one-sided and inequitable franchise agreements upon their franchisees,” wrote John Howard, vice president and general counsel of Montgomery-based Burger King franchise owners Premier Kings Inc., Premier Kings of North Alabama LLC and Premier Kings of Georgia Inc., as well as Popeyes chicken franchise owner Premier Cajun Kings LLC.

Restaurants are the largest category of franchises and the one category the U.S. Census reports on by state. Alabama has 3,042 franchise restaurants, 82 percent of them owned by franchisees, according to the most recent (2012) Economic Census.

How Small Businesses Can Enter the Sea of Federal Procurement

Todd Overman and Taylor Hillman, of Bass, Berry & Sims PLC

The All Small Mentor-Protégé Program (ASMPP) was established by the Small Business Administration (SBA) to extend business development assistance to all small businesses and help them achieve success in competing for federal government contracts.

According to the SBA, only 20 of the 511 approved Mentor-Protégé Agreements had Alabama addresses listed as of May 5, 2018, even though one of the ASMPP’s top 10 district offices is located in Alabama.1 While there may be more Alabama-based businesses involved in the ASMPP, these numbers suggest a real opportunity to expand ASMPP relationships in the Alabama federal contracting market. The ability to offer tangible benefits for small business growth as well as meaningful participation by large businesses in previously unavailable set-aside opportunities creates a real “win-win” scenario that more contractors should take notice of. 

The SBA created an all-inclusive program, rather than individual programs for each small business constituency (Service Disabled Veteran Owned Small Businesses, Women Owned Small Businesses, HUBZones, etc.), to simplify and enhance access to the program. Protégés can acquire valuable business guidance and opportunities from their relationship with a mentor, including financial support; assistance in navigating the federal procurement bidding, acquisition, and performance processes; business development advice including strategic planning and opportunity identification; and guidance on internal business management systems. Mentors in turn can provide various forms of assistance to small businesses without the fear of affiliation risk and can create joint ventures with their protégé to pursue small business set-aside prime contracts and subcontracts.

ASMPP Eligibility

To be eligible for the ASMPP, a protégé must be small for the NAICS code in which it is requesting a Mentor-Protégé relationship and have industry experience in the NAICS code in which assistance is sought.2 Additionally, all protégés must be organized for-profit or as an agricultural cooperative. Protégés must have a mentor and business plan before submitting their ASMPP application, as well as register in the System for Award Management (SAM). Protégés are limited to no more than two mentors in their business lifetime.

Mentors can be a large (or small) business and must be organized for-profit. Mentors cannot have more than three protégés at any given time. To qualify as a mentor, a business concern must:

  1. Demonstrate that it is capable of carrying out its responsibilities to assist the protégé firm under the proposed mentor-protégé agreement;
  2. Exhibit good character;
  3. Not appear on the federal list of debarred or suspended contractors; and,
  4. Prove it can impart value to a protégé firm due to lessons learned and practical experience gained or through its knowledge of general business operations and government contracting.3

After being approved as an ASMPP mentor, the business is required to annually certify that it continues to possess good character and verify its favorable financial position to each protégé in order to continue serving as a mentor to a small business concern in the ASMPP.4

ASMPP Agreements

Applicants must create and submit a mutually negotiated and agreed upon Mentor-Protégé Agreement. A Mentor-Protégé Agreement must set forth an assessment of the protégé’s needs and provide a detailed description and timeline for the delivery of the assistance the mentor has committed to provide in order to address those needs.5 Specifically, the Mentor-Protégé Agreement must:

  1. Address how the assistance to be provided through the agreement will help the protégé firm meet its goals as defined in its business plan;
  2. Establish a single point of contact in the mentor concern who is responsible for managing and implementing the mentor-protégé agreement; and,
  3. Provide that the mentor will commit such assistance to the protégé firm for at least one year.6

In order to be approved, the SBA must determine that (1) the mentor will be able to provide assistance that will create a real opportunity for developmental growth for the protégé and (2) the mentor does not intend to use the ASMPP to simply access federal small business set-aside contracts that it would not be eligible to compete for otherwise. The SBA will deny a Mentor-Protégé Agreement if it has ever made an affiliation determination between a proposed mentor and protégé.

As of December 31, 2018, the SBA had approved 629 ASMPP Agreements. Once approved, the agreement is good for an initial three-year term and can be renewed by the SBA for an additional three-year period. Importantly, while an agreement is effective, all benefits provided by the mentor to the protégé cannot be used for affiliation determination purposes – but those benefits must be specifically identified in the agreement.7 This can provide a real advantage to a small business looking to receive business development or contractual/technical assistance as it pursues new federal opportunities.

ASMPP Joint Ventures

Protégés in the ASMPP are eligible to form a joint venture (JV) with their SBA-approved mentor and compete for federal contracts and subcontracts based on the protégé’s size and status, regardless of the mentor’s size.8 Once a protégé no longer qualifies as a small business under its primary NAICS code, it will no longer be eligible for the ASMPP, but will be able to complete contracts previously awarded.9 The ASMPP requires that the JV perform the appropriate percentage of work based on the subcontracting requirements, and the protégé must perform at least 40% of that work which must go beyond administrative or ministerial functions.10 In addition, the JV must submit annual reports to the SBA and the contracting agencies explaining how the work is performed under each contract.

To form a JV, the protégé and mentor must have a written JV agreement that meets very stringent regulatory requirements.11 The SBA will not review or approve a JV agreement before a JV competes for a contract, except in the case of an 8(a) contract. If a JV is awarded a contract and a size or status protest is filed against it, the SBA will then review the JV agreement to determine the JV’s eligibility. Thus, it is imperative that a JV agreement between mentor and protégé meet the following requirements:

  1. State the purpose of the JV;
  2. Designate the protégé as the managing venturer of the JV (dependent on the type of set-aside competing for) and identify an employee of the managing venturer as the project manager responsible for performance of the contract;
  3. State that the protégé owns at least 51% of the JV entity, if it is a separate legal entity, and that the protégé will receive profits from the JV that are commensurate with the work the protégé will perform;
  4. Provide for the establishment and operation of a special bank account in the name of the JV that requires signatures by all parties for withdrawals;
  5. Itemize all major equipment, facilities and resources to be furnished by each party;
  6. Specify each party’s responsibilities with regard to contract negotiations, labor sourcing, and contract performance;
  7. Obligate all parties to ensure that the contract is performed regardless of whether one party withdraws from the agreement;
  8. Designate that accounting and administrative records be kept in the managing venturer’s office and require that the managing venturer will retain final original records of the JV after contract completion;
  9. State that all quarterly financial statements showing cumulative contract receipts and expenditures will be submitted to the SBA within 45 days of the end of each operating quarter of the JV; and,
  10. State that a project-end profit and loss statement, including a statement of final profit distribution, will be submitted to SBA no later than 90 days after completion of the contract.12

While this list provides general guidance on how to structure an ASMPP JV agreement, it is not inclusive. Every type of set-aside is governed by its own regulations, which should be reviewed when forming any JV and drafting the accompanying JV agreement.

Todd R. Overman is a member at Bass, Berry & Sims PLC in Washington, D.C. He represents businesses as they move through the contracting process with federal, state and local governments. He can reached at toverman@bassberry.com.

Taylor A. Hillman is an attorney at Bass, Berry & Sims PLC in Washington, D.C. She assists clients throughout the contracting process with federal, state and local governments. She can be reached at taylor.hillman@bassberry.com.

Footnotes 1 through 9 and 11 refer to the electronic code of federal regulation, cited at: https://www.law.cornell.edu/cfr/text/13/125.9

Footnotes 10 and 12, are cited at: https://www.law.cornell.edu/cfr/text/13/part-125

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