As a general rule, when it comes to compliance with a solicitation’s size standard, what matters is the size of the entity at the time it submits its initial offer per 13 C.F.R. § 121.404(a). This is something we’ve seen several times before in other cases. However, that is just the general rule, and there are several exceptions that can change things greatly. Indeed, when it comes to compliance with SBA’s joint venture requirements, we noted earlier this year (in a decision that preceded the one we discuss in this post) and before that such is determined at the time of final proposal revisions as opposed to the initial bid. Recently, a mentor-protégé joint venture learned the hard way via a decision from the Court of Federal Claims (COFC) that the initial offer size rule doesn’t change this requirement. Today, we’ll explore that decision.
Back on October 24, 2022, Distinctive Home Care, Inc. (Distinctive), a large business, and Anglin Consulting Group, Inc. (Anglin), the protégé, entered into a mentor-protégé agreement (MPA) that received SBA approval. When the Defense Health Agency (DHA) issued a solicitation on November 15, 2022, the two companies formed a joint venture, Primary Health Care, LLC (“PHC”), to go after this procurement. PHC submitted an initial offer not long thereafter.
On January 30, 2024, for whatever reason, Distinctive informed SBA that it wished to terminate its MPA with Anglin. This ended the MPA. PHC continued to exist and continued to await word on award for that solicitation. DHA requested revisions for proposals, and PHC provided a revised proposal on November 13, 2024, and January 16, 2025. A final proposal was submitted sometime thereafter.
Initially, DHA made award to PHC. However, another successful offeror protested that PHC lacked the proper MPA, and so their sizes had to be combined for the procurement. SBA’s local area office in turn agreed with this, saying that PHC was small at its initial offer, but not at the date of final proposal revision as the MPA was no longer in place. SBA’s Office of Hearings and Appeals affirmed the area office’s decision, and PHC brought the matter to the Court of Federal Claims, bringing us to Primary Health Care, LLC v. United States, No. 25-1795C, 2026 WL 1530132 (Fed. Cl. May 12, 2026).
The Court of Federal Claims noted that 13 C.F.R. § 121.404(f) states quite plainly that “[c]ompliance with…the joint venture agreement requirements in…§§ 125.8(b) and (c) of this chapter, as appropriate, is determined as of the date of the final proposal revision for negotiated acquisitions and final bid for sealed bidding.” Yes, 121.404(a) says that generally size is determined at initial offer, but that is a different question from whether the joint venture agreement complies with 13 C.F.R. 125.8(b) and (c) at the time of final proposal revisions. PHC’s argument that all that matters is size at the time of the initial offer would essentially undercut the rule of § 121.404(f). Previous versions of § 121.404 did not require evaluating the joint venture agreement’s compliance at the time of final proposal revisions, but that was changed in 2020. Indeed, SBA’s own commentary on the amendment of § 121.104 noted:
C]ompliance with … [the] joint venture agreement requirements can justifiably change during the negotiation process. If an offer changes during negotiations in a way that would make a large business mentor joint venture partner be in control of performance, for example, SBA does not believe that the joint venture should be able to point back to its initial offer in which the small business protégé partner to the joint venture appeared to be in control.
85 Fed. Reg. 66146, 66153. As the Court stated: “That suggests that the SBA specifically intended to foreclose the argument Plaintiff is making now, namely, that an offeror can “point back to its initial offer” when the relationship between the joint venturers has changed.”
To summarize things, the big problem here was the decision by Distinctive to terminate the MPA prior to submission of final proposal revisions. This really was less an issue of size as it was joint venture agreement compliance. Had the MPA been in place at that time, it stands to reason that, assuming the JV agreement was otherwise compliant with 13 C.F.R. § 125.8, the question would have been what was Anglin’s size at the time of initial offer. The problem wasn’t primarily one of size, but that the joint venture agreement no longer complied with 13 C.F.R. § 125.8 at the time of final proposal revisions. This does create an interesting question of what would have happened if Distinctive were small at the time of initial offer but grew large by the time of final proposal revisions. In the case at hand, it appears the procurement process lasted well over a year. So, it’s not out of the realm of possibility. Joint venture agreements between small businesses don’t have any requirements to get the affiliation exception for small business set asides, but a large-small joint venture agreement will result in affiliation unless the joint venture agreement is made with an SBA-approved MPA in place and that complies with § 125.8(b) and (c). What if the combined sizes of Distinctive and Anglin at the time of initial offer were smaller than the size standard, would this mean that PHC would still be eligible for award? Also, would the MPA need to be in place at both time of initial offer and time of final proposal revisions, or just final proposal revisions? It is not clear what the result would be, but it is a good reminder that, if you’re in a JV and you or another member is near the size standard, it would be good to keep track of your MPA’s continued viability in order to keep the JV eligible for set-asides.
Questions about this post? Email us. Need legal assistance? Call us at 785-200-8919.
Looking for the latest government contracting legal news? Sign up for our free monthly newsletter, and follow us on LinkedIn, Twitter and Facebook.