Here at SmallGovCon, we spend a lot of time studying (and talking about) the various small business federal set-aside programs. As a result, a lot of our focus is dedicated to SBA’s regulations governing these programs—after all, it is the agency that was created by the Small Business Act to issue and implement precisely these regulations. So, it may be tempting for small business federal contractors to focus on those SBA rules and think, so long as they have complied with all the nuances they contain, their business is eligible for these sorts of set-aside contracts.
As one joint venture recently found out the hard way, however, other agencies have their own unique sets of regulations that can impact set-aside contracts as well. One such agency is the Department of Veterans Affairs (VA), which has its own body of rules governing VA procurements—the Veterans Affairs Acquisition Regulation (“VAAR”). One of the programs that the VA implements is the Veterans First Contracting Program (“Vets First”), which interacts quite a bit with SBA’s SDVOSB program. As a result of the overlap, potential offerors on VA contracts set aside for SDVOSBs must ensure they comply with both VA and SDVOSB regulations, and this is where the protester in Potomac Valor Healthcare-2, LLC, B-423195.2 (Aug. 12, 2026) ran into trouble. GAO’s decision in the case sheds some light on the way VA’s specific requirements create additional obligations for SDVOSB joint ventures, and serves as a cautionary tale to other prospective offerors who may find themselves in a similar situation. In short, the protester was SDVOSB compliant and registered in VetCert at the time of offer, but erroneously believed that it did not have to maintain that same level of compliance at the time of award. GAO found that, as the SDVOSB partner of the joint venture was no longer small at the time of award (a fact reflected in VetCert), the JV could not receive the award.
Background
The protester was Potomac Valor Healthcare-2, LLC (“PVH2”), a joint venture comprised of the managing venturer Potomac Healthcare Solutions, LLC (“Potomac”) and the partner venturer Valor Healthcare, Inc. (“Valor”). Potomac was a certified SDVOSB firm, while Valor is a large business. PVH2 submitted an offer on the Solicitation, which was issued by the VA and set aside for SDVOSBs. Importantly, PVH2 was a verified SDVOSB joint venture listed in the SBA VetCert certification database. However, between time of offer and award, Valor acquired Potomac, leading to Potomac no longer being small and thus no longer being eligible for SDVOSB status. PVH2 confirmed as much to the contracting officer, stating that “neither Potomac nor PVH2 qualifies as an SDVOSB for future set-aside contract awards.” That emphasis was PVH2’s, and it underscores their position for the protest that they initiated.
The VA awarded the contract to another offeror, in part because it determined that PVH2 was ineligible for award. VA’s reason was that, “[w]hile PVH2 met the eligibility requirements of VAAR 819.7003(b) at the time it submitted its proposal, PVH2 no longer complies with the eligibility requirements of VAAR 819.7003(b) and therefore is ineligible to receive the contract award.” PVH2 protested the award, primarily on the basis that VA’s determination was erroneous.
PVH2’s argument essentially boiled down to two separate arguments—first, that the two VAAR clauses implicated (VAAR 852.219-73 and VAAR 819.7003) created separate requirements for JV and non-JV offerors, and second, that it had satisfied 13 C.F.R. § 128.402, which requires (among other things) that JVs certify their SDVOSB status “at the time of initial offer”—and not at the time of award.
GAO’s Decision
In assessing both PVH2’s and VA’s arguments, GAO ultimately sided with VA’s interpretation of its own regulations. The minutiae of the two VAAR regulations are more complicated than necessary to get into here, but essentially, they create a cascade of internal references to themselves as well as to 13 C.F.R. § 128.402. While PVH2 interpreted the regulations as creating two different sets of requirements—one for JVs and one for non-JVs—GAO instead found that the plain language of the regulations simply created additional requirements for JVs. GAO emphasized VAAR 852.219-73, stating that “[a] joint venture may be considered eligible if it meets the requirements in 13 CFR part 128, and the managing joint venture partner makes the representations under paragraph (b) of this section.” VAAR 819.7003(c) (emphasis added). Paragraph (b) states that “[a]t the time of submission of offers/quotes, and at the time of award of any contract, the offeror must represent to the contracting officer that it is a— (1) SDVOSB or VOSB eligible under this subpart; … and (3) Certified SDVOSB/VOSB listed in the SBA certification database.” In other words, according to GAO, all of the VAAR requirements that non-JVs have to meet still apply to JVs, and JVs have further obligations to meet if they are to be found eligible for a VA SDVOSB set-aside—specifically, that they be certified as an SDVOSB at the time of award.
Perhaps more interestingly, GAO disagreed with both the protester and SBA itself in its holding for this case. GAO reached out to SBA for comment on the interpretation of its rules in 13 C.F.R. part 128, and SBA provided input on whether a SDVOSB JV would still be eligible for award if it lost its SDVOSB status after the initial offer submission but prior to award under 13 C.F.R. § 128.402. SBA asserted that it has sole authority to certify and determine the eligibility of SDVOSB firms, that its regulations unambiguously allow for a firm in PVH2’s situation to receive award, and that VA’s requirements directly conflict with SBA’s own statutory authority.
Essentially, what this means is that SBA actually intends for contractors like PVH2 to be found eligible—“[a]ny other interpretation is contrary to SBA’s intent[.]” However, GAO declined to follow SBA’s stance, stating that the critical question here was “the authority applicable to this procurement—an SDVOSB set-aside under the Vets First authority” (emphasis added). GAO relied on the fact that such procurements are controlled by the VAAR, and stated that the VAAR regulations implementing the Vets First program are not subordinate to SBA’s more general rules regarding SDVOSB contracts. Essentially, GAO held that, while SBA does have the authorization to govern SDVOSB status, “a separate programmatic authorization (such as Vets First) may include requirements more stringent or otherwise different from those set by the SBA. The VAAR regulations do just that.”
Bottom Line
In the most factual and specific sense, what this holding means is that, for joint ventures submitting offers on SDVOSB set-asides issued by the VA (which is a common scenario), those joint ventures must ensure that they are SDVOSB compliant and registered in Vet Cert both at the time of offer and at the time of award. The broader takeaway here is to always be sure that you are familiar not only with SBA’s regulations, but any other agency-specific regulatory schemes that apply to a given procurement. While SBA establishes baseline requirements for many small business matters, individual agencies or the FAR may institute stricter requirements, and simply complying with one set of rules does not necessarily mean that one is in compliance with the other.
This is no doubt a potentially complicated undertaking, as every set of regulations adds quite a bit of complexity. Should your joint venture find itself competing on an SDVOSB set-aside issued by the VA, or any other socioeconomic set-aside administered by an agency with its own acquisition regulations, consider contacting federal contracting counsel to ensure compliance with every little detail.
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