What’s the deal with size status? In this week’s Bid Protest Beat, Partner Stephanie Wilson breaks down recent bid protest decision out of the Government Accountability Office that highlights how the rippling impact of M&A and corporate transactional activity can potentially impact a govcon’s size status and its ability to compete for contracts it has already submitted an offer for.
Potomac Valor Healthcare-2, LLC, B-423195.2, B-423195.3 (August 12, 2026)
In October 2023, the United States Department of Veterans Affairs (VA) issued a request for proposals for primary care and mental health services as an IDIQ contract with a 12-month base period and four possible 12-month ordering periods. The RFP was first released as unrestricted, but a subsequent amendment set aside the award for Service-Disabled Veteran-Owned Small Businesses (SDVOSB) under the Veterans First Contracting (Vets First) Program.
The solicitation included a reference to the Department of Veterans Affairs Acquisition Regulation’s (VAAR) SDVOSB set-aside clause (clause 852.219-73), which outlines the criteria that contractors must meet in order to compete for SDVOSB set-asides, including:
- At the time of offer/quote submission and award, offerors must be:
- SDVOSB or VOSB eligible;
- Classified as a small business concern under the NAICS code on the acquisition; and
- Certified as a SDVOSB or VOSB under the SBA’s VetCert Program.
- A joint venture (JV) may be eligible to compete for a SDVOSB set-aside if the managing partner meets the above criteria.
Two offerors submitted proposals under the RFP: Primary Care Solutions (PCS) and Potomac Valor Healthcare-2 (PVH2), a JV between managing member Potomac Health Solutions, LLC (Potomac Health), a SDVOSB, and Valor Healthcare, Inc. (Valor), a large business. PCS was initially awarded the contract in October 2024, which was protested by PVH2. The VA took voluntary corrective action to reevaluate the proposals, and GAO dismissed the protest as academic in January 2025.
More than a year later in February 2026, but before the agency announced a new award decision, the contracting officer (CO) learned that the members of the PVH2 joint venture had undergone a corporate transaction in which Valor had acquired complete ownership of Potomac Health. The CO confirmed this information directly with PVH2. On May 1, 2026, the VA notified PVH2 that it was ineligible for the contract, because the managing venturer, Potomac Health, no longer qualified as an SDVOSB at the time of contract award. The agency again awarded the contract to PCS, and PVH2 filed a protest with the GAO on various grounds, most critically that it was unreasonably excluded from eligibility as a SDVOSB.
PVH2 argued that the SDVOSB eligibility requirements in VAAR’s set-aside clause only applied to non-JV offerors. Instead, it pointed to language in different parts of the VAAR (VAAR 819.7003(c) and VAAR 852.219-73(f)) to assert that a JV’s are in a unique position where their eligibility as a SDVOSB should be considered only at the time of offer, and that any changes that occur between offer and award should not impact award eligibility.
The protestor also asserted that it met the SBA’s eligibility requirements under 13 C.F.R. § 128.402 for submitting an offer on an SDVOSB set-aside, which requires offerors to certify their eligibility at the time of their initial offer.
The VA argued that the specific language the protestor identified in its arguments should be considered in addition to the eligibility requirements in VAAR clause 852.219-73, not in lieu of them. The VA argued that while joint ventures do have specific requirements they must meet when competing for contracts, but they do not override the standard requirements that govern eligibility for all offerors.
In addressing the protestor’s claims based in the SBA’s eligibility guidelines, the agency asserted that, when there is uncertainty or ambiguity between the Vets First program and the SBA’s regulations, VA’s regulations should be the superseding authority for VA acquisitions.
The GAO held that the agency properly determined that PVH2 was ineligible for award and accepted the VA’s arguments that JVs have additional compliance requirements for the Vet First Program, not a different set of eligibility criteria. PVH2’s additional challenges to the evaluation of its proposal and the agency’s best-value tradeoff analysis were subsequently dismissed because the protestor was not an interested party to the award because it was ultimately ineligible.
What Can Government Contractors Learn From This?
Business activity does not happen in a silo, and government contractors are especially sensitive to having changes in one area of the business impact operations on an entirely different front, especially when it comes to contract eligibility. The timing of the M&A activity between Potomac Health Solutions, LLC, and Valor Healthcare, Inc. resulted in their joint venture losing out on a potential award for an IDIQ with up to five years of performance. Although corporate transactions can be an extremely powerful tool for business growth, understanding how those decisions impact your broader business strategy is an essential piece of determining if, and when, a sale or acquisition is the best strategic move for a contractor to take.
Have questions about how M&A activity could impact your govcon’s business strategy? Contact Stephanie Wilson at swilson@berenzweiglaw.com.