The federal Government has considerable discretion in determining how to procure goods and services. But that discretion does not permit agencies to disregard established small-business competition requirements.
An August 14, 2026 GAO decision provides an important reminder.
In LJR Solutions, LLC, B-424487, GAO sustained a protest challenging the National Institutes of Health's decision to conduct a major professional, scientific, and technical services procurement through full and open competition rather than a small-business set-aside.
The procurement involved a multiple-award indefinite-delivery, indefinite-quantity contract supporting NIH's research activities.
The agency had conducted extensive market research, including capability statements, industry engagement, and discussions with potential suppliers. Earlier research identified three small businesses considered capable of supporting the requirement.
Nevertheless, NIH determined that a total small-business set-aside was inappropriate.
Its subsequent justification raised several problems.
First, the agency did not adequately explain why small businesses previously identified as capable were no longer considered capable. The record contained broad concerns about subcontracting, geographic reach, and specialized laboratory support without sufficiently connecting those concerns to the qualifications of particular firms.
Second, the agency appeared to impose an unrealistic independent-performance standard.
NIH expressed concern that small businesses would depend on subcontractors to perform the full scope of work. Yet the agency acknowledged that large businesses also could not independently perform the complete requirement.
The solicitation itself contemplated subcontracting, including for significant aspects of performance.
GAO concluded that the agency had not adequately justified applying a more demanding capability expectation to small businesses than to their large-business competitors.
That finding is particularly important for companies that compete by combining their own capabilities with specialized subcontractors.
The Rule of Two generally requires a total small-business set-aside for qualifying acquisitions when the agency reasonably expects competitive offers from at least two responsible small businesses at fair market prices and satisfactory quality and delivery.
Responsibility does not ordinarily require a prospective prime contractor to perform every technical task entirely with its own workforce.
Instead, the relevant question is whether the small business can responsibly perform the contract using a permissible performance structure, including subcontracting consistent with applicable limitations.
GAO also faulted NIH for inadequately evaluating whether a partial set-aside was feasible before proceeding with full and open competition using a small-business reserve.
For contractors, the practical implications begin during market research.
Small businesses responding to sources-sought notices should describe their proposed performance architecture clearly. That means identifying prime capabilities, committed or potential teammates, specialized subcontractor functions, geographic coverage, relevant experience, and compliance with limitations on subcontracting.
A capability statement should not merely claim that the company can perform. It should explain how the company can perform.
Contractors should also monitor agency set-aside decisions and raise timely concerns when solicitation terms appear inconsistent with the results of market research or applicable small-business requirements.
The broader lesson from LJR Solutions is that acquisition reform has not eliminated the Government's small-business obligations.
Agencies may exercise business judgment, but that judgment must be reasonable, sufficiently documented, and consistent with the actual capabilities of the marketplace.
For small businesses, effective teaming can strengthen a competitive position rather than automatically undermine it.
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Disclaimer:
This article is for educational purposes only and does not constitute legal, SBA, or bid-protest advice. Set-aside obligations depend on the acquisition, applicable statutes and regulations, agency deviations, market research, and specific facts. Bid protests are subject to strict filing deadlines.