Ecological Planning and Toxicology, Inc., No. 3919 (May 16, 1994) Docket No. SIZ-94-2-14-8 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. SIZE APPEAL OF: ) ) Ecological Planning and ) Toxicology, Inc. ) ) Appellant ) Docket No. SIZ-94-2-14-8 ) Re: Technology Applications, ) Inc. ) Solicitation No. C300378Tl ) U.S. Environmental ) Protection Agency ) Contracts Management Division ) Norwood, Ohio ) DIGEST The Regional Office correctly determined the challenged concern's size status as of the date of its written self-certification, pursuant to 13 CFR 121.904(a). The Office of Hearings and Appeals has not been granted jurisdic tion to challenge the propriety of the regulations of the Small Business Administration. An Appellant has the burden of proof in all size appeals, pursuant to 13 CFR 121.1707. DECISION May 16, 1994 WRIGHT, Administrative Judge, Presiding: Jurisdiction This appeal is resolved in accordance with 15 U.S.C. 632 et seq., and the regulations codified at 13 CFR Part 121. Issues Whether the Regional Office erred in concluding the challenged concern met the assigned size standard. Whether the Office of Hearings and Appeal is empowered to determine the appropriateness of enacted regulations. Whether the challenged concern acted in good faith at the time of self-certification. Facts On May 28, 1993, the Environmental Protection Agency (EPA), Contracts Management Division, Norwood, Ohio issued the captioned Request For Proposals (RFP) for physical, chemical and biological scientific services to be performed at the EPA's Newport, Oregon laboratory. The RFP was set-aside for small business and was classified under Standard Industrial Classification (SIC) code 8731, which bears a size standard not to exceed 500 employees. On July 8, 1993, TAI had self-certified as small. On that date James I. Chatman was Chief Executive Officer and President of the concern and owner of 90% of its stock. On December 7, 1993, the Contracting Officer informed Ecological Planning and Technology, Inc. (Appellant or EP&T) that it intended to award the contract to Technology Applications, Inc. (TAI). On December 14, 1993, Appellant timely 1/ protested the size status of TAI and alleged, inter alia, that TAI had been purchased by DynCorp, a large business with approximately 18,000 employees. Pursuant to this protest, the Small Business Administration's (SBA or Agency) Philadelphia Regional Office issued a size determination on January 25, 1994, concluding that, at the time of TAI's written certification, it was a small business concern. The Protestant had alleged during the course of the size investigation that "[b]etween the time of submission of proposals and submission of the Best and Final Offers (BAFO), TAI was acquired by DynCorp...." It further claimed that the officers of TAI, being aware of the "conditions of the sale prior to the date of the initial proposal submission," were in violation of FAR 19.301(a) because the concern's representations were not in good faith." However, after examining 13 CFR 121.401(f), the Regional Office concluded that the earliest possible date at which affiliation could arguably have occurred was September 1, 1993; and that, because this date was subsequent to the controlling date for determining TAI's size eligibility for the captioned procurement according to the pertinent regulation, affiliation between TAI and DynCorp had not been demonstrated. Moreover, the Regional Office concluded that the evidence did not demonstrate "bad faith." Finally, regarding Protestant's claim that TAI's employees exceeded 500 employees during the 12-month period preceding its self-certification, the Regional Office concluded that "so long as its average does not exceed the size standard, it [TAI] would be eligible to certify as a small business in good faith." The Appellant received a copy of this determination on February 5, 1994, and timely filed the present appeal on February 10, 1994, within the meaning of 13 CFR 121.1705(a)(2). In its appeal, EP&T renews its claim that TAI's must have been "substantially greater than the 500 employee limit," in order to average below 500 for a twelve month period." We note, however, that Appellant does not posit any statistical basis for this allegation. Appellant also claims that the controlling date mandated by 13 CFR 121.904(a), regarding determination of size status, is inappropriate. Finally, Appellant continues to champion the principle of good faith and argues that it was patently clear to the TAI officers well before they submitted their BAFO, that their qualification as a small business would end imminently. Any reasonable interpretation of the "good faith" principle would persuade an officer to divulge the fact that the acquisition was for all intent and purpose [sic] a "done deal" by the end of October 1993. The very concept of good faith embodied and specified in the regulation should compel an officer of a firm to express the reality of the situation rather than hide behind a potential technical loop hole [sic] such as may be provided in the "initial submission controlling date" interpretation. In its response to these claims, TAI makes three arguments: that "TAI has properly demonstrated...that TAI qualified as a small business in accordance with the standard for SIC code 8731 at the date of self-certification"; that the date of determination of its size status was correctly determined to be the submission date of its initial offer; and, as "[n]o agreement, written or verbal, existed prior to submission of initial offers," that, consequently, its certification was made in good faith. Discussion We conclude that none of the claims of the Appellant is meritorious. Regarding the date which controls size status determinations, the pertinent regulation, 13 CFR 121.904(a) provides that ...the size status of a concern (including its affiliates) is determined as of the date of its written self- certification as a small business. The concern shall certify that it is a small business for the purpose of performing a particular contract at the time it submits its initial offer which includes price to the procuring agency for that contract. Although Appellant challenges the propriety and fairness of this regulation and urges the Office of Hearings and Appeals to overrule its application to this case, we decline to do so as it is beyond our jurisdictional grant of power, as found in 13 CFR 121.1701. See, for example, Size Appeal of Triad America Service Corporation, No. 3770 (1993). In the present case it has been amply demonstrated that as of July 8, 1993, the date of TAI's written self-certification, James I. Chatman was President and Chief Executive Officer of TAI and the owner of 90t of its outstanding stock. Although preliminary acquisition discussions with DynCorp had taken place early in 1993, these had been subsequently abandoned and further discussions were expressly terminated as of two months prior to July 8, 1993. Regarding DynCorp's later acquisition of the majority of TAI’s stock, SBA's regulation, 13 CFR 121.401(f) provides that [s]tock options, convertible debentures, and agreements to merge (including agreements in principle) are generally considered to have a present effect on the power to control the concern. Therefore, in making a size determination, such options, debentures, and agreements are generally treated as though the rights held thereunder had been exercised. The evidence of record demonstrates that no agreement in principle to acquire TAI was reached until after the date of self- certification. The facts, as presented, also support the Regional Office's conclusion that the actions of the two concerns which led, subsequent to the self-certification of TAI, to affiliation did not demonstrate bad faith. 2/ Accordingly, we conclude that the resolution of the Philadelphia Regional Office was correct in this respect. Finally, Appellant has failed to carry its burden of proof, pursuant to 13 CFR 121.1707, in its renewed allegations with respect to the average number of employees of TAI. Conclusion For all of these reasons, the size determination of the Philadelphia Regional Office was correct. The relief sought by this appeal is DENIED; and the decision of the Philadelphia Regional Office is AFFIRMED. This constitutes the final decision of the Small Business Administration. See 13 CFR 121.1720(b). _______________________________ G. Stephen Wright (Presiding) Administrative Judge ________________________________ Gloria E. Blazsik (Concurring) Administrative Judge _________________________________ Elwin H. White (Concurring) Administrative Judge __________________ 1/ The protest was timely within the meaning of 13 CFR 121.1603(a)(2). 2/ Although DynCorp proposed to acquire all of the outstanding stock of TAI in its letter of August 31, 1993 and TAI executed a non-binding letter of intent with DynCorp on September 1, 1993 to begin a "due-diligence" process that could "culminate in a definitive acquisition agreement," the letter also provided that "no legal obligations are created with respect to the proposed transaction...until a definitive acquisition agreement is signed by DynCorp and the Stockholders [of TAI]." We need not more closely evaluate these matters, all of which occurred subsequent to self-certification.