George G. Sharp Inc. and Giannotti and Associates of Texas, Inc., No. 2749 (October 20, 1987) Docket Nos. SIC-87-8-31-148; SIC-87-9-25-166 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D. C. 20416 SIC APPEALS OF: ) ) George G. Sharp Inc. ) and ) Giannotti and Associates ) of Texas, Inc. ) ) ) Docket Nos. SIC-87-8-31-148 ) SIC-87-9-25-166 ) Appellants ) ) Solicitation No. ) N62381-87-R-0020 ) Department of Defense ) Military Sealift Command ) Bayonne, New Jersey DIGEST A solicitation whose principal nature is the procurement of naval architecture and marine engineering services will be classified under a $9 million aar size standard, despite the facts that other types of engineering services will also be required and that most ships in the fleet to be serviced are of a military nature. A SIC appeal that is filed prior to issuance of the solicitation is anticipatory and will be dismissed as untimely. A SIC appeal will be considered sufficiently specific if it identifies the alternative SIC code under which it is alleged the solicitation should be classified. DECISION October 20, 1987 PHILLIPS, Administrative Judge, Presiding: Jurisdiction This appeal is resolved in accordance with 15 U.S.C. 632 and the regulations published at 13 CFR 121, 48 Fed. Reg. 55832 and 49 Fed. Reg. 5024. Issue Whether the correct size standard for the services to be procured under the solicitation is $13.5 million average annual receipts ("aar") for "Engineering Services for Military and Aerospace Equipment and for Military Weapons," or $9 million aar for "Marine Engineering and Naval Architecture." Facts On September 15, 1987, the Military Sealift Command, Atlantic (MSCLANT), Bayonne, New Jersey, issued Solicitation No. (RFP) 62381-87-R-0020 for "non personal engineering and technical services in the performance of investigative and design efforts relating to design, overhaul, modification, maintenance, repair, improvement and regulatory certification of MSCLANT ships in support of the technical division...." The solicitation was wholly set aside for small business and classified under SIC code 8711, "Engineering Services for Military and Aerospace Equipment and for Military Weapons" to which a 313.5 million aar size standard applies. October 19, 1987, was established as the date for submitting proposals regarding the solicitation. On August 25, 1987, pursuant to a notice of the solicitation in the Commerce Business Daily, George G. Sharp, Inc. (Sharp) filed a challenge to the SIC code classification and size standard, contending that the proper classification is SIC code 8711, "Marine Engineering and Naval Architecture" to which a $9 million aar size standard applies. Sharp argued in its initial filing and in a supplemental filing dated September 14, 1987, that the caption for the solicitation clearly identifies it as one whose "intended work involves marine engineering and naval architecture." Sharp argued that assignment of a $9 million aar size standard would be consistent with prior MSCLANT solicitations for the same type of work, specifically, Solicitation No. N62383-86-R-7070 and the predecessor to this solicitation, Solicitation No. N62381-85-R-0004, issued on February 15, 1985, which Sharp alleges was awarded to a naval architecture firm. Sharp further argued that Department of the Navy Solicitation No. N00140-87-R-3372, for similar services, had also been issued under a $9 million aar size standard. On September 15, 1987, the Contracting Officer submitted his rationale for classifying the contract as "Engineering Services for Military and Aerospace Equipment and for Military Weapons." The Contracting Officer stated as follows in his rationale. Most ships operated by or for MSCLANT for which a command has engineering responsibility are either military in nature or serve as sophisticated platforms for highly complex electronic systems either identical or very similar to state-of-the-art military and weapons systems.... The other category "Marine Engineering and Naval Architecture"...is too restrictive in that it precludes such vital engineering services as electrical, electronic, project management and logistic support which must be integrated in most of the tasks initiated under the type of contract contemplated. To attempt to provide these services under separate contract would be infeasible because the complex nature of most ships systems necessitates that related taskings be conducted as an integrated unity. The Contracting Officer further argues that several NAVSEA solicitations that are similar to the MSCLANT engineering support solicitations have been classified under the 413.5 million aar size standard, including solicitations titled as follows: "Engineering and Technical Services to the Ship Design Group;" "Engineering and Technical Services to the Hull Systems Sub-Group;" "Engineering and Technical Services to the Propulsion Systems Sub-Group;" and "Engineering and Technical Support for Marine Gas Turbines, Gas Turbine Ship Engineering Control Systems and Internal Combustion Engines." On September 17, 1987, the incumbent contractor, Designers & Planners, Inc. (D&P), submitted comments as an interested person and participant in the proceeding. D&P argues that the military sealift command has the responsibility of providing sealift for all components for the Department of Defense .... Some of these MSCLANT ships are military in nature and provide a variety of support functions in a broad spectrum of military missions .... [T]he RFP involves considerably more than marine engineering and naval architecture. The successful offeror will provide a full range of engineering services in support of combatant support ships .... These vessels are not mere commercial cargo ships but rather are military in nature and provide essential support to the fleet. This support includes but is not limited to: 1) underwater surveillance (submarine tracking) and 2) storage, shipment and transfer of weapons and weapons systems (including missiles and helicopter-based weapons and systems) to combatant ships. The successful bidder will have the onerous responsibility of delivering highly sophisticated and technical services to these combatant support ships consistent with the underwater surveillance and weapons storage, shipment and transfer functions they perform. The delivery of these services encompasses the performance of a broad spectrum of diverse, and at the same time highly specialized, tasks. These tasks are much broader in scope and require substantially greater expertise than marine engineering and naval architecture tasks. The RFP will require additional engineering services to include electrical, electronic, project management and logistics support. D&P argues that four recent NAVSEA solicitations having work statements similar to that at issue in this appeal have been classified by the Department of the Navy under a 313.5 million rather than a $9 million aar size standard. In addition, D&P contends that Sharp has failed to file a sufficiently specific appeal of the size standard and that, in accordance with precedent, this Office should defer to the Contracting Officer's designation because it is reasonable and has not been rebutted by clear and convincing evidence. D&P also argues that Sharp has failed to sustain its burden of proving error in the Contracting Officer's classification and that Sharp lacks standing to file an appeal because it is eligible to bid under the 313.5 million aar size standard as well as the $9 million aar size standard. D&P argues that, as a result, Sharp has not been adversely affected by the Contracting Officer's SIC code and size standard designations. On September 23, 1987, a second SIC appeal concerning the solicitation was filed by Giannotti & Associates of Texas, Inc. (Giannotti) and supplemented on October 2, 1987. Giannotti contends that the proper SIC code to be assigned to the solicitation is "Marine Engineering and Naval Architecture." As the incumbent contractor on MSCLANT Solicitation No. N00033-87-R-3013, Giannotti argues that the work statements for that solicitation and for MSCLANT Solicitation No. N62383-86-R-7070, on which it is also bidding, are similar, in the first instance, and identical, in the second instance, to the work statement for this solicitation. Giannotti states that both of the referenced solicitations were classified under the $9 million aar size standard. Giannotti also states that it is the incumbent on another identified naval contract classified under the $9 million size standard, the services for which, like this contract, "include combat systems, propulsion systems, hull structures, arrangements, electrical systems, electronics systems, etc." The appeals filed by Sharp and Giannotti have been consolidated because they concern the same solicitation. On October 13, 1987, D&P filed a response to Giannotti's appeal reiterating its earlier substantive arguments concerning the proper SIC code classification, and contending that Giannotti's appeal was insufficiently specific and that Giannotti lacks standing to file a SIC appeal because it's small under the $9 million aar size standard. D&P contends that there are significant differences between the instant solicitation and those cited by Giannotti as similar and asserts that Giannotti has failed to sustain its burden ),of proving error in the Contracting Officer's classification. Review of the solicitation, which is part of the record in this proceeding, establishes that It is for "non personal engineering and technical services in the performance of investigative and design efforts relating to design, overhaul, modification, maintenance, repair, improvements and regulatory certification of Military Sealift Command, Atlantic ships." The statement of work identifies the following five areas in which work is to be performed under the solicitation: 1. Naval Architecture - Such T.I.s [technical instructions] will include but not be limited to the following: a) hydrostatics b) intact and damaged stability c) structural design and analysis d) arrangements (hull and deck) e) hydrodynamics (including seakeeping) f) weights g) cargo handling systems 2. Marine and Mechanical Engineering. Such T.I.s will include, but not be limited to the following: a) fluid systems design and analysis b) machinery arrangements c) main propulsion d) auxiliary systems e) HVAC f) vibration analysis g) hull machinery h) control and instrumentation systems 3. Electrical Engineering. Such T.I.s will include but not be limited to the following: a) load analysis and fault current analysis b) power generation systems design and analysis (main and emergency) c) hull machinery d) power distribution systems design and analysis (main and emergency) e) lighting f) control systems g) interior communications 4. Engineering Management. Such T.I.s will include, but not be limited to the following: a) develop and review engineering related instructions and other directives b) Studies to determine possible courses of engineering operations management aboard ships operated by MSCLANT which might significantly improve operational capability, safety or economy of operations 5. Engineering Specialists. Such T.I.s will include, but not be limited to the following: a) drydock certification inspections and studies b) welding procedural studies and inspections c) environmental impact studies related to shipbuilding and repair materials and procedures d) painting inspections and studies related to ship repair and construction The statement of work indicates that tasks could also include the following: 1) Design integration planning 2) Ship integration analyses 3) Configuration management 4) Design budget control 5) Design decision making 6) Task management plan 7) Ship characteristics updates 8) Project design history 9) Project design data library 10) Graphic material relating to design projects 11) Specification item development including tailoring 12) Quality assurance of design deliverables 13) Ship check documentation including VHS videotaping 14) HM & E ship subsystem design development 15) Subsystem design installation in the HM & E areas 16) Computer aided engineering support including definition of problem parameters, data requirements, solution requirements, data management retrieval and programming techniques 17) Cost, time and schedule estimating support 18) Regulatory body liaison 19) Selected record plan preparation and update and distribution 20) As-Built technical documentation dissemination 21) General drafting services 22) Design agent representation 23) Casualty analysis 24) Ship of opportunity studies 25) Combinations of the aforementioned The statement of work further identifies tasks which have been or could be performed by the incumbent under the solicitation, including determining "the cause of vibration induced failure of foremast support structure-investigation of continuing fuel oil pump shaft failures ... line shaft bearing alignment problem resolution ... and...[preparation] for the installation of physical security lighting on all MSCLANT ships," as well as Planning for repair of the degaussing system on an MSCLANT ship, Installation of a portable A-frame to "deploy, tow and retrieve a flat sonar array at low speeds," and installation of a bildge oily water separator system. In each instance, the type of ship to which the task would apply is identified. The Contracting Officer has elsewhere identified the majority of these ships as MSCLANT ships that are either "military in nature" or that "serve as sophisticated platforms for highly complex electronic systems either identical or very similar to state-of-the-art military and weapons systems." Section L of the solicitation which identifies, inter alia, labor categories for personnel necessary to perform the contract and information on the experience and background of personnel and the corporate bidder, lists the following labor categories for which licensed personnel are required: project manager, senior engineer/analyst, engineer/analyst and junior engineer. The remaining labor categories relate to design, drafting and clerical work. In order to submit a proposal, an offeror is required, with respect to the personnel intended to perform the contract, to provide information on the employee's "years marine experience...general areas of expertise (naval architecture, marine/mechanical engineering, electrical engineering, engineering management, design and drafting services) ... [and] areas of technical expertise ... such as HVAC fluid systems, stability and damage control, structural analysis, computer-aided design...." The solicitation states that "the work resulting from the award of the contract could cover a wide range of engineering specialties and individual tasks that will vary in intensity, scope and deliverables." Section M of the solicitation, "Evaluation Factors for Award," states, with respect to evaluation of personnel, that engineering experience related to MSCLANT ships and other ),government ships" and engineering experience related to .1 commercial ships" will be elements used to evaluate the offerors and that engineering experience regarding commercial ships will be given secondary importance. Discussion It is necessary to dispose of several procedural issues before proceeding to the substantive issue of whether the Contracting Officer correctly classified the solicitation. D&P's claims that Sharp's and Giannotti's SIC appeals lack the requisite specificity, that both Appellants have failed to sustain their burden of proof, and that Sharp and Giannotti lacked standing to file a SIC appeal, are without merit. Contrary to D&P's assertion, we have consistently held SIC appeals to be sufficiently specific if the appellant identifies an alternative SIC code under which it is alleged the solicitation should properly be classified. While it is true that the appellant has the burden of proof with respect to the propriety of the classification, that burden need not be sustained in the initial filing. With respect to burden of proof, we note that the text of the solicitation in question constitutes independent evidence regarding its proper classification and that an Appellant's burden of proof will be sustained if review of the solicitation demonstrates that the SIC code classification advocated by the Appellant is correct, We have consistently accorded standing to appellants that would qualify as small businesses under either the SIC code assigned or the SIC code advocated. Under these circumstances, standing derives from the adverse implications of being required to compete with larger firms should the Contracting Officer's classification be upheld. Although the issue of timeliness was not raised by D&P, there exists a question whether Sharp's SIC appeal was timely. We have consistently held that SIC Appeals filed before issuance of the solicitation are anticipatory and must be dismissed. SIC Appeal of Universal Services Co., Inc. and Pioneer Contract Services, Inc., No. 2510 (1986) and SIC Appeal of David K. Wilson, PCR, No. 2486 (1986). The solicitation in this case was issued on September 15, 1987. Sharp's initial filing was made August 25, 1987 and supplemented on September 14, 1987. It was thus premature. However, resolution of the substantive issues raised by Sharp and Giannotti is appropriate in this case because Giannotti's SIC appeal, filed on September 29, 1987, was timely under 121.11(e)(3). Section 121.11(e)(3) requires that a SIC appeal pertaining to this solicitation be filed no later than October 2, 1987. The regulation governing assignment of SIC codes is set forth in 121.5(b)(1) and reads as follows: The procurement is classified for size standard purposes in the most appropriate SIC code industry category (121.2), giving consideration to the industry descriptions in the regulation and the SIC Manual, the product or service description in the solicitation and attachment thereto, the relative value of items in the procurement and the principal nature of the procurement. In borderline cases, consideration may be given to previous Government procurement classifications of the same or similar products or services, additional information on the industries and on the product or service being procured, and to evaluations on which industry classification would best serve the purposes of the Small Business Act.... As the regulation states, recourse to "previous government procurement classifications of the same or similar products or services" is appropriate only in "borderline cases." In the first instance, therefore, we must determine whether the to principal nature" of the procurement is derivable from review of the statement of work and other data set forth in the solicitation. We find that it is. Both the Contracting Officer and D&P argue that the solicitation should be characterized as "Engineering Services for Military and Aerospace Equipment and for Military Weapons," both because the services to be procured under the contract include "electrical, electronic, project management and logistics support" services and because the services to be procured are in support of ships that are "either military in nature or serve as sophisticated platforms for highly complex electronic systems either identical or very similar to state of-the-art military and weapons systems." The Contracting Officer argues that it would be "infeasible" to procure those services other than naval architecture and marine engineering services under a separate contract. However, under 121.5(b)(1), in those circumstances where the solicitation requires the provision of services classifiable under more than one SIC code, that aggregate of services which comprises the larger percentage determines the principal nature, thus proper classification, of the solicitation. Review of the solicitation clearly demonstrates that the principal services to be procured are marine engineering and naval architecture and that its principal nature is thus naval architecture and marine engineering. These conclusions are clear, not only from the listing of tasks contained in the statement of work, which relate to a large extent to ship design and machinery, but also from the personnel qualifications data contained in Section L. in addition, the evaluative factors set forth in Section M indicate an emphasis on "engineering work related to-ships" of a commercial nature as well as MSCLANT ships and other government ships. Consequently, it is not necessary to defer to the Contracting Officer's classification, as suggested by D&P. SIC Appeal of CDP Associates, Inc., No. 1912 (1984), SIC Appeals of Contract Services Co. and TECOM, Inc., No. 1714 (1983). The argument that the type of ship to be serviced is dispositive of the classification issue is also without merit. The types of services to be provided under the solicitation are primarily of a marine engineering and naval architecture nature* Qualifying experience may be obtained through engineering work with commercial ships and government ships other than those belonging to MSCLANT. In an analogous case, we held that the nature of the item itself, rather than the use to which it will be put, governs the SIC code under which its procurement is to be classified. See SIC Appeal of OAO Corporation, No. 1970 (1984) and cases cited therein. Thus, marine engineering and naval architecture services to be performed on ships that are "military in nature," or that carry military and weapons systems, should not be characterized according to the ultimate use of the ships. The $13.5 million aar standard is reserved for engineering services with respect to the military equipment or weapons themselves. The Coutracting Officer's classification under the $13.5 million size standard was incorrect, and the solicitation should be classified under the $9 million aar size standard. Conclusion The appropriate SIC code classification for the solicitation is SIC code 8711, "Marine Engineering and Naval Architecture," to which a $9 million aar size standard applies. The SIC appeal filed by Giannotti is GRANTED, and the Contracting Officer's size standard designation is REVERSED. This constitutes the final decision of the Small Business Administration. See 121.11(t), (u), and (v). Jane E. Phillips (Presiding) Administrative Judge Gloria E. Blazsik (Concurring) Administrative Judge USHER, Administrative Judge, Concurring: I concur in the result, but disagree with the reasoning in the discussion of the timeliness issue on pages 8 and 9. See Size Appeal of Revere Supply Co. Inc., No. 2198 and the Order Denying Motion to Reopen that decision, No. 2250 (August 27, 1985). Benjamin G. Usher Administrative Judge