O'Donnell Construction Company, No. 4125 (December 6, 1995) Docket No. SIZ-95-10-25-98 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. _______________________________ ) SIZE APPEAL OF: ) ) O'Donnell Construction Company ) ) Appellant ) ) Re: Prince Construction ) Docket No. SIZ-95-10-25-98 Company ) ) Solicitation No. ) DADA15-95-B-0012 ) Department of the Army ) Water Reed Army Medical Center ) Washington, D.C. ) _______________________________) DIGEST Where the challenged firm has, on occasion, leased a large firm's equipment, hired the latter's employees for special projects, and stored its own equipment at the large firm's yard, but has obtained contracts and subcontracts on its own for the work required under the instant solicitation, has engaged in four joint ventures with the large firm's affiliate, has subcontracted with the large firm on less than a third of its total contract revenues for the applicable period, and the challenged firm has not received financial, bonding, or other assistance from the large firm, the firms will not be considered affiliated under the "common facilities" or "contractual relationship" tests for affiliation at 13 C.F.R. Sections 121.401(i) or (k). DECISION December 6, 1995 BLAZSIK, Administrative Judge: Jurisdiction This appeal is decided under the Small Business Act of 1958, 15 U.S.C. Sections 631 et seq., and 13 C.F.R. Part 121. Issue Whether the challenged firm is affiliated with a large firm because it has leased some of the large firm's equipment and used, on occasion, the latter's employees; was a joint venturer on four contracts with the large firm's affiliate; and has been the subcontractor with the large firm on less than a third of the challenged firm's total contract revenues for the applicable period. Facts On August 18, 1995, the Contracting Officer for the Department of the Army, Walter Reed Army Medical Center, Washington, D.C., issued this small business set-aside solicitation for the replacement of the Stephen Sitter/Linden Lane Intersection, and classified it under Standard Industrial Classification code 1611 (Highway and Street Construction, Except Elevated Highways), having a $17 million average annual receipts size standard. The Contracting Officer established September 19, 1995, for receipt of bids. Two firms, O'Donnell Construction Co. (O'Donnell or Appellant) and Prince Construction Company, Inc. (Prince), submitted bids. Prince was the apparent low bidder. On September 22, 1995, the Contracting Officer received a timely protest from O'Donnell against Prince's small business size status. 13 C.F.R. Section 121.1603(a)(1). The protest alleged that Prince is affiliated with Fort Myer Construction Corporation (Myer), a large firm and, therefore, is not eligible for award of the contract. The protest further alleged that Prince is reliant upon Myer for personnel, equipment, management expertise, bonding, and financial assistance to such an extent that the reliance constitutes affiliation. The protest also alleged that neither Prince nor its President, Mr. Alberto Gomez, has experience in the heavy/highway field of work required by the instant solicitation. Finally, the protest alleged that Myer and Prince are not competing in the same market. The Contracting Officer forwarded the protest to the Small Business Administration (SBA), Office of Government Contracting, Area 2 (Area Office) for a size determination. The Area Office's Determination The Area Office's file contains Prince's SBA Form 355, financial information, and Prince's specific response to the protest's allegations. The record shows that Alberto Gomez is Prince's owner. Mr. Gomez is not an officer, director, or stockholder in any other firm and Prince has no affiliates. The SBA Form 355 shows that Prince's average annual receipts for the applicable years are below the $17 million size standard. In its response to the protest, Prince stated that since its establishment in 1988, it has performed as a prime contractor for "many Federal and local government agencies, and as a subcontractor to numerous other firms." Prince also has performed on numerous contracts for concrete curbs and gutters, sidewalk and wall construction, repair and maintenance of bridge decks, and other construction. Prince stated that, since the early 1990s, it has leased equipment on an "as-needed" basis to complement its own fleet of equipment from various sources, including Myer. On occasion, Prince has used Myer employees on special work for special projects. Prince placed such Myer employees on its payroll for the duration of the projects, a not uncommon practice in the construction industry. Additionally, Prince stated that it has been Myer's subcontractor on several projects, which constitute approximately 22 percent of Prince's total revenues for the applicable period.[1] Prince also stated that it had engaged in four joint ventures with a Myer affiliate, District Paving Corporation (DPC). These contracts have been fully performed. Further, Prince stated that it has temporarily housed some of its equipment in Myer's secure facility, but that Myer has provided this sort of accommodation to other firms as well. Finally, Prince stated that Myer has advised Prince on technical matters, but the firms have separate insurance agents, accountants, lawyers, and banks. In fact, Mr. Gomez has mortgaged his own home to enhance Prince's bonding capabilities and Prince receives no bonding or financial assistance from Myer. In its October 16, 1995 determination, the Area Office found that Prince has demonstrated that it has been a subcontractor to Myer for only 22 percent of its total revenues, and that it has also served as a subcontractor to other firms. The Area Office further found that Prince has its own bonding capacity and that any relationship between Prince and Myer has been at "arm's length." The Area Office finally stated: In the absence of supportive evidence showing that control or power to control exists, the mere fact that Prince has leased equipment on occasion from [Myer], has hired some individuals...or... has used [Myer's] secured facility...is not conclusive evidence of affiliation. Accordingly, the Area Office concluded that Prince is not affiliated with Myer through contractual relationship (13 C.F.R. Section 121.401(k)), and is a small business under the applicable size standard.[2] O'Donnell received the determination on October 18, 1995, and filed an appeal that was postmarked October 25, 1995. Arguments on Appeal In its appeal, O'Donnell impliedly asserts that the Area Office erred in relying only on the contractual relationship regulation as the determining factor in finding no affiliation between Prince and Myer. O'Donnell asserts that the Area Office instead should have used 13 C.F.R. Section 121.401(i), which states: Affiliation through common facilities. Affiliation generally arises where one concern shares office space and/or employees and/or other facilities with another concern, particularly where such concerns are in the same or related industry or field of operations, or where such concerns were formerly affiliated. O'Donnell asserts that, by its own admission, Prince shared employees with Myer; used Myer's yard for storing of equipment; and leased equipment from Myer and other facilities. Further, Prince and a Myer affiliate were engaged in four joint ventures which, O'Donnell asserts, demonstrates that Prince and Myer were "formerly affiliated." The two firms (Prince and Myer) also are in the same industry. Thus, O'Donnell argues, all the elements of affiliation through common facilities have been satisfied. Finally, O'Donnell asserts that the Area Office failed to draw an adverse inference from the fact that Prince and Myer do not bid on the same contracts. In its reply, received November 9, 1995, Prince asserts that its activities do not constitute affiliation through common facilities. While admittedly it and Myer shared some facilities, these were minimal. Prince asserts that it has leased some equipment from Myer, but it has also leased equipment from other firms. Further, Prince asserts that the fact that Prince and DPC were engaged in four joint ventures is not indicative of "former affiliation." In summary, Prince asserts that the record demonstrates that it is an independent business; it has capability to finance its operations; and it has its own employees. Thus, it is not affiliated with Myer under the "common facilities" or the "contractual relationship" regulations. Finally, Prince asserts that it bids primarily on jobs that are classified as Disadvantaged Business Enterprise (DBE), which are established in certain states, including the Washington Metropolitan Transit Areas. Myer, on the other hand, is not in the DBE/small job market. Thus, while the two firms do not compete in the same market, no adverse inference against Prince and Myer can be reasonably drawn from this fact. On November 13, 1995, Myer filed a motion to intervene and submitted comments in support of Prince's reply.[3] Myer asserts that the record clearly supports a conclusion that Prince's economic viability would not be in jeopardy without Myer's business. Myer emphasizes that all business contacts between the two firms have been at "arm's length." Finally, Myer asserts that the totality of circumstances clearly demonstrates that the two firms are totally independent of each other. Myer's submission was signed by Jose Rodriquez, its President, and contained a certification that Mr. Rodriquez had read the submission and certifies that it is factually true to the best of his knowledge. On November 20, 1995, after close of record, Myer submitted another certification by Mr. Rodriquez regarding the above timely submission. The certification contains nothing new, but is merely in Affidavit form. Also on November 20 and November 22, 1995, this Office received identical submissions from O'Donnell, styled "O'Donnell's Reply to Prince's Opposition." Discussion Since the appeal was postmarked within five-business days from the date Appellant received the size determination, the appeal applies to this solicitation. 13 C.F.R. Section 121.1705(a)(2). Myer's Motion to Intervene is Granted, and its comments are accepted into the record. Myer's late certification submitted on November 20, 1995, is accepted also because the original certification was timely. By contrast, O'Donnell's submissions of November 20 and 22, 1995, were filed after close of record and will not be considered. The Presiding Judge notes, in this regard, that 13 C.F.R. Part 121 does not authorize a reply to a reply. The Presiding Judge rejects Appellant's argument that Prince and Myer are affiliates based on common facilities under 13 C.F.R. Section 121.401(i). While the record establishes that both firms are in the same line of business and that Prince has used, on occasion, Myer's employees and leased its equipment, the record also establishes that all these transactions were at "arm's length." Prince also leased other firms' equipment, when needed to supplement its own. When Prince employed Myer's employees, they were on Prince's payroll. Further, Prince's joint ventures on four contracts with DPC does not demonstrate affiliation. Each joint venture is a separate contract and each has been fully performed. SBA regulations do not consider significant a specific joint venture beyond that particular contract. 13 C.F.R. Section 121.401(l)(3). Thus, Appellant failed to establish the elements of "common facilities" between Prince and Myer. While Appellant does not explicitly contest the Area Office's finding that the two firms are affiliated under the test of "contractual relationship," it does so impliedly. The Presiding Judge, accordingly, concludes that the Area Office correctly found that Prince is not economically dependent upon Myer so as to compromise its economic viability. Thus, the two firms are not affiliated under 13 C.F.R. Section 121.401(k), which provides: Affiliation through contractual relationships. Affiliation generally arises where one concern is dependent upon another concern for contracts and business to such a degree that its economic viability would be in jeopardy without such contracts/business. The record establishes that Prince has experience in the work required by the instant solicitation; it has subcontracted on projects with Myer that account for only about 22 percent of Prince's total revenues for the relevant period; Myer has not given financial or bonding assistance to Prince; and Prince has bid and received numerous contracts on its own. Finally, the record fails to show that Prince is dependent upon Myer to such a degree that, in the words of the regulation (13 C.F.R. Section 121.401(k)), "its economic viability would be in jeopardy without contracts/business" [from Myer]. See Size Appeal of Defense Logistics Agency, No. 3974, at 7 (1995). Thus, because the facts do not satisfy the elements of the regulation, the Area Office properly concluded that the firms are not affiliated through contractual relationship. Finally, the Area Office did not err in failing to draw an adverse inference from the fact that Prince and Myer do not compete in the same market. Since the record shows that Prince's primary business is the so-called DBE small business projects, and Myer is an acknowledged large firm that competes for larger contracts, there is no factual or legal basis for drawing an adverse inference. In view of the above, the Area Office was correct in its conclusion that Prince and Myer are not affiliated. Since Prince is a small business under the applicable size standard, it is eligible for receipt of this contract. Conclusion In view of the above analysis, the Area Office's determination is AFFIRMED, and the appeal is DENIED. This is the final decision of the Small Business Administration. See 13 C.F.R. Section 121.1720(b). _______________________________ Gloria E. Blazsik Administrative Judge ____________________ [1] Prince does not give the dates of the subcontracts. [2] The Area Office confined its analysis to this regulation; it did not consider other regulatory tests of affiliation in finding Prince a small business. [3] The record was scheduled to close on November 10, 1995, which was a legal holiday. Accordingly, close of record was on Monday, November 13, 1995, the following business day.