Omnisec, International and Securiguard, Inc., No. 3761 (April 8, 1993). Docket No. SIZ-92-6-1-59 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. SIZE APPEALS OF: ) Omnisec, International ) and ) Securiguard, Inc. ) ) Appellants ) Docket Nos. SIZ-92-6-1-59 ) SIZ-92-6-2-60 Solicitation No. ) SSA-RFP-91-0849 ) Department of Health and ) Human Services ) Social Security Administration ) Baltimore, Maryland ) Digest When an appellant is notified by a contracting agency, subsequent to a dismissal of its appeal for mootness, that the agency intends to terminate the appellant's contract should the Regional Office determination appealed not be reversed, a petition for reconsideration will be granted. When a large concern is found to be affiliated as an ostensible subcontractor of a small business in a Regional Office size determination, the large firm lacks the "direct stake" in the outcome of the controversy necessary to comply with the standing requirement in 13 CFR 121.1703. A concern is affiliated with its ostensible subcontractor when their respective nonmanagement employees are intermingled and discharge the same type of duties necessary to perform the contract. DECISION ON PETITION FOR RECONSIDERATION April 8, 1993 WRIGHT, Administrative Judge, Presiding: Jurisdiction These Petitions for Reconsideration are decided under the Small Business Act of 1958, 15 U.S.C. 631 et seq. and the regulations codified at 13 CFR Part 121. Issues Whether the Petitions for Reconsideration present new questions raised by the decision concerning which Petitioners had no previous opportunity to present evidence or argument. Whether a large concern has standing to appeal the Regional Office's adverse determination regarding its affiliate. Whether a concern is a joint venturer when its nonmanagement employees are commingled with those of its ostensible subcon tractor in performing the same duties. Facts On September 4, 1992, both Omnisec, International (Omnisec) and Securiguard, Inc. (Securiguard) filed timely Petitions for Reconsideration 1/ of our dismissal of Size Appeals of Omnisec International and Securiguard Inc., No. 3660 (1992), issued on August 18, 1992. That decision dismissed, as moot, two appeals, consolidated for convenience, of a Regional Office determination that Omnisec was affiliated with its ostensible subcontractor, Securiguard, a large concern. Our dismissal was premised on the prior award of the contract to Omnisec and the fact that the contract-specific finding of the Regional Office could have no effect on Omnisec's participation in future procurements. In the present Petitions, Omnisec and Securiguard aver that "new evidence" suggests that the Contracting Officer intends to terminate the contract with Omnisec if the adverse Regional Office determination stands. Petitioner, Omnisec, asserts that it was apprised of this possibility only as of September 4, 1992, subsequent to our issued decision, and argues that information acquired for the first time on that date constitutes new evidence within the meaning of 13 CFR 121.1721(b) and Size Appeal of Analytical & Research Technology. Inc., No. 3556 (1992). Both petitions are opposed by Stay, Inc. (Stay), which urges their dismissal. Regarding the petition of Omnisec, Stay asserts that the grounds therein argued do not constitute 8'new questions concerning which Petitioner had no previous opportunity to present as argument." In reply, Omnisec disputes the facts of Stay's argument and its interpretation of them. Stay also claims that Securiguard, as a large concern, lacked standing to bring its appeal in the first instance and, in consequence, its present petition should be dismissed. In opposition, Securiguard asserts that it is an interested party within the meaning of 13 CFR 121.1703 with standing to appeal and, derivatively, to bring the present Petition for Reconsideration. Returning to the basis of Omnisec's Petition for Reconsidera tion, we note that it asserts that its first notice of SSA's intention to terminate the present contract came in the form of a letter addressed to it and dated September 4, 1992. In pertinent part, the letter informed Omnisec that [a]s we understand it, OHA's decision, which dismissed your appeal as moot, did not invalidate the SBA Philadelphia Regional Office's May 20, 1992 determina- tion that Omnisec was a large business for purposes of its present contract with SSA. The Department of Health and Human Services (DHHS) represented to GAO that if the Regional Office's determination was upheld, SSA would terminate the contract and award the contract to Stay, Inc. Therefore, in accordance with these representations, we intend to terminate Omnisec's contract and to award the contract to Stay. See Watkins Security Agency. Inc., B-248309 (GAO Aug. 14, 1992) at 3 & n.1. Stay disputes that the September 4, 1992 letter was Omnisec's first notice of the Agency's intention to terminate. It claims that a letter dated May 22, 1992, from the Social Security Administration to the Government Accounting Office (GAO) came into Omnisec's possession during the pendency of the appeal, prior to our dismissal for mootness. This letter indicated, in pertinent part, the following: Copies of the report are being furnished to the protester, Watkins Security Agency, Inc. (Watkins) and to Omnisec International (Omnisec), an interested party. * * * * * * [T]he appropriate corrective action to be taken by SSA will involve terminating Omnisec's contract and award- ing to the next offeror in line for award, which is Stay, Inc. Stay suggests that the "appropriate corrective action" referred to in this letter was notice of the Agency's intention to terminate the contract and award it to Stay, should the Regional Office's determination, for some reason, remain in effect. Petitioner Omnisec disagrees with this interpretation and argues that it "...goes well beyond the clear meaning and intent of HHS in the May 22 letter." Petitioner Securiguard also argues that it first became aware of the Contracting Agency's intention to terminate, by means of the September 4, 1992, letter to Omnisec, which was forwarded to it. In dismissing this case on the basis of mootness, we were uninformed that a determination on the merits might affect the present solicitation. As in Size Appeal of Analytical & Research Technology, Inc., No 3556 (1991), the Appellants should not be required to anticipate our exercise of judicial discretion, invoking mootness as the basis to dismiss this case. We further find that the letter of May 22, 1992 was insufficient to put either Omnisec or Securiguard on notice that the Contracting Agency actually intended to terminate its contract with it. Examining all other evidence of record, we conclude that neither Omnisec nor Securiguard received notice, prior to the letter dated September 4, 1992, of Agency intentions. Thus, as "new evidence" of that intention was received after issuance of our decision, we conclude a determination on the merits is appropriate and grant the Petitions in order to render that determination. The size determination challenged in this appeal was issued by the Philadelphia Regional Office on May 20, 1992. In it, the Regional Office determined that, pursuant to a teaming agreement executed between the parties, Omnisec is unduly reliant on its ostensible subcontractor, Securiguard, for performance of the present contract. This determination was based on "the totality of the circumstances, regulations and precedent decisions" and the Regional Office's conclusion that Securiguard (the incumbent large business) played a principal role in winning the contract, collaborated significantly in proposal preparation, will perform vital functions of the contract, and has at least negative power to control Omnisec's level of participation in vital contract actions. The size determination also noted that the proposed Project Manager is the present Project Manager for Securiguard; that Securiguard is the incumbent contractor, with extensive experience in Federal government contracts in the Baltimore Washington area; that Omnisec has previously performed only four small non-government guard service contracts in Fort Wayne, Indiana; and that [b]oth parties agree that "Omnisec and Securiguard will mutually prepare and integrate data required for the proposal" with Omnisec designated as the prime contractor and Securiguard as subcontractor. The Agreement further provides that the "parties will together participate in oral discussions concerning their respective contribution to the proposal"; both parties will "receive all documentation and information concerning oral discussions and negotiations between either party and the Government;" and "neither party" will in any way modify the proposal during the discussions to, or decrease potential cost or fee recovery unless both parties specifically approve." Emphasis in the original. The Regional Office further observed that administrative activities, including "recruitment, personnel screening and processing, examination, qualification, testing, training, payroll, uniforming, etc" were to be conducted, under the proposal, at Catonsville, Maryland. This, it observed, was the location of Securiguard's office. The proposal further provided that the joint team would utilize the Securiguard uniform and accessories and further that [t]he proposal states that "Omnisec/Securiguard will provide official bonding, pay any fee or costs required by the State of Maryland relating to arming of our employees...." Only Securiguard was in possession of a Private Detective License from the State and Maryland and Federal Communications Commission (FCC) License. Omnisec has applied for a State of Maryland Private Detective License. The Regional Office then performed an analysis of the proposed method of contract performance based upon seven factors 2/ employed in Size Appeal of Ideal Services, Inc., No. 3317 (1990) for analyzing the "totality of the circumstances" surrounding contract performance in order to determine whether a joint venture exists between the prime contractor and its ostensible subcontractor: (1) who will manage the contract (2) which party possesses the requisite background and expertise to carry out the contract (3) which party "chased the contract" (4) what degree of collaboration was there on the bid or proposal (5) are there discrete tasks to be performed by each or is there commingling of personnel and materials (6) what is the amount of work to be performed by each (7) which party performs the more complex and costly contract functions Regarding the management factor, the Regional Office noted that the incumbent Project Manager, an employee of Securiguard, is to become the Project Manager of Omnisec for purposes of the contract. As no first-line supervisors are identified under the contract, and all are currently employed by Securiguard, it notes that it is impossible to determine which firm will employ them for purposes of the contract. It points to the paucity of Omnisec's experience and contrasts it with the incumbent, Securiguard's, "acknowledged expertise in performing numerous security guard contracts for the Federal Government in the 32 years it has been in business." The Regional Office, identifying Securiguard's incumbency and awareness of the issuance of a new contract (for which it was disqualified), acknowledges it to be difficult to determine which concern chased this contract. It further concludes that, although both firms prepared the proposal, "a significant, if not decisive, amount of the effort must have been performed by Securiguard in view of Omnisec's lack of experience." The Regional Office points to the lack of any specific delineation of performance tasks in the proposal and notes that ["t]he proposal and the teaming agreement merely provide that contract hours and costs will be shared 45/55 between Securiguard and Omnisec." Further, it notes that [i]t also appears that the equipment currently being used by Securiguard will be utilized by the Omnisec/ Securiguard team for this effort. Further, the office to be utilized by the Omnisec/Securiguard team is that of Securiguard in Catonsville, MD. Regarding which party performs the more complex and costly contract functions, the Regional Office observes: As stated previously, it appears that the employees of both firms will be performing the same functions. We are also hard pressed to determine that the firms are not sharing profits, since it appears that everything (including profits) will be split on a 45/55 ratio. Concluding that Securiguard has at least negative power to control Omnisec's proposal, the Regional Office observes that both Omnisec and Securiguard together are required to participate in all discussions and negotiation to take place with the Government. The Teaming Agreement further provides that neither party is permitted to modify the proposal which would result in an increase in performance or decrease in potential cost or fee recovers unless both parties specifically approve. Additionally, a joint review of the cost proposal was required, and failure of both Omnisec and Securiguard to agree on the final prices to be proposed would result in termination of the agreement. Emphasis in original In its timely 3/ appeal filed in the Office of Hearings and Appeals, Omnisec argues that the Regional Office made an erroneous size determination on the basis of its factual conclusions. It specifically claims that, as the solicitation contained no requirement that the offerors identify first line supervisors, this Office should not now use the failure to do so against it. Omnisec suggests the determination underestimates the background of Omnisec as reflected in the prior experience of its officers; that nothing it the record indicates Omnisec's lack of experi ence, and, in any event, the security requirements of this solicitation are not sophisticated; and that, furthermore, while Securiguard's status as the incumbent contractor was helpful in the present submission, it was not determinative of background and expertise to carry out the contract. Omnisec further argues that, as the guard service solicitation did not require a specific division between the concerns of discrete contract tasks, the Office of Hearings and Appeals should not now do so. It also asserts that the use of Securiguard's office is due only to the State of Maryland requirements. Finally, it urges that the Regional Office's discussion of negative control is inappropriate to the present determination and that the principal cases cited by the Regional Office to support its conclusion are distinguishable from the present circumstances. For reasons which will be discussed below, we will not discuss the grounds of Securiguard's appeal; these resemble those proffered by Omnisec. In response to the foregoing assertions by Appellant, Stay, Inc. presents a different characterization of this solicitation, describing it as a large contract with technically complex specifications. Nor does it agree with Omnisec's self-charac terization of its background and expertise. Thus, it notes that Omnisec's prior year revenues amount to less than one million dollars and it has never before supplied security guards service to the Federal government. In contrast, Stay asserts, the expertise of Securiguard is demonstrably substantial. Stay notes that the teaming agreement between the concerns requires Securiguard's express approval for any change to the proposal and that, although the solicitation requires one, Omnisec did not have a current Maryland private protective license, and "it submitted Securiguard's license to prevent the rejection of its offer." Stay urges that the Regional Office was correct in its evalua tion, considering all evidence "including reasonable inferences therefrom, based upon the relationship between Omnisec and Securiguard." Stay reviews, and comments on the propriety of (he Regional Office's analysis of the seven factors found in D. P. Associates. Inc., No, 2719 (1987). Stay claims that, in fact, "Securiguard will effectively control and manage the entire contract" and suggests this is demonstrated in the use of Securiguard's prior Project Manager, employees and their training and quality control which Securiguard concedes it will supply for the project. Stay suggests that, "[w]hile it is common to hire the incumbent's work force when a service contract changes hands, it is quite uncommon to subcontract that work." Thus, it urges, the parties are not functionally sharing the contract, "according to functions which each are qualified to perform but instead have divided the contract by geographic locations or posts." As profits are on the basis of work hours, this geographic arrangement, Stay urges, is a simple way to cut Securiguard in on the profits of a set aside contract, for which it is disqualified. Moreover, Stay claims the failure of the proposal to delineate tasks for the parties renders it impossible to know whether Omnisec's supervisory personnel will be responsible and accountable for Omnisec employees. Accordingly, although the parties argue that a 55/45 basis was the only practicable way of bidding the contract, "[w]ithout knowing if Omnisec employees or Securiguard employees will be stationed at the post, it is impossible to evaluate who will be in control and manage the personnel." Thus, Stay asserts, the Regional Office "reasonably inferred that it could not be shown that Omnisec will manage the contract." Regarding requisite background and expertise, Stay noted that [t]he project manager, all of the first-line super visors, and all of the security guards were all employees of Securiguard when it had the contract. Without ever performing a comparable contract and by utilizing Securiguard's entire work force and experience, the SBA reasonable inferred that it would be Securiguard which possessed the requisite background and expertise to carry out the contract. The telling fact is that it is Securiguard's and not Omnisec's experience which earned Omnisec a favorable rating on this point. See SBA decision at p. 6. Although an individual's experience may be transferable to a corporation, Omnisec's officers have not performed any federal guard contracts in this area. Stay argues that, because of Securiguard's dominance in relation to Omnisec, it was Securiguard which chased the present contract. Likewise, in relation to proposal collaboration Stay asserts: Without Securiguard's information, it is unlikely Omnisec would have been able to submit a competitive proposal. The SBA's conclusion that Securiguard's contribution in the preparation of the proposal was invaluable and a necessity for a successful proposal was reasonable under the totality of the circumstances. Stay points to an intermingling of personnel and materials for the contract and the impossibility of determining which party performs the more complex and costly functions because of the failure to delineate the supervisors's task in managing the contract. Stay further suggests that, as the teaming agreement between the parties provides that "neither party [will be] permitted to modify the proposal which would result in an increase in performance of decrease in potential cost or fee recovery unless both parties specifically approve," it becomes impossible to determine which party will perform the more complex an costly contract functions since the precontract functions or negotiations were not entirely controlled by one party. Thus: If Securiguard did not agree on the final prices in the proposal it would have resulted in a termination of their agreement with Omnisec. This type of control is not indicative of a subcontracting arrangement. A subcontractor does not have the power to control or veto a prime contractor's negotiation and performance of the contract. This is more akin to a joint venture where both parties have significant control of the direction of the joint venture. Watkins Security Agency, Inc. joined in opposition to the size appeals of Omnisec and Securiguard. In general, Watkins Security Agency, Inc. agrees with the characterizations of Stay, Inc. and asserts that the Appellant fails to carry its burden to demon strate the error of the Regional Office's determination. In sum, it argues that [t]he "totality of the circumstances" establishes, unequivocally, that Omnisec is unusually reliant upon Securiguard, its ostensible subcontractor. The two concerns are therefore affiliated under 13 CFR 121.401(1). * * * * * * As in Caliber Associates, Omnisec should not now be allowed to "disavow its representations in its proposal respecting its relationship with its proposed subcontractor..." To do so would allow Omnisec to "amend" the Technical and Cost Proposals on appeal. Id. Discussion In our original decision in this matter, we consolidated the appeals of Omnisec and Securiguard as a matter of economy and convenience. While we cited in that decision the regulations found at 13 CFR 121.1702, in light of the dismissal of it, we did not discuss the issue of Securiguard's standing to appeal the adverse Regional Office determination. We cannot now avoid doing so. As we stated in Size Appeals of Mela Associates Inc. and Encore Computer Corporation, No. 3632 (1992), the Office of Hearings and Appeals has traditionally rejected the contention that a large subcontractor has standing either to protest a firm's small business size status in the context of a small business set aside or to appeal a size determination, holding with respect to the latter, that a subcontractor lacks that 'direct stake' in the outcome of the controversy necessary to comply with the requirement in 13 CFR 121.1703 that the appellant be an 'interested person who was a party to or has been adversely affected by a formal size determination made pursuant to 121.1601 through 121.1608.' We conclude that the Petitioner, Securiguard, has demonstrated no compelling reason to depart from our traditional treatment of this issue in the present case. Accordingly, as Securiguard, a large concern, lacked standing to challenge the adverse Regional Office size determination in this case, our dismissal of its appeal stands. See Size Appeal of Advanced Technology, Inc., No. 2647 (1986). Although Securiguard is not a lawful Appellant, we must also decide whether it has standing as a party for purposes of 13 CFR 121.1721(b), which provides, as follows: Within 20 calendar days after issuance of a written decision and upon notice to all parties and persons specified in 121.1706(a)(6), and upon other persons determined to be interested by the Presiding Judge, any party may file a petition for reconsideration of such decision, setting forth the relief sought, and the grounds in support of the petition. Such grounds must be confined to new questions raised by the decision concerning which the petitioner had no previous opportunity to present evidence or argument. No evidence suggests that Securiguard's "direct stake in the outcome of the controversy..." differs from that which formed the basis for our denial that it was a lawful Appellant in the present case. Accordingly, with respect to its standing for the purposes of 13 CFR 121.1721(b), we conclude that it is not an interested party for purposes of reconsideration of our decision. As a consequence of its further lack of standing, it is not a party allowed to file a Petition for Reconsideration, and its attempt to do so is, accordingly, ordered dismissed. Turning to the merits of the case presented by the remaining Petitioner, we note Omnisec's acknowledgment that no delineation of any kind was made of an individual firm's assigned tasks under the alleged arrangement between prime and subcontractor. The executed Teaming Agreement between Omnisec and Securiguard memorializes, without any specific enumeration, a 55 to 45 percent split of both supervisory and non-supervisory positions. The record contains no other information elucidating the arrangement on the agreement between the two concerns. While other evidence may buttress our conclusion, evidence of this criterion, standing alone, supports our conclusion that these facts suggest a joint venture arrangement. In arriving at this conclusion, we have not considered either the lack of identified first line supervisors or the lack of division between the two concerns of discrete contract tasks to be dispositive, in itself, of our resolution here. In our decision in Size Appeal of Analysis & Research & Technology & Inc., No. 3556 (1991), we observed that [i]mplicit in the Regional Office's determination (and explicit here) is the assumption that a firm's proposal need not be deficient with respect to each of these factors [the seven evaluative criteria, supra], and review of the case law establishes that some criteria are, in themselves, dispositive of the issue of undue reliance and joint venture status. In that case, we extensively quoted Size Appeals of Geo Marine,Inc. and Menendez-Donnell & Associates, No. 3459 (1991) regarding the issue of a proposal which "commingled staff to discharge the same group of activities," and concluded, under those facts, that the two concerns' respective nonmanagement employees will be treated as a single personnel asset, bespeaking that concert of effort that is indicative of a joint venture. Absent the allocation of discrete tasks that reserve certain contract functions to the subcontractor while reserving the remainder of contract performance to the prime contractor, we cannot conclude that the proposal represents a legitimate prime and subcontractor relationship within the meaning of 121.401(1)(1). Inasmuch as the evidence in the present case suggests a similar undifferentiated use of employees in the bid submitted by Omnisec and Securiguard, reserving no specific tasks for either, we, accordingly, conclude that the challenged proposal does not represent a legitimate prime and subcontracting relationship within the meaning of 13 CFR 121.401(1)(1), but is a joint venture. Because of this conclusion, it is unnecessary to address the other challenges to the Regional Office findings which were raised. Conclusion The Petitions for Reconsideration having been GRANTED, the Regional Office determination is AFFIRMED; the relief sought in the appeal is DENIED. This constitutes the final decision of the Small Business Administration. _____________________________________ G. Stephen Wright (Presiding) Administrative Judge ______________________________________ Gloria E. Blazsik (Concurring) Administrative Judge _______________________________________ Elwin H. White (Concurring) Administrative Judge _______________ 1/ These Petitions are hereby consolidated. 2/ As we stated in the footnote found in Size Appeal of Analytical & Research Technology, Inc., No. 3556 (1991), "these factors are not dispositive of the issue of undue reliance but merely provide guidance in determining whether a joint venture exists between a prime contractor and its ostensible subcontractor." 3/ Jurisdictional and perimetric facts may also be found in our original decision, Size Appeals of Omnisec. International and Securiguard. Inc., No 3660 (1992).