Incore, Inc., No. 3860 (December 1, 1993) Docket No. SIZ-93-10-4-110 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. SIZE APPEAL OF: ) ) Incore, Inc. ) ) Appellant ) ) Solicitation No. ) Docket No. SIZ-93-10-4-110 DAHA01-93-R-0004 ) Department of the Army and the ) Air Force National Guard Bureau ) Office of the U.S. Property and ) Fiscal Officer ) Montgomery, Alabama ) DIGEST When no viable basis for overturning the Regional Office determination is articulated by the Appellant in its Notice of Appeal, the appeal will be denied. DECISION December 1, 1993 WHITE, Administrative Judge, Presiding: Jurisdiction This appeal of a size determination is decided pursuant to the Small Business Act of 1958, 15 U.S.C. 631 et seq., and the regulations codified at 13 CFR Part 121. Issue Has a viable basis for overturning the Regional Office determination been articulated by Incore, Inc. in its Notice of Appeal? Facts On May 11, 1993, the Department of the Army and the Air Force National Guard Bureau, Office of the U.S. Property and Fiscal Officer, Montgomery, Alabama, issued the above-referenced solicitation (RFP) for "Removal of Contaminated Soil and Removal of Jet Fuel Tanks." This was a total small business set aside with a size standard of $18.0 million or less in average annual receipts under Standard Industrial Classification (SIC) code 8744 (Environmental Services). Pursuant to Amendment No. 1, proposals were due on June 18, 1993. By letter dated September 7, 1993, the Contracting Officer advised the Dallas Regional Office of the Small Business Administration (SBA) that he had received a size protest from H&M Associates, Inc. (H&M) alleging that Incore, Inc. (Incore or Appellant) 1/ is affiliated with CCC Group, Inc. (CCC), a large business concern. In his referral letter to the Regional Office, the Contracting Officer also stated that: (1) The protest was timely 2/ [Footnote added.] (2) This was a small business set-aside project, SIC 8744, $18 million (3) The contractor shall perform on site and with its own organization, work equivalent to at least 25 percent of the total amount of work to be performed under the contract. After advising Incore of the protest filed by H&M, and receiving its response thereto, the Regional Office issued a formal size determination on September 17, 1993. Pertinent portions of this determination state as follows: In responding to the solicitation, Incore submitted a proposal which called for a "team approach" with the CCC Group, Inc. and EmTech Environmental Services, a large construction company and a large environmental firm.... All of this information [submitted with Incore's proposal] is indicative of the fact that Incore does not have the experience nor the qualifications to plan or conduct a project involving remediation services of this nature. * * * * * * * From this information [Incore's breakdown of labor costs] it is obvious that Incore is under the misconception that it is only required to perform 25% of the cost of personnel allocable to this contract. Such would be true if this were a contract with responsibilities classified to one of the Specialty Trade contractor fields in Major Group 17 of the SIC codes. SIC code 8744, however, is a service function. Solicitations issued under that SIC code as small business set-asides require that the prime contractor perform at least 50 percent of the cost expended for personnel on its own workforce. It is obvious that Incore cannot and does not intend to comply with this requirement. This office finds that the relationship between Incore and its "team members" rises to the level of affiliation under the ostensible subcontractor regulation at 13 CFR 121.401(1)(4) and that the arrangement constitutes a joint venture for purposes of this solicitation. Further, it finds that Incore is not in compliance with the limitations on subcontracting provision of FAR Clause 52.219-14 in that it will not perform the mandatory 50 percent of costs expended for labor on its own personnel. * * * * * * * This office determines that Incore is affiliated with both the CCC Group and EmTech for the purposes of determining its size status for the subject solicitation. This determination is contract specific and does not have any application to the size of Incore for purposes of its response under future solicitations nor does it require the firm to obtain recertification from SBA before self-certifying as a small business under this size standard in responding to such future procurement actions. While the receipts of Incore, by itself, do not exceed the applicable size standard of $18.0 million, when aggregated with those of CCC and EmTech, they do exceed this standard. Therefore, this office holds that Incore is other than small for purposes of this procurement. Incore filed a timely Notice of Appeal with this Office on September 30, 1993. 3/ The stated basis for this appeal is as follows: 1. The (SIC) Code 8744 is not representative of the work to be performed for the referenced project.... Furthermore, the work to be performed is that of construction special trade contractors and not that of a service contractor.... 4/ [Footnote added.] 2. There is a discrepancy between the (SIC) Code listed and the Size Standard listed.... The Size Standard classified is $3.5 million or $13.5 million depending on service work to be performed and not the $18 million standard listed in the Commerce Business Daily. 5/ [Footnote added.] [Emphasis in original.] 3. There is a discrepancy between the (SIC) Code used and the specifications. The (SIC) Code mandates that at least 50% of the cost of contract performance incurred for labor must be expended by the contractor performing the work yet the specifications clearly state that "the contractor shall perform on the site, and with its own organization, work equivalent to at least 25% of the total amount of work to be performed under the contract." 6/ [Footnote added.] 4. A permanent injunction, effective June 23, 1993, has been issued by the U.S. District Court of Washington, D.C. against the use of (SIC) Code 8744.... On September 30, 1993, the date Incore's appeal was filed with this Office, the procuring agency awarded the contract for this procurement to H&M, the firm that had filed the initial size protest against Incore. Discussion In this case, the Regional Office determined that Incore was affiliated with CCC and EmTech under the ostensible subcontractor rule codified at 13 CFR 121.401(1)(4), and that their combined receipts exceeded the $18.0 million size standard assigned to this solicitation by the Contracting Officer. The Regional Office also determined that the Appellant was not in compliance with the limitations on subcontracting provision of 48 CFR 52.219-14 in that it would not perform at least 50 percent of the cost of contract performance with its own personnel. The Regional Office further noted that this determination was contract specific and, accordingly, would not affect the Appellant's right to bid on future procurements. on appeal, the Appellant argues that SIC code 8744 is not the appropriate SIC code for this procurement, as the work to be performed is that of construction special trade contractors; appears to argue that there is no $18.0 million size standard under SIC code 8744; notes the ambiguity in the solicitation concerning the percentage of work to be performed by the contractor; and states that the District Court issued a permanent injunction against the use of SIC code 8744 on June 23, 1993. However, the Appellant does not challenge the Regional Office determination that it is affiliated with CCC and EmTech under the ostensible subcontractor rule, or that their combined receipts would exceed $18.0 million. 7/ Furthermore, and more importantly, assuming arguendo that this solicitation should have been classified under construction special trade contractors, SIC code Major Group 17, as the Appellant contends, the Appellant still would not qualify for contract award, since the special trade size standard is only $7.0 million and the Appellant's reported average annual receipts alone exceed this amount. Thus, the Appellant has, in essence, articulated no viable basis for overturning the Regional Office determination. Accordingly, this appeal must be denied. Conclusion For the reasons stated herein, this appeal is DENIED. This constitutes the final decision of the Small Business Administration. See 13 CFR 121.1720(a), (b), and (c). ___________________________________ Elwin H. White (Presiding) Administrative Judge ____________________________________ Jane E. Phillips (Concurring) Administrative Judge _____________________________________ G. Stephen Wright (Concurring) Administrative Judge _______________ 1/ Both H&M and Incore are offerors on this procurement. 2/ The record does not appear to contain the requisite dates for an independent verification by this Office that the protest was timely filed. However, since the resolution of this issue would not affect the outcome of this proceeding, we will dispose of this case without further delay. 3/ According to the record, Incore received the September 17, 1993 Regional Office determination on September 23, 1993. Therefore, Incore's Notice of Appeal was timely filed within five working days. 13 CFR 121.1705(a)(2). 4/ All SIC codes for Construction special trade contractors, SIC code Major Group 17, have a size standard of $7.0 million or less in average annual receipts. The SBA Form 355 submitted by the Appellant reflects that the Appellant's average annual receipts alone exceed this amount. 5/ On January 13, 1993, SBA published an interim final rule in the Federal Register, 58 FR 4074, that established a size standard of $18.0 million or less in average annual receipts for environmental services under SIC code 8744. However, SBA published a Notice in the Federal Register on August 9, 1993 (54 Federal Register 42355) which stated that the U.S. District Court for the District of Columbia, on June 23, 1993, had vacated the $18.0 million size standard for Environmental Services under SIC code 8744, and that it was no longer in effect. The Notice also stated that it "applies immediately to all procurement requirements involving environmental services, including all those for which solicitations have been issued but award has not been made." 6/ Section I, Subsection 88, of the solicitation contains the limitations on subcontracting clause pertaining to small business set asides codified at 48 CFR 52.219-14. In addition, Section I, Subsection 98, of the solicitation contains the "performance of work" clause codified at 48 CFR 52.236-1, which specifies that the contractor shall perform 25 percent of this work. However, pursuant to 48 CFR 36.501(b), the latter clause is not to be used in solicitations set aside for small business concerns, such as that at issue here. This resulted in the "discrepancy" noted by the Appellant. 7/ Even if the Appellant is in compliance with the Limitations on Subcontracting Clause in the solicitation, this does not preclude a finding that the prime contractor is affiliated with its subcontractor under the ostensible subcontractor rule. Size Appeal of Mathews Construction Company, No. 3592 (March 17, 1992).