CDE Enterprises, Inc., No. 4156 (March 6, 1996) Docket No. SIZ-96-1-16-6 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. _______________________________ ) SIZE APPEAL OF: ) ) CDE Enterprises, Inc. ) ) Appellant ) Docket No. SIZ-96-1-16-6 ) Solicitation No. ) IFB DAAD07-95-B-001 ) Department of the Army ) White Sands Missile Range ) New Mexico ) _______________________________) DIGEST Where the challenged firm asserts that the official issuing the size determination lacked legal authority to do so because of a Federal furlough of non-essential employees, but fails to show that the official was, in fact, non-essential, the challenged firm failed to carry its burden of proving by a preponderance of the evidence that the size determination was issued without authority. Where an Area Office's file shows that the challenged firm submitted all the information the Area Office requested, which should have enabled the Area Office to issue a size determina- tion, but that the Area Office neglected to do so based upon an alleged failure of the challenged firm to make full disclosures of its relationships with alleged affiliates, the proceeding will be remanded to the Area Office for a new size determination. DECISION ON REMAND March 6, 1996 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. Issues Whether the challenged firm has shown, by a preponderance of the evidence, that the Area Office's size determination was issued without authority. Whether this proceeding should be remanded to the Area Office for a new size determination. Facts On June 15, 1995, the Contracting Officer for the Department of the Army, White Sands Missile Range, New Mexico, issued this small business set-aside for repair/replacement of roofs, and classified it under Standard Industrial Classification code 1761 (Roofing, Siding, and Sheet Metal Work), having a $7 million average annual receipts size standard. The solicitation was reserved entirely for small businesses. Bid opening day was on October 27, 1995. In a letter dated November 22, 1995, Architectural Systems Corporation (ASC) filed a protest against the apparent low bidder, CDE Enterprises, Inc.'s (CDE or Appellant), small business size status. In its protest, ASC asserted that CDE was ineligible for the award because it is affiliated with two other firms, Vanguard Storage and CDE Construction Leasing. Although ASC did not know the three firms' total revenues, ASC asserted that various Federal agencies have awarded CDE numerous contracts in the past two years which exceeded the applicable size standard. In support, ASC attached copies of the Commerce Business Daily announcing government awards and a Dun & Bradstreet report. On December 1, 1995, the Contracting Officer forwarded the protest to the Small Business Administration (SBA), Dallas Area V Office of Government Contracting (Area Office) for a size determination on CDE. The Contracting Officer stated in pertinent part: Due to information provided in the ASC protest...this Office has concerns regarding CDE Enterprises, Inc. meeting the size standard of the subject solicitation. If the information provided by ASC is correct, it appears CDE Enterprises may have improperly represented themselves as a small business.... Based on this concern and our attempt to maintain the integrity of our procurement system, it is hereby requested that your Office verify CDE Enterprises representation as a small business for this procurement action.... The Area Office file contains CDE's SBA Form 355, Articles of Incorporation, Bylaws, Federal income tax returns, and other submissions, including an explanation of CDE's accounting methods. In its January 5, 1996 determination, the Area Office stated: In the text of CDE's...explanation letter, there was mention of income from "Joint Venture Contracts", however no further explanation regarding the joint ventures was provided or response to the allegations of the protest. Moreover, there was no correlation between the tax returns, the financial statements or the financial information contained in the SBA Form 355 and CDE's accountant was contacted.... During the conversation it was confirmed that there were two joint venture contracts ongoing with JT Construction...a large firm. At that time CDE provided limited information regarding the contract numbers...but still failed to make a full disclosure of the contractual arraignment with JTC. [Wording and punctuation as in the original.] The Area Office concluded from these factual findings that CDE failed to "adequately" address the protest's allegations "or disclose pertinent information concerning the joint ventures with JT Construction...because it would be contrary to the [sic] their interest." Thus, the Area Office found CDE to be other than small.[1] CDE received the Area Office's determination on January 8, 1996, and filed an appeal that was postmarked January 16, 1996. Arguments on Appeal CDE asserts that the official who issued the size determination had no legal authority to do so and that, therefore, the size determination is illegal and has no effect. CDE asserts that on the determination's issuance date, there was a general Federal furlough due to the budget crisis, and that only "essential" employees conducted Federal business. CDE implies, but does not expressly assert, that the official rendering the size determination was not declared an "essential" employee by the SBA's Administrator for the furlough period. CDE also asserts that, assuming the determination was legally issued, it submitted all the information requested by the Area Office, but the Area Office failed to analyze CDE's evidence. Instead, the Area Office concluded that CDE is other than small based upon CDE's apparent "failure" to divulge that it is engaged in two joint ventures with JT Constructions Co. CDE asserts that Schedules 4-6 (pages 11-13) of CDE's June 1995 financial statement discussed these joint venture contracts and the revenues derived from them. Similarly, the Schedules attached to CDE's Federal income tax return for that year identify the joint ventures and the income accounted by these endeavors. CDE further asserts that the Area Office considered contract awards to CDE in measuring CDE's size. CDE asserts that, under SBA size regulations, a firm's size status is evaluated by the firm's own revenues and those of its affiliates, which do not include other contract awards. Finally, CDE asserts that "to have acknowledged JT Construction Co., Inc., as an affiliate would have been improper given that the sole relationship between the two firms was the performance of two contracts under joint ventures." In view of the above assertions, CDE requests that this Office remand the proceeding to the Area Office for a full and complete size determination. Discussion Because the appeal was postmarked within five days from the date Appellant received the size determination, the appeal is timely and applies to this solicitation. 13 C.F.R. Section 121.1705(a)(2). Additionally, although the protest was late- filed, the Contracting Officer adopted the protest's allegations. Thus, this was a Contracting Officer's protest and, as such, it is timely for this solicitation. 13 C.F.R. Section 121.1603(b)(2). Regarding Appellant's assertions that the official issuing the size determination lacked legal authority to do so, Appellant which has the burden of proof by a preponderance of the evidence in an appeal (13 C.F.R. Section 121.1707), has failed to meet its burden. Aside from the bare assertion that the deciding official acted without authority, Appellant has not actually shown that the deciding official was a non-essential Federal employee and that in issuing the determination, the official was not acting under the SBA Administrator's authorization to conduct "essential" Federal business. Thus, Appellant's ultimate conclusion that the size determination had no legal effect has not been supported by any probative evidence and, therefore, lacks merit. The Presiding Judge's review of the Area Office file shows that Appellant submitted a fully completed SBA Form 355, Federal income tax returns for the relevant period, financial statements, and other information in which, among other matters, Appellant accounted for the joint ventures with JT Construction Co., Inc. Thus, the Area Office's statement that Appellant failed to make a full disclosure of its financial relationship is contradicted by the record. The Presiding Judge believes that the Area Office had a complete record before it. However, the Presiding Judge notes that the Area Office could have asked for additional information or clarification in writing, if it believed the record was incomplete. 13 C.F.R. Section 121.1606(c). Instead, the Area Office elected not to conduct a size investigation but to declare Appellant other than a small business based upon an adverse inference. In doing so, the Area Office failed to fulfill its obligation enunciated in the SBA's size regulations. 13 C.F.R. Section 121.1602; and Size Appeal of Data Monitor Systems, Inc., No. 4150 (1996). Under the circumstances, the proceeding is REMANDED to the Area Office for a new size determination on Appellant. _______________________________ Gloria E. Blazsik Administrative Judge ____________________ [1] The Area Office applied the regulation at 13 C.F.R. Section 121.1605(c), without citing it. That regulation states that if an offeror does not submit complete answers to the protest's allegations (or a fully complete SBA Form 355) within a certain time period, the Area Office may assume that disclosure would be contrary to the interests of the firm and may determine the firm to be other than small.