Jack Faucett Associates, No. 3843 (October 7, 1993) Docket No. SIC-93-8-20-98 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. SIC APPEAL OF: ) ) Jack Faucett Associates ) ) Appellant ) ) Docket No. SIC-93-8-20-98 Solicitation No. ) DTFH61-93-R-00148 ) Federal Highway Administration) Office of Contracts and ) Procurement ) Washington, D.C. ) DIGEST A procurement requiring the contractor to "(1) develop the content for six 2-day regional workshops on public/private partnerships in the deployment of intelligent vehicle highway system (IVHS); (2) conduct the workshops for transportation professionals at all levels of the government and for potential private sector partners; and (3) provide a summary document" to the Federal Highway Administration, in which "research" is the predominent component, is more appropriately classified under SIC code 8732, Commercial Economic, Sociological, and Educational Research, advocated by the Appellant, than under SIC code 8731, Commercial Physical and Biological Research, selected by the Contracting Officer. DECISION October 7, 1993 COLE, Administrative Judge, Presiding: Jurisdiction This appeal is decided under the Small Business Act of 1958, 15 U.S.C. 631 et seq., and the regulations codified at 13 CFR Part 121. Issue Whether the Contracting Officer was in error in designating SIC code 8731 for the captioned procurement. Facts On August 17, 1993, Jack Faucett Associates (Appellant) timely filed an appeal with the Office of Hearings and Appeals (OHA) challenging the Contracting Officer's designation for the captioned solicitation of Standard Industrial Classification (SIC) code 8731, with a 500 or less employee size standard. The solicitation, issued August 2, 1993, is a total small business set-aside, and the deadline for proposals was September 2, 1993. The Appellant states, in pertinent part: This SIC code (SIC 8731, Commercial Physical and Biological Research) is an improper SIC classification for [this]...solicitation. The size standard for SIC 8731 (through incorporation of footnote 19 [1/] from 13 CFR part 121 as published in the Federal Register Volume 53 Number 101, May 25, 1988) clearly states that "Research and Development, as defined in the SIC Manual, means laboratory or other physical research and development on a contract or fee basis. Research and development for purposes of size determinations does not include the following: economic, education, engineering, operations, systems, or other nonphysical research; or computer programming, data process...." The Office of Hearings and Appeals has clearly stated in several opinions that for procurements to be assigned SIC 8731 they must constitute "'test tube' research analysis" (SIC Appeal of Jack Faucett Associates, No. 2672, 1987), to be performed in a "typical laboratory setting" (SIC Appeal of CSR, Incorporated, No. 1910, 1984), and has reaffirmed this finding (SIC Appeal of Jack Faucett Associates, No. 2893, 1988). The substance of the work required in the solicitation, however, clearly does not involve "test tube research and analysis" in a "typical laboratory setting." The scope of work on page 2 of the RFP (attached) reads as follows. "The objectives of this contract, are to develop the content for six regional workshops on public/private partnerships in IVHS deployment, and to conduct the workshops for transportation professionals at all levels of government and potential private sector partners." ...[T]he RFP breaks the work into the following six tasks: - Literature Search - Prepare handbook - Organize Workshops - Case Studies - Conduct Workshops - Preparation of a summary document Based on the scope and the statement of work this procurement clearly involves no physical research and should be classified in either SIC 8732, Commercial Economic, Sociological, and Education Research (which includes operations research, physical distribution consultants, management engineering consultants, and management information systems consultants); or SIC 8748, Business Consulting Services, N.E.C. (which includes economic consulting, systems engineering consulting, and traffic consultants). The Appellant alleges that the Contracting Officer advised it that if the Appellant was eligible to bid then it had suffered no harm from the SIC code designation. This, contends the Appellant, is incorrect "as it requires us to compete against businesses that should be categorized as large businesses subverting this intent of the Act." The Contracting Officer filed a statement in support of her SIC code selection and in opposition to the appeal. 2/ In pertinent part, the Contracting Officer argues as follows: ...The SOW [Statement of Work] requires the contractor to conduct the research necessary to develop the knowledge and material which will serve as the content for the workshop addressing the concept of public/ private partnerships and how they can be used beneficially to implement the Intelligent Vehicle/Highway System (IVHS) program. The concept of public/private partnerships is new to the Government, and very little knowledge exists. This is reflected in the FHWA [Federal Highway Administration] estimate for the work as shown in the table on page 38 of the RFP which breaks down the work by discipline. As noted, 62.8 percent of the total labor hours are expected to be performed by the Researcher/Technical Writer. The Evaluation Criteria stated in Section M of the RFP (beginning at page 45) clearly identifies [sic] the importance placed on the contractor having the resources to research technical and institutional issues related to public/private partnerships. The Contracting Officer does not agree that "research," as meant in the Standard Industrial Classification Manual, 1987 edition (SIC Manual), is restricted to "test tube research and analysis in a typical laboratory setting." In support of this position, the Contracting Officer states: ...In three of the examples of work described in the Manual for SIC 8731, a reference to exclude testing from the definition of work is made. This is understood to include "test-tube" related work, which in its basic meaning is testing....The classical definition of "test-tube" work is most commonly reserved for work associated with medical research such as established under SIC Code 8071 which is referenced under SIC Code 8734 as including "[E]establishments [sic] primarily engaged in performing clinical laboratory testing...." The Contracting Officer rejects the SIC codes advocated by the Appellant, arguing as follows: ...SIC 8732 focuses primarily on economic, sociological, and educational research as related to commercial interest; SIC 8742 covers management consulting services which are clearly outside the SOW; and SIC 8748 also addresses business consulting services, covering a more general spectrum of work not addressed by SIC 8742. In pertinent part, the solicitation states: The Contractor shall furnish all necessary facilities, materials, and personnel and shall perform all services necessary to: (1) develop the content for six 2-day regional workshops on public/private partnerships in the deployment of intelligent vehicle highway system (IVHS); (2) conduct the workshops for transportation professionals at all levels of the government and for potential private sector partners; and (3) provide a summary document to the FHWA upon completion of the last workshop. [Part I, Section B, page 2]. The "Scope of Work" states, inter alia, that Six workshops will be held throughout the country...The target audience will include individuals from FHWA field offices, State and local government officials who are involved in the decision making and technical processes that affect IVHS and enhanced traffic engineering implementation, and representatives of private sector firms that potentially may provide IVHS services. Each workshop will provide information on topics such as: - public/private roles in IVHS; - range of opportunities; - institutional issues; - procurement/contracting issues; - identified barriers; - funding/financial implications; - legal/liability issues; - data collection options; and - advanced highway engineering technologies. Three case studies shall be included in each workshop, each illustrating how different institutional issues related to private sector participation in IVHS have been handled.... A handbook will be developed and distributed at each proposed workshop. It will examine the issues relating to IVHS and public/private partnerships.... (Solicitation, Section C, pages 2-3). According to the solicitation, the handbook is required to cover procedural and administrative aspects of the workshops, outline and detail the text for each session, provide visual aids and a bibliography of suggested readings, and "suggest options to institutional issues." The handbook, as well as all other workshop presentations, including the "final summary," will be subject to approval by and reflect the comments of the Contracting Officer. (Solicitation, pages 3-5). The contractor's "tasks," set forth in the solicitation, are noted above by the Appellant. The focus of the "content" or subject matter for the handbook and workshops is reflected in certain of these "tasks." Preparation of the handbook, "Task B," states: The handbook shall be developed to be a stand-alone document. It shall be designed so that the participants will have a valuable, user-oriented reference on the institutional issues related to IVHS and enhanced traffic engineering. It shall suggest options to institutional issues that may arise in implementing these technologies. "Task C," involving organization of the workshops, directs that the "format" open with "...a workshop overview with keynote addresses by relevant IVHS personnel with an introduction to IVHS and a brief synopsis of the April 1992 Rockville conference 'Public and Private Sector Roles in Intelligent Vehicle-Highway Systems (IVHS) Deployment,"' followed by a session "...including discussions with case study presentations covering the institu tional issues that have impacted public/private partnerships and IVHS deployment." "Task D," directs that "[e]ach case study shall emphasize one particular institutional issue related to public/private partnerships." (Solicitation, Section C, pages 3 5). The procuring activity estimates the following "disciplines and/or expertise" will be necessary and will require "staffing hours" as follows: "Traffic Engineer/Principal Investigator," 250 hours; "Research/Technical Writer," 1435 hours; and "Support/Clerical," 600 hours. (Solicitation, page 38). Of the "Evaluation Criteria," the technical factor is considered of equal importance to that of cost; and each of these is deemed more important than past performance. In pertinent part, the "technical" criteria include the following: 1. Technical competence and knowledge of the issues. a. Overall knowledge and familiarity with IVHS and enhanced traffic engineering implementation issues. b. Specific knowledge of public/private partnerships and institutional factors that may affect IVHS/enhanced traffic engineering implementation. 2. Responsiveness to the RFP as reflected in their proposal. a. Understanding and recognizing the critical institutional and technical issues involved in public/private partnerships as they relate to IVHS and enhanced traffic engineering. * * * * * 3. Available resources to complete the contract requirements satisfactorily and in a timely manner. a. Experience and background of the senior and key staff in activities related to IVHS, enhanced traffic engineering, and public/private partnerships required for successful completion of the contract.... (Solicitation, pages 45-46). Discussion The governing regulation provides, in pertinent part: 121.902 Establishment of the Size Standard ...(b) The proper SIC code designation for the goods or services being procured is that which best describes the principal purpose of the procurement, giving primary consideration to the industry descriptions in the SIC Manual, the product or service description in the solicitation and attachments thereto, the relative value and importance of each of the components in the procurement (if in fact there is more than one component which makes up the end item being procured) and the function of the goods or services being purchased. Consideration may also 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 procured, and to evaluations on which industry classification would best serve the purposes of the Small Business Act. Generally, a procurement will be classified according to the component which accounts for the greatest percentage of the contract value. A contracting officer must have a good reason to classify a procurement in a way that is inconsistent with this general rule. The classification selected by the Contracting Officer for the subject solicitation is described in the SIC Manual as follows: 8731 Commercial Physical and Biological Research Establishments primarily engaged in commercial physical and biological research and development on a contract or fee basis. Noncommercial research establishments funded by endowments, grants, or contributions are classified in Industry 8733. Separate establishments of aircraft, guided missile, or spacecraft manufacturers primarily engaged in research and development on these products are classified in Manufacturing, Major Group 37. Listed in the SIC Manual under SIC code 8731 are the following illustrative services: Agricultural research, commercial Biological research, commercial Chemical laboratories, commercial research: except testing Engineering laboratories, commercial research: except testing Food research, commercial Industrial laboratories, commercial research: except testing Physical research, commercial Research and development, physical and biological: commercial As noted by the Appellant, this SIC code is further defined in 13 CFR 121.601, footnote 18, which states, in pertinent part: Research and Development, as defined in the SIC Manual, means laboratory or other physical research and development on a contractor fee basis. Research and development for purposes of size determinations does not include the following: economic, educational, engineering, operations, systems, or other nonphysical research.... We find the research required by the subject solicitation to be "nonphysical," and expressly excluded from classification under SIC code 8731. Moreover, it is secondary research, not the basic research contemplated under SIC code 8731. Thus, we find SIC code 8731 inappropriate here. Compare, also, SIC Appeal of The Cadmus Group. Inc., No. 3315 (1990); SIC Appeal of Jack Faucett Associates, No. 2672 (1987). The Contracting Officer estimates that 62.8 percent of the labor hours will be those of the "Researcher/Technical Writer," thus, demonstrating the predominance of research in this procurement. The record before us does not contain countervailing evidence which would warrant our disregarding the Contracting Officer's contention on this point. Consequently, we accept the position that "research" is the predominent component in this procurement. In light of our rejection of SIC code 8731, noted above, we look to SIC code 8732, advocated by the Appellant, described as follows: 8732 Commercial Economic, Sociological. and Educational Research Establishments primarily engaged in performing commercial business, marketing, opinion, and other economic, sociological, and educational research on a contract or fee basis. Noncommercial economic, sociological, and educational research establishments funded from endowments, grants, or contributions are classified in Industry 8733. Illustrative services listed in the SIC Manual under SIC code 8732 are: Business economists, commercial Business research, commercial Economic research, commercial Educational research, commercial Market research, commercial Opinion research, commercial Research: economic, sociological, and educational-commercial Based upon our review, described above, we find that classifica tion under SIC code 8732, which carries a size standard of $3.5 million in average annual receipts, is most appropriate here. Conclusion For the reasons stated above, the subject solicitation should be classified under SIC code 8732, with a size standard of $3.5 million in average annual receipts, and the Contracting Officer's designation is REVERSED; the appeal is GRANTED. This constitutes the final decision of the Small Business Administration. See 13 CFR 121.1720(a), (b), and (c). ___________________________________ Michael S. Cole (Presiding) Administrative Judge ___________________________________ Jane E. Phillips (Concurring) Administrative Judge ____________________________________ Elwin H. White (Concurring) Administrative Judge _______________ 1/ This is now designated footnote 18 to 13 CFR 121.601 under the current, applicable regulations. 2/ No allegation is presented by the Contracting Officer challenging the Appellant's standing to appeal; nor would such argument prevail. See SIC Appeal of Field Support Services Inc., No. 3680 (1992).