Incobrasa Industries, Ltd., No. 4557 (May 7, 2003) Docket No. SIZ-2003-03-18-19 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. ) SIZE APPEAL OF: ) ) Docket No. SIZ-2003-03-18-19 Incobrasa Industries, Ltd. ) ) Decided: May 7, 2003 Appellant ) ) Announcement VP6 ) Invitation No. 13 ) U.S. Department of Agriculture ) USDA/KCCO/DNDOD/GPB ) Kansas City, Missouri ) ) APPEARANCES Renato Bastos Ribeiro, President for Appellant DIGEST The Area Office may presume family members have identical interests and treat them as one person for the purpose of determining size. The presumption arises from the fact of the family relationship itself. Business concerns with a common owner are affiliated, even if they are in different lines of business. A size appeal that attempts to challenge the underlying NAICS code classification must be dismissed as an untimely NAICS code appeal. DECISION HOLLEMAN, Administrative Judge: Jurisdiction This appeal is decided under the Small Business Act of 1958, 15 U.S.C. Section 631 et seq., and 13 C.F.R. Parts 121 and 134 (2003). Issues Whether the Area Office may presume family members have identical interests and treat them as one person for the purpose of determining size. Whether business concerns with a common owner are affiliated, when they are in different lines of business. Whether a size appeal may challenge the underlying NAICS code classification. I. BACKGROUND A. The Procurement On May 7, 2002, the Farm Service Agency of the Department of Agriculture (USDA) issued Domestic Announcement VP6, announcing that it would from time to time issue invitations for offers to purchase vegetable oil products (packaged and/or bulk vegetable oil, packaged vegetable oil shortening, liquid shortening, salad dressing, and reduced calorie salad dressing) for use in domestic programs. The announcement designated North American Industry Classification System (NAICS) codes 311222, Soybean Processing, [1] as to the first three commodities, and NAICS code 311941, Mayonnaise, Dressing and Other Prepared Sauce Manufacturing, as to the last two. On January 10, 2003, USDA issued Invitation No. 13 under the announcement, seeking March or April delivery of 4,950,815 pounds of packaged and/or bulk vegetable oil, packaged vegetable oil shortening, and liquid shortening, with 3,173,088 pounds to be provided by small businesses. Offers were due on January 21, 2003. On January 22, 2003, USDA awarded the small-business portion of the procurement to Columbus Foods Company (Columbus). B. The Protest On January 29, 2003, the Contracting Officer (CO) received a timely size protest from Cal Western Packaging Corporation (Cal Western), against the award to Columbus. Cal Western alleged that Columbus would be supplying refined soybean oil from Incobrasa Industries, Ltd. (Appellant), and that Appellant was other than small due to its affiliation with other firms in the United States and Brazil. On January 30, 2003, the CO referred the protest to the Small Business Administration (SBA) Area IV Office of Government Contracting in Chicago, Illinois (Area Office). On that same day, the Area Office informed Columbus of the protest and requested that it and Appellant, the manufacturer of the product it intended to supply, each submit a completed SBA Form 355, together with certain other information. On February 12, 2003, Columbus submitted a package of information regarding itself and Appellant. On February 14th, the Area Office requested additional information from Appellant. On February 19th, Appellant responded to the Area Office's request. C. The Size Determination On March 3, 2003, the Area Office issued the size determination. The Area Office determined that CFC, Inc., doing business as Columbus, was an eligible small business. The Area Office further determined that Columbus was a nonmanufacturer who intended to meet the procurement by supplying Appellant's product. The Area Office, relying on 13 C.F.R. Section 121.406, asserted that, to be eligible for a small business set aside procurement, a nonmanufacturer must supply the product of another small business concern.. It then examined Appellant's size. The Area Office found Appellant is owned 100% by Incobrasa North American Ltd., which also owns 100% of three other firms: Augusta Farms, Ltd., Incobrasa Illinois, Ltd., and Incobrasa Farms Ltd. Incobrasa North America Ltd. is in turn owned 100% by Incobrasa Cayman Ltd., which is in turn owned by a Brazilian firm, Industrial e Comercial Brasileira Ltda-Incobrasa, itself owned by Oleos Vegetais Tarquarusso Ltda (Oleos). Oleos also owns 100% of Industrial e Comercial Brasileira Ltda-Incobrasa. Oleos also owns 100% of Coronel Pedro Osorio SA and Incobrasa Agricola Ltda. Oleos is in turn owned by Renato B. Ribeiro and his four children, Aluizio M. Ribeiro, Carla M. Ribeiro, Marcia Ribeiro, and Rog‚rio Ribeiro. Appellant failed to submit to the Area Office information as to what portion of Oleos's stock each member of the Ribeiro family owns. Renato Ribeiro also owns, without the participation of his children, a newspaper, Empresa Jornalistica Caldas Junior Ltda.; a radio station, Radio Guaiba S.A.; and a television station, TV Guaiba [hereinafter, the media enterprises]. Though Appellant failed to provide a breakdown of all persons employed by all of Mr. Ribeiro's enterprises during each pay period during the relevant year, it did provide employment figures for the media enterprises. The Area Office found that Mr. Ribeiro, together with his children, owned and controlled the Incobrasa group of companies, and that he alone owned and controlled the media enterprises. Because a father and his children have a presumptive identity of interest, the Area Office viewed them as a single party. Thus, Mr. Ribeiro owns all the named businesses, including Appellant; they thus are affiliated with one another; and their employees, taken together, exceed the applicable size standard. Accordingly, the Area Office determined Appellant was other than small, and that Columbus thus did not qualify as small because it would not be providing the product of another small business concern. On March 5, 2003, Appellant received the size determination. D. The Appeal On March 18, 2003, Appellant filed the instant appeal. Appellant concedes that, in the size determination, "Every statement of facts regarding the companies of the group is correct." Appellant asserts that Mr. Ribeiro owns about 80%, and his children together the remaining 20%, of Appellant. [2] Appellant further asserts he is sole owner of the media enterprises. Appellant asserts it does not have an identity of interest with the media enterprises, because the firms are in different lines of business: Appellant is in the soybean processing business, and the media enterprises are in the communications field. Appellant further asserts that it has only between 1.2% and 1.5% of the United States soybean oil refining market, which is dominated by three major firms, Cargill, ADM, and Bunge. Appellant argues that the radio and television stations should not be considered, because they have so few employees. Appellant further states that, although fewer than 200 employees work at producing its newspaper, more than 1,000 help distribute it. Appellant argues that, because almost all the other Brazilian newspaper companies outsource their distribution, these employees should not be counted against it. Further, the newspaper's profits are small. Finally, Appellant argues that the correct NAICS code for this procurement should be 311225, Fats and Oils Refining and Blending, with a 1,000-employee size standard. II. DISCUSSION The instant appeal was filed within 15 days of Appellant's receipt of the size determination and is thus timely. See 13 C.F.R. Section 134.304(a)(1). To prevail on the merits in this size appeal, Appellant must establish, by a preponderance of the evidence, that the Area Office made a clear error of fact or law in its size determination. See Size Appeal of Rebmar, Inc., SBA No. SIZ- 4173, at 4 (1996); 13 C.F.R. Sections 134.224, 134.314. Because Appellant has conceded that the Area Office's size determination is factually correct, the only remaining issue is whether the Area Office made any clear error of law. Appellant's contention it does not have an identity of interest with Mr. Ribeiro's media enterprises is meritless. First, the Area Office found an identity of interest between Mr. Ribeiro and his children, who also were shareholders in Oleos. This is because, in determining affiliation, individuals, such as family members, with identical or substantially identical business or economic interests may be treated as one party with interests aggregated. See 13 C.F.R. Section 121.103(a)(3). The Area Office may presume family members have identical interests and treat them as one person, unless other evidence indicates the family members are estranged or are uninvolved with one another's business affairs. See Size Appeal of Gallagher Transfer & Storage Co., Inc., SBA No. SIZ-4295, at 6 (1998). This presumption arises from the fact of the family relationship itself, not from the type of businesses in which the family members are engaged. See id. Here, Mr. Ribeiro's children are shareholders with him in Appellant's parent company; thus, the Area Office was clearly justified in finding an identity of interest between Mr. Ribeiro and his children and treating them as one entity for the purpose of finding affiliation. In examining Appellant's affiliation with the other businesses considered here, the regulation provides that business concerns are affiliated when one concern controls or has the power to control the other, or a third party controls or has the power to control them all. See 13 C.F.R. Section 121.103(a)(1). Here, Appellant is part of a group of companies, all owned by Oleos, which is in turn owned by Mr. Ribeiro and his children, whose interests are aggregated in determining affiliation. Mr. Ribeiro owns all of the media enterprises. It is therefore clear that all the concerns Mr. Ribeiro and his children own and control, including Appellant, Oleos, and the media enterprises, are affiliated, and they must be treated as one entity for the purposes of determining Appellant's size. That the concerns are in different lines of business is irrelevant to this finding; they are affiliated because Mr. Ribeiro and his children own and control all of them. See Size Appeal of Ridge Instrument Co., Inc., SBA No. SIZ-4207, at 5-7 (1996). Because all these concerns are affiliated, all their employees must be aggregated to determine Appellant's size. See 13 C.F.R. Section 121.106(b). That some of the affiliates are foreign, some of the employees are part-time, or some of the employees do work normally outsourced (but not in fact outsourced in this instance) does not affect the calculation; all employees must be counted. See id. That some firms have a small market share or others barely make a profit is irrelevant to the calculation of whether Appellant, together with its affiliates, is small. See Size Appeal of Mid-Columbia Engineering, Inc., SBA No. SIZ-4134, at 5 (1996) (profits are irrelevant to a size determination). Based on the information Appellant submitted and cites on appeal, the aggregate number of employees of the affiliated concerns exceeds the applicable size standard, and Appellant is other than small. [3] Finally, the Administrative Judge cannot consider Appellant's challenge to the NAICS code designation. A size appeal that attempts to challenge the underlying NAICS code classification must be dismissed as an untimely NAICS code appeal. See Size Appeal of L. Freedman & Associates, P.C., SBA No. SIZ-4247, at 6 (1997). Accordingly, because Appellant has failed to demonstrate any clear error of fact or law in the size determination, the Administrative Judge concludes he must deny the instant appeal and affirm the size determination. III. CONCLUSION For the above reasons, the Administrative Judge AFFIRMS the Area Office size determination and DENIES the instant appeal. This is the final decision of the Small Business Administration. See 13 C.F.R. Section 134.316(b). CHRISTOPHER HOLLEMAN Administrative Judge _________________________ 1 The announcement incorrectly stated a corresponding size standard of 750 employees. On February 7, 2003, USDA issued Amendment 2, stating the correct, 500-employee size standard. 2 Given the ownership scheme described by the Area Office and admitted by Appellant, Appellant apparently means Mr. Ribeiro owns 80%, and his children 20%, of Oleos. 3 Under a "number of employees" size standard, the size determination is not a "snapshot," but the average number of employees over the twelve months preceding the concern's self- certification date. See Size Appeal of EER Systems, Inc., SBA No. SIZ-4318, at 7 (1998); 13 C.F.R. Section 121.106(b)(1). Appellant failed to produce these detailed figures for the Area Office, but submitted only one figure for the employee count of each firm. Because Appellant concedes that these figures are correct, and because the Area Office has the authority to draw an adverse inference absent complete information, the Area Office's reliance on these figures was not clear error. See 13 C.F.R. Section 121.1008(d). Posted: June, 2003