Hy-Power, Inc. NV, No. 3880 (January 26, 1994) Docket No. SIZ-93-12-16-138 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. SIZE APPEAL OF: ) ) Hy-Power, Inc. NV ) ) Appellant ) Docket No. SIZ-93-12-16-138 ) Small Business Loan ) Application ) 04-SD-94-011 ) DIGEST The Office of Hearings and Appeals has jurisdiction pursuant to 13 CFR 121.1701(a) and 121.1601(b)(1)(i) to hear an appeal from a Regional Office's formal size determination in connection with an application for a guaranteed business loan. Where the principal business activity of an applicant for an SBA Section 7(a) guaranteed business loan involves the installation of airport runway lighting systems requiring excavation and installation of underground manhole and conduit systems, the applicant's business is properly classified under Standard Industrial Classification (SIC) code 1623 (Water, Sewer, Pipeline, and Communications and Power Line Construction), with a $17 million average annual receipts size standard, rather than under SIC code 1731 (Electrical Work), having a $7 million size standard. DECISION January 26, 1994 BLAZSIK, Administrative Judge, Presiding: Jurisdiction This appeal is decided under the Small Business Act of 1958, 15 U.S.C. 632 E seq., and the regulations codified at 13 CFR Part 121. Issue Whether the Regional Office correctly classified an applicant's primary business activity under Standard Industrial Classifica tion (SIC) code 1731, rather than SIC code 1623, for purposes of obtaining an SBA guaranteed business loan. Facts On July 26, 1993, Hy-Power, Inc. NV (Hy-Power or Appellant) submitted an application to the Miami District Office of the Small Business Administration (SBA) for a guaranteed business loan pursuant to Section 7(a) of the Small Business Act, 15 U.S.C. 636(a) and 13 CFR Part 120. The District Office evaluated Hy-Power's submissions and concluded that Hy-Power's primary business activity was electrical construction and thus classified the firm under Standard Industrial Classification (SIC) code 1731 (Electrical Work), having a $7 million average annual receipts size standard. Based upon financial statements submitted by Hy- Power showing that the firm has been in existence less than three fiscal years (a total of 107 weeks), the District Office, using the computation formula specified in 13 CFR 121.402(c) and (d), concluded that Hy-Power did not meet the $7 million size standard and, accordingly, denied its application on September 3, 1993. On September 16, 1993, Hy-Power filed a timely request for a formal size determination with the SBA's Atlanta Regional Office in accordance with 13 CFR 121.1601(b)(1)(i). Hy-Power submitted its SBA Form 355, corporate charter and bylaws, last annual statement to its stockholders, and complete financial statements for the three years it has been in existence. According to its SBA Form 355, Hy-Power has no affiliates. In a statement to the Regional Office, Hy-Power represented that it is a licensed general and electrical contractor and that its primary business activities are appropriately encompassed by SIC code 1623 (Water, Sewer, Pipeline, and Communications and Power Line Construction), with a $17 million average annual receipts size standard, rather than SIC code 1731. Hy-Power also asserted that only 18 percent of its revenues derive from electrical work and the remainder from underground excavation and construction. According to Hy-Power's Business Plan submitted to the Regional Office, prior to the date of Hy-Power's incorporation, there was a predecessor corporate entity with the same name which had operated for numerous years. Because of disagreements between the stockholders regarding that company's future, the old company was dissolved and the successor corporate entity (Hy-Power) created. The latter took over all of the former's existing contracts, assets, and personnel. The Business Plan states that the company engages in "sophisticated and highly technical electrical construction work and concentrates in airfield lighting, FAA Navaid, and military airfield facilities." Hy-Power also listed some of its most significant contracts which have been completed as of fiscal year 1992, Hy-Power's last complete fiscal year, noting that during 1992, its sole business activity was the installation of airfield runway lighting systems. The following table shows a representative sample: Project Description Year Started Year Completed Airport Runway 1/92 9/92 Install Airport Runway Lighting 7/90 12/90 Install Airport Runway Lighting 8/90 3/91 on November 18, 1993, the Regional Office issued its determination. Regarding the question of the propriety of Hy Power's classification under SIC code 1731, the Regional Office noted: Hy-Power's business plan classifies itself as an electrical construction company and concentrates in airfield lighting and is also pre-qualified and approved by the Florida Department of Transportation to perform high mast area lighting, conventional street lighting, fiber optic and underground utility ductbank systems. Contracts specified in the business plan indicate the type of work is installation of airport runway lighting. The list of current principal material suppliers indicates the following types of materials: lighting equipment, conduit, manholes, wire, airfield signs, general electrical hardware, concrete, backfill, small tools, and equipment rental. The Regional Office in its determination also observed that [i]nformation provided by Hy-Power indicates that its primary business operation is electrical work. Other work may be performed by Hy-Power but the contracts tsubmitted], material supplier lists, and the business plan indicate Hy- Power's primary industry is electrical [construction]. Hy- Power did not provide any proof or documentation to reflect differently. Based upon the above factual findings, the Regional Office concluded that the Miami District Office had properly classified Hy-Power's industry under SIC code 1731. The Regional Office also reviewed the District Office's computation of Hy-Power's average annual receipts and concurred in the District Office's methodology. Accordingly, the Regional Office determined that Hy- Power is an other-than-small business under the $7 million size standard and ineligible for an SBA guaranteed business loan. Hy-Power received the determination on November 19, 1993, and by letter dated and hand-delivered on December 16, 1993, filed a timely appeal from the determination. See 13 CFR 121.1705(a)(1). Hy-Power's sole contention on appeal is that the Regional Office incorrectly classified it under SIC code 1731 and that the appropriate classification for Hy-Power's business activity is SIC code 1623. 1/ Hy-Power asserts that, since its incorporation in April 1991, its sole activity has been the construction and installation of airfield runway lighting systems. It asserts that while it is pre- qualified and approved by the Florida Department of Transportation to perform high mast area and conventional street lighting, it has been engaged solely in the installation of airfield runway lighting systems. To support these assertionst Hy- Power encloses an affidavit of Bernard Paul-Hus, President of the company, who describes the work that Hy-Power performs in the installation of airfield runway lighting systems as follows: Based on the Engineer's design, the Contractor, or his grading subcontractor cuts or fills the existing work area to the required subgrade. As the subgrade completes, Hy- Power installs the Manhole and Conduit systems. This work involves layout based on survey and using heavy equipment for the required trenching that the manholes and conduit systems will be placed in. Operators run the trenching equipment and pipelayers, skilled and unskilled laborers work under the Superintendent. Once the trenching is done and the conduit system is placed, the manholes and conduit systems are encased with concrete or other suitable backfill material. The Prime contractor...will then place suitable material and finish the material to grade. At this point, using auger trucks...and trenchers, Hy-Power will drill holes at the proposed light locations...and connect these holes with trenches. Base cans are set in place using specialized alignment jugs of sufficient weight to hold the bases in place during backfill.... The bases are then connected by placing a conduit system in the connecting trenches and inserted into the bases. Once this is accomplished, the crew will backfill all trenches and holes with concrete.... Once the concrete has set, the alignment jigs are removed and the area cleaned with skidsteer loaders and air compressors in preparation for the paving.... Mr. Paul-Hus also states that [c]onstruction of the underground conduit system constitutes the majority of the work performed by HyPower in installing airfield runway lighting systems. Only after the underground conduit system [has] been installed by Hy-Power is any electrical work performed by Hy-Power. Mr. Paul-Hus argues that, since its principal activity is the construction of underground conduit systems and the electrical work is secondary to the underground work, Hy-Power is more appropriately classified under SIC code 1623. In further support, Hy-Power cites our decision in SIC Appeal of Hallmark Electrical Contractorsg Inc., No. 2566 (1986), where we held that a solicitation for the replacement of airfield lighting cables, which included excavation, installation of underground cable, plastic ducts, pull boxes, and manholes was correctly classified under SIC code 1623. Hy-Power argues that a similar result is warranted here. Discussion Our jurisdiction to consider this appeal derives from 13 CFR 121.1701, which states in pertinent part: The jurisdiction of the Office of Hearings and Appeals under this part shall be limited, as specified in paragraphs (a) and (b).... (a) Formal size determinations made by SBA Regional Offices, pursuant to Sections 121.1601 through 121.1608.... The regulation at 13 CFR 121.1601 provides as follows: (b) Requests for size determinations. Entities may request a formal size determination for a concern with respect to designated SBA programs as identified below. In making a formal size determination, the procedures of Sections 121.1602, 121.1605, and 121.1606 shall apply. (1) With respect to SBA's Financial Assistance Programs, the following entities may request a formal size determination: (i) The applicant for assistance; Thus, this appeal is properly before us for a decision on the merits. In determining the primary industry in which a firm applying for financial assistance is engaged, the Regional Office is mandated by 13 CFR 121.802(b) to give "primary consideration" to the distribution of receipts, employees and costs of doing business among differing industries in which a concern is operating for the most recently completed fiscal vear of the concern. Other factors (e.g., patents, contract awards, assets) may be considered. [Emphasis supplied.] The SIC Manual 2/ description of SIC code 1731 selected by the Regional Office states as follows: Electrical Work Special trade contractors primarily engaged in electrical work at the site. The construction of transmission lines is classified in Industry 1623, and electrical work carried on in repair shops is classified in Service, Industry Group 762. Establishments primarily engaged in monitoring of burglar and fire alarms with incidental installation are classified in Services, Industry 7382. Some examples shown under this description include electrical repair at the site of construction, electrical work contractors, and highway lighting and electrical signal construction. SIC code 1623 is classified in the SIC Manual as part of Major Group 16 (Heavy Construction Other Than Building Construction Contractors). The preamble paragraph to Major Group 16 states in pertinent part: This major group includes general contractors primarily engaged in heavy construction other than building, such as highways and streets, bridges, sewers, railroads, irrigation projects, flood control projects and marine construction, and special trade contractors primarily engaged in activities of a type that are clearly specialized to such heavy construction and are not normally performed on buildings and building-related projects. Specialized activities that are covered here include grading for highways and airport runways; guardrail construction; installation of highway signs; trenching; underwater rock removal; and asphalt and concrete construction of roads, highways, streets and public sidewalks. Establishments primarily engaged in specialized activities that may be performed on buildings or on other heavy construction projects are classified in Major Group 17. These include contractors primarily engaged in...electrical work (including work on bridges, power lines, and power plants).... The SIC Manual defines the type of work classified under SIC code 1623 as follows: Water, Sewer, Pipeline, and Communications and Power Line Construction General and special trade contractors primarily engaged in the construction of water and sewer mains, pipelines, and communications and power lines. Examples shown under this description include conduit construction - contractors; cable laying construction- Contractors; power line construction - general contractors; manhole construction - general contractors; and telegraph line construction - general contractors. We conclude that Appellant's primary business operation should have been classified under SIC code 1623. The record demonstrates that, in accordance with the requirement of 13 CFR 121.802(b), supra, Appellant's sole business activity for 1992, its most recently completed fiscal year, was the installation of airfield runway lighting systems. 3/ The record also demonstrates that, in performing this work, Appellant is engaged in construction- intensive excavation and installation, involving primarily conduit and cable laying construction. The examples shown in the SIC Manual comprising SIC code 1623, are illustrative of the type of work performed by Appellant (cable laying, conduit construction, manhole construction, and installing electrical power and transmission lines). Moreover, our application of SIC code 1623, is consistent with the preambular paragraph of Major Group 16, since it provides that heavy construction projects such as Appellant's, are classified under Major Group 16. The preamble states that this group includes general contractors primarily engaged in heavy construction other than building,...and special trade contractors primarily engaged in activities of a type that are clearly specialized to such heavy construction and are not normally performed on buildings and building-related projects. It also states that [e]stablishments primarily engaged in specialized activities that may be performed on building or on other heavy construction projects are classified in Major Group 17. Finally, a review of the facts in Hallmark reveals that the solicitation at issue there was also for the installation of airport runway lighting. The fact that the solicitation at issue in Hallmark aptly describes the activity in which Appellant is primarily engaged is of precedential value and further substantiates the assignment of SIC code 1623 to Appellant's primary industry. 4/ Conclusion The Regional Office determination is REVERSED, and the appeal is GRANTED. Hy-Power, Inc. NV's primary business activity is best described under SIC code 1623, with a $17 million size standard. In consequence, it is a small business for purposes of receiving an SBA guaranteed loan. This constitutes the final decision of the Small Business Administration. See 13 CFR 121.1730(a), (b), and (c). __________________________________ Glorla E. B1aszik (Presiding) Administrative Judge __________________________________ Jane E. Phillips (Concurring) Administrative Judge __________________________________ Elwin H. White (Concurring) Administrative Judge _______________ 1/ Hy-Power requests an oral hearing. Because there is no genuine dispute as to any material fact of decisional significance which cannot be resolved except by confrontation of witnesses, the request is denied. See 13 CFR 121.1714(a). 2/ Standard Industrial Classification Manual, Office of Management and Budget, 1987 edition. 3/ Pursuant to 13 CFR 121.803(a), the size of an applicant for SBA financial assistance is determined as of the date of its application for such financial assistance. As noted before, Appellant filed its application with the SBA on July 26, 1993. Thus, its most recently completed fiscal year prior to the submission of its application is fiscal year 1992. 4/ It is unnecessary for us to determine whether Appellant is a successor in interest to its predecessor firm since there is nothing in this record to indicate that Appellant would exceed the $17 million average annual receipts size standard.