VSBC PROTEST OF: THE CONTROLS COMPANY, LLC, PROTESTOR RE: 2H&V Construction Services, LLC

*1 On January 11, 2024, 2H&V Construction Services, LLC (Petitioner) filed the instant Petition for Reconsideration (PFR) of the U.S. Small Business Administration (SBA) Office of Hearings and Appeals (OHA) decision in VSBC Protest of The Controls Company, LLC, SBA No. VSBC-326-P (2023) (“Controls Company I”).² In that decision, OHA sustained a status protest filed by The Controls Company, LLC (Controls), and concluded that Petitioner does not qualify as a Service-Disabled Veteran-Owned Small Business (SDVOSB) for the subject procurement.

*1 OHA found that Petitioner did not demonstrate that it is fully controlled by its service-disabled veteran majority owner, Mr. Gregory A. Scott. Controls Company I, at 6-7. More specifically, during the course of the protest proceedings, Petitioner acknowledged that Mr. Scott works full-time as an investment advisor for another company. Id. at 3-4. Controls introduced a copy of Mr. Scott's Investment Adviser Public Disclosure (IAPD) report — a document derived from information provided by Mr. Scott himself — which indicated that, as of May 2023, Mr. Scott devotes “20 hour(s) monthly” to Petitioner, and that he works no time at all for Petitioner during “trading hours”. Id. at 3. In response, Petitioner claimed that, notwithstanding the language of the IAPD, the 20 hours monthly that Mr. Scott reportedly works for Petitioner includes only those during trading hours of the New York Stock Exchange, which Petitioner defined as 8:30 a.m. through 3:00 p.m. CST Monday through Friday. Id. Petitioner further asserted that, “[a]t times”, Mr. Scott's work for Petitioner exceeds 20 hours per month during trading hours. Id.

*1 Because the IAPD and Petitioner's response cast doubt upon whether Mr. Scott devotes full-time to Petitioner during its normal hours of operation, OHA issued an Order, pursuant to 13 C.F.R. § 134.1007(g), requesting that Petitioner address Mr. Scott's outside employment and Petitioner's compliance with 13 C.F.R. § 128.203(i). Id. at 4-5. OHA noted that Petitioner previously had represented to the U.S. Department of Veterans Affairs (VA) Center for Verification and Evaluation (CVE) that Petitioner's office is open Monday through Thursday 8:00 a.m. to 4:30 p.m., and closed Fridays. Id. Petitioner also had informed CVE that Mr. Scott “usually go[es] to [[Petitioner's] office in the morning from 6 am to about 10 am Monday thru Thursday and then spend[s] the rest of [his] day working remotely.” Id. In subsequent correspondence with CVE, Petitioner had asserted that Mr. Scott “work[s] for [Petitioner] 8am — 4:30pm Monday thru Thursday” and “remotely on Fridays from 2pm — 6pm”. Id. Petitioner had further claimed that Mr. Scott works full-time as an investment advisor “from 6am — 8am, lunch and 5pm — 7pm Monday thru Thursday”, as well as “7am — 2pm on Friday and Saturday.” Id. In the Order, OHA noted that Petitioner's prior statements to CVE appeared inconsistent with its position that Mr. Scott works for Petitioner 20 hours per month during trading hours. Id.

*2 Petitioner responded to OHA's Order with a letter from Mr. Scott. Id. at 5. In his letter, Mr. Scott indicated that he devotes “in excess of 40 hours per week” to Petitioner and that he is “solely responsible for the day-to-day operations as well as strategic long-term planning for [Petitioner].” Id. Mr. Scott asserted that Petitioner's “normal operational hours are from 6:00 a.m. thru 6:00 p.m. Saturday thru Friday.” Id. Mr. Scott further maintained that his work for Petitioner during trading hours “always exceeds 20 hours a month.” Id. Mr. Scott did not provide his current work schedule at Petitioner, nor his current work schedule as an investment advisor, and did not offer a detailed description of the duties and responsibilities he currently performs for Petitioner. Id. With regard to the prior statements Petitioner had offered to CVE, Mr. Scott stated that those were made when he was “going through a job transition” and that he now follows “a different schedule”. Id.

*2 After considering the record — including the IAPD, Petitioner's response thereto, and Mr. Scott's letter responding to OHA's Order — OHA sustained the protest. OHA explained that, as the challenged firm, Petitioner was responsible for proving its eligibility as an SDVOSB by a preponderance of the evidence. Id. at 5 (citing 13 C.F.R. § 134.1010). Here, Petitioner failed to show that Mr. Scott fully controls Petitioner, due to his outside employment. Id. at 6. SBA regulations stipulate that “[w]here a qualifying veteran claiming to control [an SDVOSB] devotes fewer hours to the business than its normal hours of operation, SBA will assume that the qualifying veteran does not control the concern, unless the concern demonstrates that the qualifying veteran has ultimate managerial and supervisory control over both the long-term decision making and day-to-day management of the business.” Id. (quoting 13 C.F.R. § 128.203(i).) In the instant case, OHA found, the IAPD is current and credible evidence that Mr. Scott works 20 hours per month for Petitioner, and no time at all for Petitioner during trading hours. Id. Although Petitioner disputed the accuracy of the IAPD, it did so only on the narrow grounds that Mr. Scott actually works for Petitioner 20 hours per month during “trading hours”. Id. Petitioner did not produce a current schedule for Mr. Scott, nor describe his current duties and responsibilities for Petitioner. Id. Petitioner did not offer a statement from its 49% minority owner, or from other employees of Petitioner, corroborating Mr. Scott's letter to OHA. Id. Moreover, Petitioner never explained how it would be possible for Mr. Scott to work full-time for Petitioner during its normal hours of operation, if Mr. Scott also works full-time as an investment advisor and devotes only 20 hours per month to Petitioner during “trading hours”. Id. Because Petitioner, as the challenged firm, failed to prove that Mr. Scott “devote[s] full-time to [Petitioner] during its normal hours of operation”, OHA was required to assume that he does not control Petitioner, pursuant to 13 C.F.R. § 128.203(i). Id. at 6-7.

*3 In its PFR, Petitioner alleges that OHA committed two principal errors in Controls Company I. First, OHA mistakenly found that “Mr. Scott does not devote full-time [to Petitioner] during [its] normal hours of operation.” (PFR at 2.) According to Petitioner, when SBA revised the SDVOSB eligibility regulations in 2022, the requirement that a service-disabled veteran not engage in conflicting outside employment became less restrictive. (Id. at 3.) Petitioner contends that “OHA lost sight of its basic inquiry”, whether Mr. Scott devotes enough time and attention to Petitioner to control its management and daily business operations. (Id. at 3-4.) Petitioner asserts that its “normal hours of operations are 8:00 a.m. to 4:30 p.m., Monday through Thursday.” (Id. at 4.) Furthermore, in some of its prior correspondence with CVE, Petitioner represented that Mr. Scott works for Petitioner during these hours. (Id.) OHA may have been troubled by the fact that, during the protest proceedings, Petitioner did not “pin down the exact period that Mr. Scott works each day”. (Id. at 6.) Nonetheless, given that a preponderance of the evidence is a ““relatively low” standard of proof, the record was sufficient for OHA to have concluded that “Mr. Scott works for [Petitioner] between 8:00 a.m. and 4:30 p.m. (Monday through Thursday) and beyond, including after hours, Fridays, and weekends.” (Id. at 4, 12.)

*3 Petitioner maintains that, in conducting its review, OHA attached excessive weight to Mr. Scott's IAPD. (Id. at 5.) The IAPD is unsigned, whereas other evidence, such as Mr. Scott's letter responding to OHA's Order, is signed. (Id.) OHA incorrectly described the IAPD as having been “filed” with the U.S. Securities and Exchange Commission (SEC). (Id.) In actuality, although “the IAPD may pull from information sent to the SEC, it is not itself an SEC filing”. (Id.) Petitioner claims that, in his letter to OHA, “Mr. Scott explained the seeming contradiction between the IAPD's 20 hours per month representation and the other evidence.” (Id.) In particular, Mr. Scott clarified that his work for Petitioner “always exceeds 20 hours per month” during trading hours. (Id.) OHA erred, in any event, by considering the IAPD at all, because Controls raised no allegations concerning Mr. Scott's outside employment in the initial protest. (Id. at 6.)

*4 OHA's second principal error, as alleged by Petitioner, was failing to investigate whether Mr. Scott retains “ultimate managerial and supervisory control over [Petitioner's] long-term decisions and day-to-day management.” (Id. at 7, citing 13 C.F.R. § 128.203(i).) In Petitioner's view, after determining that Mr. Scott works little, if any, time for Petitioner during Petitioner's normal operating hours, OHA should have proceeded to analyze whether Mr. Scott nevertheless fully controls Petitioner's decision-making. (Id.) Petitioner points to documents in the Case File, and to statements in Petitioner's filings with OHA, which purportedly show Mr. Scott's complete control over Petitioner, including that Mr. Scott is Petitioner's managing member, its registered agent, a point of contact on its System for Award Management (SAM) profile, and holder of its general contractor license. (Id. at 8-9.) Mr. Scott signed Petitioner's lease and communicates with customer agencies. (Id.) Furthermore, in his letter to OHA, Mr. Scott represented that he “decide[s] which projects to bid or not to bid” and “decide[s] on the final bid pricing and submissions”. (Id. at 8.) Mr. Scott also indicated that Petitioner conducts weekly and/or quarterly meetings to discuss projects. (Id. at 8-10.)

*4 In sum, Petitioner contends, the record reflects by a preponderance of the evidence that Mr. Scott controls Petitioner's long-term decision-making and day-to-day management. (Id. at 10.) Petitioner emphasizes that a preponderance of the evidence is a “more-likely-than-not standard.” (Id., citing Warner-Lambert Co. v. Teva Pharms. USA, Inc., 418 F.3d 1326, 1341 n.15 (Fed. Cir. 2005).) The Case File and Mr. Scott's letter to OHA were sufficient to show that Mr. Scott more likely than not controls Petitioner. (Id. at 10-11.) As a final matter, Petitioner questions who else could control Petitioner, if not Mr. Scott. (Id.)

*4 A party seeking reconsideration of an OHA decision on an SDVOSB status protest must file its PFR within 20 calendar days after issuance of the decision. 13 C.F.R. § 134.1013(a). Here, OHA issued Controls Company I on December 22, 2023, and Petitioner filed the instant PFR on the 20th calendar day thereafter, so the PFR is timely.

*4 To prevail on a PFR, the petitioner “must clearly show an error of fact or law material to the decision.” 13 C.F.R. § 134.1013(a). This is a rigorous standard. A PFR must be based upon manifest error of law or mistake of fact, and is not intended to provide an additional opportunity for an unsuccessful party to argue its case before OHA. VSBC Protest of Freedom Tech. Partners, LLC, SBA No. VSBC-329-P (2024) (PFR); VSBC Protest of Arapaho Tech. Servs., LLC, SBA No. VSBC-316-P (2023) (PFR); CVE Protest of Land Shark Shredding, LLC, SBA No. CVE-203-P (2021) (PFR); CVE Protest of HamHed, LLC, SBA No. CVE-190-P (2021) (PFR); CVE Protest of Alpha4 Solutions LLC d/b/a Alpha Transcription, SBA No. CVE-137-P (2019) (PFR).

*5 The instant PFR is fundamentally flawed, because the PFR consists almost entirely of arguments that Petitioner could have, but did not, raise during the Controls Company I proceedings. Petitioner argues in its PFR, for example, that allegations concerning Mr. Scott's outside employment were untimely, and that OHA should have given little weight to Mr. Scott's IAPD because he did not sign the document. Section I.B, supra. Petitioner, though, failed to voice any such arguments during the initial proceedings. Petitioner responded to the merits of Controls's allegations concerning Mr. Scott's outside employment, without raising any objection as to protest timeliness.³ Section I.A, supra. Likewise, although Petitioner questioned the accuracy of the IAPD during the initial proceedings, it did so not on the grounds that the IAPD was unsigned, but rather on the grounds that (contrary to the language of the IAPD itself) Mr. Scott actually works for Petitioner 20 hours per month during trading hours, as opposed to 20 hours per month outside of trading hours. Section I.A, supra.

*5 Some arguments raised in the PFR appear to be wholly at odds with Petitioner's positions during the original proceeding. Petitioner argues on PFR, for instance, that Petitioner's “normal hours of operations are 8:00 a.m. to 4:30 p.m., Monday through Thursday”, yet Mr. Scott asserted during the original proceedings that Petitioner's “normal operational hours are from 6:00 a.m. thru 6:00 p.m. Saturday thru Friday.” Sections I.A and I.B, supra. Similarly, Petitioner now argues on PFR that “Mr. Scott works for [Petitioner] between 8:00 a.m. and 4:30 p.m. (Monday through Thursday) and beyond, including after hours, Fridays, and weekends.” Section I.B, supra. During the original proceedings, though, Petitioner acknowledged that Mr. Scott has other full-time employment as an investment advisor, and Mr. Scott himself disavowed the schedule that Petitioner now claims he works, asserting that he presently follows “a different schedule” (although offering no further details as to what his current schedule might be). Section I.A, supra.

*5 In short, then, the instant PFR consists largely of new, or different, arguments than were advanced during the initial proceeding. OHA has made clear that it “will not entertain arguments raised for the first time in a PFR and which might have been voiced earlier in the litigation.” Land Shark, SBA No. CVE-203-P, at 3. Such new arguments do not, in any event, show that OHA committed error in reaching its original decision, and thus are not proper grounds for a PFR. E.g., CVE Protest of Covenant Constr. Servs., SBA No. CVE-158-P, at 2-3 (2020) (PFR) (explaining that OHA cannot have erred “by failing to address arguments that Petitioner never raised”). Accordingly, Petitioner has not shown any valid grounds here to disturb Controls Company I.

*6 Even if the arguments advanced in the PFR were properly before OHA, the instant PFR also fails because Petitioner still has made no persuasive showing that it is, in fact, compliant with 13 C.F.R. § 128.203(i), the central issue in Controls Company I. The regulation in question requires that a service-disabled veteran who purports to control an SDVOSB generally “must devote full-time during the business's normal hours of operations”. 13 C.F.R. § 128.203(i). Here, as discussed above, Petitioner has not articulated what its normal operating hours are, as Petitioner's position on PFR differs wildly from that of Mr. Scott during the original proceeding. Sections I.A and I.B, supra. Accepting arguendo, however, that Petitioner's normal operating hours are 8:00 a.m. to 4:30 p.m. Monday through Thursday, as Petitioner claims in its PFR, both Petitioner (through its legal counsel) and Mr. Scott represented during the original proceedings that Mr. Scott works approximately 20 hours per month for Petitioner during “trading hours”, which Petitioner defined as 8:30 a.m. through 3:00 p.m. CST Monday through Friday. Section I.A, supra. There is plainly a high degree of overlap between Petitioner's current claimed “normal hours of operation” and Petitioner's own definition of “trading hours”. Accordingly, then, it appears to be physically impossible for Mr. Scott to devote full-time to Petitioner from 8:00 a.m. to 4:30 p.m. Monday through Thursday, if he works only 20 hours per month (i.e., five hours per week) for Petitioner during “trading hours”. Because Petitioner has not reconciled its current claim that Mr. Scott works for Petitioner from 8:00 a.m. to 4:30 p.m. Monday through Thursday, with its prior statements (and Mr. Scott's IAPD) reflecting that he devotes minimal, if any, time to Petitioner during “trading hours”, Petitioner has not shown that Mr. Scott works full-time for Petitioner during its normal hours of operation.

*6 Similarly, while it is true, as Petitioner emphasizes in its PFR, that a service-disabled veteran still may control an SDVOSB even if he or she does not work full-time for the concern during its normal hours of operation, Petitioner here did not make any persuasive showing that Mr. Scott exercises such control over Petitioner. Contrary to Petitioner's suggestions on PFR, the challenged concern (in this case, Petitioner) is responsible for proving its eligibility as an SDVOSB by a preponderance of the evidence. 13 C.F.R. § 134.1010. As a result, an SDVOSB status protest often will be sustained if a challenged concern offers only vague or conclusory assertions in its own defense. E.g., VSBC Protest of Elevated Techs., Inc., SBA No. VSBC-325-P (2023). Petitioner here found itself in an even more difficult position, because, given that Petitioner failed to show that Mr. Scott devotes full-time to Petitioner during its normal hours of operation, OHA then was required to “assume that the qualifying veteran does not control the concern, unless the concern demonstrates that the qualifying veteran has ultimate managerial and supervisory control over both the long-term decision making and day-to-day management of the business.” 13 C.F.R. § 128.203(i). On PFR, Petitioner points to certain documents and/or statements that might have been referenced in support of a claim that Mr. Scott nevertheless fully controls Petitioner's long-term and day-to-day decision-making. Section I.B, supra. Again, though, Petitioner — which had the burden of proving its SDVOSB status — did not itself address these documents during the original proceeding.⁴ Section I.A, supra. An additional obstacle for Petitioner is that, as discussed above, Mr. Scott himself maintained during Controls Company I that several of the same documents that Petitioner now relies upon as describing his duties and responsibilities were no longer current, as Mr. Scott at present adheres to “a different schedule”. Id. In order to have found that Mr. Scott fully controls Petitioner's decision-making, then, OHA would not only have had to disregard the burden of proof at 13 C.F.R. § 134.1010, the required assumption at 13 C.F.R. § 128.203(i), and Petitioner's own silence on key documents, but also would have had to suppose that Mr. Scott still retains all the same duties and responsibilities as he may have held in the past, despite Mr. Scott's own acknowledgement that his schedule is now different.

*7 Petitioner's best argument on PFR is that OHA in Controls Company I incorrectly described Mr. Scott's IAPD as having been “filed” with the SEC. Section I.B, supra. While it is true that OHA was mistaken on this point, the error was not material to Controls Company I. Whether or not filed with the SEC, the IAPD was nonetheless persuasive evidence because: it was current (as of May 2023); it was specific (containing quantifiable information about Mr. Scott's work schedules, in particular that he devotes only 20 hours a month to Petitioner, and no time at all to Petitioner during trading hours); and it was derived from information provided by Mr. Scott himself. Section I.A, supra. Additionally, Petitioner itself did not dispute, during the Controls Company I proceedings, that the IAPD was largely accurate, insofar as Mr. Scott devotes little time to Petitioner during trading hours. Id. OHA thus properly considered the IAPD persuasive in Controls Company I.

*7 To prevail on a PFR, a petitioner must “clearly show an error of fact or law material to the decision.” 13 C.F.R. § 134.1013(a). Here, the bulk of Petitioner's arguments on reconsideration were not raised during the initial proceeding, and thus are not valid grounds for a PFR. Petitioner has not in any event, though, demonstrated that OHA committed any material error in VSBC Protest of The Controls Company, LLC, SBA No. VSBC-326-P (2023). I therefore DENY the PFR and AFFIRM the decision.