DAWSON BUILDING CONTRACTORS, INC. APPELLANT RE: GSC CONSTRUCTION, INC.
SBA No. SIZ-4501SBA No. SIZ-4501August 2, 2002
SBA No. SIZ-4501 (S.B.A.), SBA No. SIZ-4501, 2002 WL 31844931
Small Business Administration (S.B.A.)
Office of Hearings and Appeals
*1 SIZE APPEAL OF: DAWSON BUILDING CONTRACTORS, INC. APPELLANT
*1 RE: GSC CONSTRUCTION, INC.
*1 Docket No. SIZ-2002-05-23-18
*1 Solicitation No. DACA01-01-B-0008
*1 Department of the Army
*1 Mobile District
*1 Corps of Engineers
*1 Mobile, Alabama
*1 August 2, 2002
ORDER REMANDING PROCEEDING1
A. Procedural Background
*1 On January 25, 2002, the Department of the Army, Mobile District, Corps of Engineers, Mobile, Alabama (Army), issued the subject Solicitation, No. DACA01-01-B-0008, seeking bids for construction of a Federal Bureau of Investigation (FBI) Hazardous Devices Training Facility at Redstone Arsenal, Alabama. The solicitation was unrestricted; however, it included Federal Acquisition Regulation (FAR) clause 52.219-4, providing for a price evaluation preference2 for a HUBZone (Historically Underutilized Business Zone) small business concern.3 The Contracting Officer (CO) assigned to the procurement North American Industry Classification System (NAICS) Code 233320, Commercial and Building Construction, with a corresponding $27.5 million average annual receipts size standard.4 Among four amendments, the third extended the bid opening date from March 12, 2002, to March 21, 2002.
*1 On March 27, 2002, GSC Construction, Inc. (GSC) protested the award of the contract to Dawson Building Contractors, Inc. (Appellant), on the grounds that Appellant was not a small business. On or about April 19, 2002, the Small Business Administration (SBA) made a determination that Appellant was other than small.
*1 On April 22, 2002, the CO informed Appellant in a telephone call that GSC would receive a 10% bid preference as a small business HUBZone contractor. On April 26, 2002, Appellant filed a protest of the award with the CO on the grounds that GSC was not a small business. On May 1, 2002, the CO adopted the protest and forwarded it to the SBA Area III Office of Government Contracting in Atlanta, Georgia (Area Office).
*1 On May 2, 2002, the Area Office notified GSC via Federal Express of the protest. On May 6, 2002, GSC responded to the protest. On May 13, 2002, the Area Office issued a size determination finding GSC a small business. On May 14, 2002, Appellant received the size determination.
*1 On May 22, 2002, Appellant, through counsel, filed the instant size appeal, accompanied by a Motion to Admit New Evidence, together with the new evidence. On May 28, 2002, GSC, also through counsel, filed a Notice of Appearance of Counsel, together with a Motion to Deny Review, or, in the Alternative, to Establish Timetable for Supplementing Record.
*1 On May 30, 2002, the Administrative Judge issued an Order setting the close of record as June 20, 2002. On June 17, 2002, GSC filed a Motion for Entry of a Protective Order, to cover evidence it intended to submit with its Response and those parts of the Response that refer to that evidence. On June 19, 2002, the Administrative Judge granted the Protective Order.
*2 On June 19, 2002, GSC filed its Opposition to the appeal and a Motion to Submit Additional Evidence, together with new evidence consisting of 34 Exhibits, including an amended SBA Form 355. On July 10, 2002, Appellant responded to GSC's motion. On July 11, 2002, GSC moved to strike Appellant's response. On July 12, 2002, Appellant responded to GSC's Motion to Strike. On July 16, 2002, GSC filed a Motion to Reply to the Response to the Motion to Strike together with the Reply. On July 24, 2002, in a telephone conference, the Administrative Judge granted GSC's Motion to Strike, because Appellant's response to GSC's motion to admit new evidence did not speak to the issue of whether the evidence should be admitted, but addressed itself to the substantive issues in the appeal. Appellant's response to the motion was therefore a reply to GSC's response to the appeal and thus not permitted except by express leave of the Administrative Judge. See 13 C.F.R. § 134.309(d). The record in this appeal will stand as it was on June 20, 2002.
B. The Size Protest Size Determination and Appeal
*2 Appellant's protest asserted that GSC is large because its President and principal, George Locke McKnight, is involved in numerous other businesses with his brothers William McKnight and Mason McKnight. Appellant asserts that affiliation exists between GSC and 11 other companies affiliated with one or more of the three McKnight brothers because of: (1) identity of interest among family members who were principals of the firms, (2) common management, (3) GSC's status as a newly organized concern, and (4) the totality of the circumstances. Appellant submitted a considerable amount of documentary evidence to support its protest.
*2 The Area Office, after a brief review of the evidence, concluded that the McKnight brothers were not involved with each other's business transactions. Accordingly, the presumption of identity of interest between family members did not arise, and GSC did not have the burden of establishing a clear fracture between the brothers' business interests. As to other Appellant's allegations, the Area Office found no substance to them and emphasized that it was accepting GSC's “certified submissions of the firm whose representations are made under possible criminal penalty” over “unsupported protest allegations of a competitor.”
*2 Appellant asserts that the Area Office misstated the burden of proof and ignored the evidence Appellant submitted. The Area Office failed to address all the protest allegations. Further, the Area Office failed to address inconsistencies in the record. In particular, the Area Office accepted at face value GSC's representations that the records Appellant submitted from the Georgia Secretary of State's Office, showing GSC's President as an officer of other companies with his brothers, were simply errors that would be corrected. Appellant submits new evidence with its appeal to support its allegations.
C. GSC's Response
*3 GSC's Motion argues this Office should deny review because Appellant's initial protest was untimely and its appeal merely repeats allegations raised below and considered by the Area Office. GSC's Response addresses the issues raised by the appeal, but the important aspect it introduces into this case is its introduction of new evidence.
*3 In preparing its Opposition to Dawson's Appeal Petition, GSC had the opportunity to review this entire matter for the first time with counsel. In doing so, GSC and Locke McKnight realized for the first tine that the Form 355 previously submitted had not been completed correctly as concerns possible affiliates. . . . Mr. McKnight misunderstood “purchased” versus “inherited” stock, believing one to require disclosure and the other not.
*3 GSC's Response to the Appeal, at 11.
*3 GSC submits an amended SBA Form 355 with its proposed new evidence. This Form 355 includes two new firms as companies in which GSC's President and sole shareholder, George Locke McKnight, owns stock, McKnight Associates, Inc., and McKnight Properties. Mr. McKnight owns 25% of each concern.
A. Threshold Issues
*3 Appellant filed the instant appeal within 15 days of receiving the size determination, and thus the appeal is timely. 13 C.F.R. § 134.304(a)(1).
*3 Regardless of whether Appellant's initial protest was timely, the CO's adoption of it made it a timely protest, as a CO's protest is timely at any time. 13 C.F.R. § 121.1004(b). As Appellant is adversely affected by the size determination, it may file an appeal of that size determination with this Office. 13 C.F.R. § 134.302(a). That Appellant might not have been entitled to protest does not affect its standing to file an appeal. See Size Appeal of Dynamic Decisions, Inc., SBA No. SIZ-4248, at 9-11 (1997). That the Area Office already considered Appellant's assertions is no bar to consideration on appeal. It is precisely to review the Area Office's evaluations of these issues that the appeals process exists. GSC's Motion to Deny Review is DENIED.
*3 After reviewing the record, the Administrative Judge finds that the proffered new evidence is relevant to the issues on appeal, does not unduly enlarge those issues, and clarifies the facts on those issues. Size Appeal of Pointe Precision, LLC, SBA No. SIZ-4434, at 4 (2001). Therefore, the Administrative Judge GRANTS both parties' motions for admission of new evidence.
B. Decision on the Merits
*3 GSC's submittal of a revised SBA Form 355, Application for a Size Determination, requires that this case be remanded to the Area Office for a new size determination. The information collected with the Form 355 provides the critical evidence the Area Office uses to make a size determination. SBA Standard Operating Procedure 90 01 3, “Size Determination Program” (January 28, 1998), ¶¶ 4-6, 7-3; Appendix 4. That GSC now concedes it submitted inaccurate information to the Area Office and admits to additional affiliations of which the Area Office was unaware calls into question the evidence upon which the size determination was based and requires a remand to the Area Office for a new review.5
*4 Other grounds mandate a remand of this case. The Area Office misread the applicable precedent on identity of interest among family members.
*4 The applicable size regulations state that individuals with substantially identical business interests, such as family members, may be treated as one party, with such interests to be aggregated for purposes of determining affiliation. 13 C.F.R. § 121.103(a)(3).
*4 This Office's long-standing precedent holds the regulation creates a rebuttable presumption that family members have identical interests and must be treated as one person, unless the family members are estranged or not involved with each other's business transactions. Size Appeal of Golden Bear Arborists, Inc., SBA No. SIZ-1899 (1984). Thus, the presumption arises, not from the degree of family members' active involvement in each others' business affairs but, rather, from the family relationship itself.
*4 Size Appeal of Gallagher Transfer & Storage Co ., Inc., SBA No. SIZ-4295, at 5-6 (1998) (emphasis supplied).
*4 The Area Office misstated the applicable law, despite the fact that the sentence in Gallagher most relevant in this case (emphasized above) immediately follows the sentence the Area Office quoted in the size determination. The McKnight brothers and their various businesses must be presumed affiliated until GSC can demonstrate to the Area Office that they are estranged from each other or that there has been a clear fracture between the family members in their business affairs. Gallagher, SBA No. SIZ-4295, at 6. GSC may rebut this presumption by establishing the McKnight brothers' non-involvement in each others' affairs. Id. Here, however, the Area Office seemed to accept GSC's bare assertions of non-involvement and did not require GSC to bear the burden of establishing the non-involvement of the McKnights in each others' affairs.
*4 The Area Office did so in the face of a curiously incomplete record. GSC's original SBA Form 355 failed to list “all possible affiliates of the applicant, whether acknowledged or not,” as required by the form, and the Area Office failed to note this. Appellant's protest listed a number of possible affiliations for GSC which GSC's Form 355 and the size determination failed to address. The Area Office also accepted all too readily GSC's bald assertion that the inclusion of GSC's principal, George Locke McKnight, in the lists of officers of other McKnight-owned firms in the official records of the Georgia Secretary of State resulted from mere errors that GSC would subsequently correct. The Area Office should have required proof that these were genuine “errors” rather than GSC's post-hoc “corrections” of now inconvenient affiliations. Further, because these were official records, the Area Office should insist on substantial proof that genuine errors existed in the records.
*4 The Area Office should also reexamine its credibility findings as to GSC's statements, because GSC not only argues that official records are inaccurate, but now admits its initial filing was, at best, incomplete. GSC's statement as to Mr. McKnight's belief that a distinction exists between inherited and purchased property not only seems disingenuous, but it is one more indicium of a lack of a fracture between his business and that of his family. These are all important issues that the Area Office must address.
*5 Finally, the Area Office failed to consider all the grounds of affiliation Appellant raised in its protest. Appellant asserted GSC was affiliated with the 11 named firms due to four grounds, and the Area Office considered only the first ground. It therefore failed to address issues of decisional significance, which also requires a remand to the Area Office. Size Appeal of L .W Looney & Son, Inc., SBA No. SIZ-3898, at 7 (1994).
*5 Accordingly, the Administrative Judge remands this case to the Area Office because GSC admits its SBA Form 355, upon which the Area Office based its size determination, was inaccurate and incomplete; because the Area Office misstated the applicable law; and because the Area Office failed to address issues of decisional significance in its size determination.
*5 For the above reasons, the Administrative Judge VACATES the instant size determination and REMANDS the instant case to the Area Office for further investigation and a new size determination consistent with this Order.
This appeal is decided under the Small Business Act of 1958, 15 U.S.C. § 631 et seq., and 13 C.F.R. Parts 121 and 134.
The CO must give offers from HUBZone small business concerns a price evaluation preference by adding a factor of 10 percent to all offers, except those from HUBZone small business concerns that have not waived the evaluation preference, otherwise successful offers from small business concerns, and other offers not pertinent to this case. See FAR, 48 C.F.R. § 19.1308(b).
As used in clause 52.219-4, a HUBZone small business concern is “a small business concern that appears on the List of Qualified HUBZone Small Business Concerns maintained by the Small Business Administration.” FAR, 48 C.F.R. § 52.219-4.
Though this size standard has been inflation-adjusted to $28.5 million, 67 Fed. Reg. 3041, 3046 (Jan. 23, 2002), the amendment is effective, for purposes of solicitations other than noncompetitive Section 8(a) contracting actions, only for solicitations issued on or after February 22, 2002. Id. at 3041.
Though there is no direct precedent for a remand because the challenged firm has admitted its SBA Form 355 was inaccurate and/or incomplete, the case is analogous to cases where this Office remanded the case because the factual basis of the size determination was called into question. See Size Appeal of Pointe Precision, LLC, SBA No. SIZ-4434, at 5-6 (2001); Size Appeal of TROY Systems, Inc., SBA No. SIZ-4275, at 4-5 (1997).SIZ-4501
SBA No. SIZ-4501 (S.B.A.), SBA No. SIZ-4501, 2002 WL 31844931
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