SIZE APPEAL OF: ZLYNX ENTERPRISES, INC., APPELLANT

*1 On April 10, 2019, the Small Business Administration (SBA) Office of Government Contracting - Area V (Area Office), issued Size Determination No. 05-2019-025, finding ZLynx Enterprises, Inc. (Appellant) other than small for the $7.5 million size standard assigned to Solicitation No. 36C78618Q9699. On April 25, 2019, Appellant filed the instant appeal with the SBA Office of Hearings and Appeals (OHA). Appellant argues the Area Office erred in its finding and requests the size determination be reversed. For the reasons discussed infra, the appeal is denied.

*1 OHA decides size determination appeals under the Small Business Act of 1958, 15 U.S.C. § 631 et. seq., and 13 C.F.R. parts 121 and 134. Appellant timely filed its size appeal. 13 C.F.R. § 134.304(a)(1). Accordingly, this matter is properly before OHA for decision.

*1 On October 22, 2018, the Department of Veterans Affairs, National Cemetery Services Contracting Services issued Solicitation No. 36C78618Q9699, seeking grounds maintenance services at the Dallas Fort Worth National Cemetery. (Solicitation, at 1.) The Contracting Officer (CO) assigned the solicitation North American Industrial Classification Service (NAICS) Code, 561730, Landscaping Services, with a corresponding $7.5 million annual receipts size standard. (Id.) The solicitation was 100% set aside for Service-Disabled Veteran-Owned Small Businesses (SDVOSB). (Id.) Offers were due on November 19, 2018. (Id.) Fourteen offers were received. (Id.) Appellant submitted its offer on November 19, 2018.

*1 On January 24, 2019, the CO issued Contract No. 36C78619D0062 to Appellant. On January 25, 2019, the CO issued a notice to unsuccessful offerors identifying Appellant as the successful awardee.

*1 Sides & Metcalfe, an unsuccessful offeror, filed a timely size protest with the CO, alleging Appellant was other than small for the procurement based on its alleged affiliation with Relief Enterprise, Inc. (RE), a large business, based on common ownership/management and also alleged affiliation with Nlynx Enterprise. (Size Protest, at 2.) The CO forwarded the protest to the Area Office, who dismissed the protest because Sides & Metcalfe was not an interested party. The Area Office determined the allegations had merit and SBA's Area Director initiated a size protest in accordance with 13 CFR § 121.1001(a)(iii).

*2 On February 13, 2019, the Area Office served a copy of Sides & Metcalfe's size protest on Appellant and requested Appellant respond to the protest allegations, and provide copies of organizational documents, an SBA Form 355, financial statements and federal tax returns from Appellant and any affiliates for 2015, 2016, and 2017.

*2 In its initial response, Appellant asserted its average income was substantially less than the $7.5 million size standard for the procurement. (Response, at 2.) Appellant further insisted it was not affiliated with Nlynx, which had been forfeited in 2006.¹ (Id.) Appellant also denied affiliation with Lynx Enterprises, Inc. (Id.) Appellant further argues Clarence Williams may be listed on RE's website as CEO, but he resigned from the position in 2013. The last web posting was made in 2012. (Id.) Appellant contends Clarence Williams does not own RE or RET, since they are non-profit corporations, which cannot be owned. (Id.) Appellant insists that while Clarence Williams, ZLynx's President/CEO and Board Chairman holds positions at RE and RET, he does not involve himself in the day-to-day operations and his vote does not carry greater weight than that of other board members. (Id., at 3.) Appellant argues there are no contractual relationships between Appellant and RE or RET, and no evidence that Appellant is or could be controlled by another party. (Id.)

*2 After a deadline extension, Appellant provided additional requested documents to the Area Office. Appellant stated in its response, “[l]et it be known that we understand that if you erroneously determine that ZLynx is affiliated with Relief and Relief of Texas, we would not meet the $7.5 million size limit.” (Clarence Williams letter to Area Office, April 1, 2019). Appellant asserted “ZLynx also has [no] contractual relationship to either of these companies.” (Id.)

*2 Appellant submitted copies of organizational documents, a completed SBA Form 355, financial statements, and 2015, 2016, and 2017 tax returns for itself and financial documents for alleged affiliates RE and Relief Enterprise of Texas, Inc. (RET).

*2 Appellant's Form 355 identifies Clarence Williams as its President. (SBA Form 355.) Appellant's main business is in landscaping services, with some work in janitorial services. (Id., at 3.) Clarence Williams is listed as the 51% owner, Chairman, President, and one of the two members of the Board of Directors. (Id.) Calvin Williams, Clarence Williams's son, is listed as the 49% owner, Vice Chair, and the other member of the two-member Board of Directors. (Id.) Clarence Williams is further identified as the Board President of RE, and Board President of RET. Calvin Williams is identified as the Chief Operations Officer (COO) for RE and RET. (Id.)

*3 The Amended By-laws for Appellant provide that a 51% majority is needed to establish and constitute a quorum, and a quorum is necessary for any vote or transaction to take place. (Appellant Amended by-laws, at 1.) Each share constitutes one vote and a 51% majority is necessary to effectuate action. There is no plurality or cumulative voting. (Id.) The Board of Directors shall also have at least one shareholder with 51% or more ownership, and this shareholder must be a Service-Disabled Veteran (SDV). (Id.) Appellant's financial and tax documents indicate its average annual receipts fall well within the $7.5 million size standard.

*3 Appellant later supplied the organizational documents and tax documents for RE and RET. The Articles of Incorporation for RE indicate it was incorporated as a non-profit in Texas in 1996, with Clarence Williams as the initial registered agent. (RE Articles of Incorporation, at 1.) The purpose of the organization was “to achieve the highest level of social integration and personal growth for the disabled and disadvantage [sic] though evaluation, skills training and employment purposes.” (Id.) The initial Board of Directors had three members. Clarence Williams was not among them. (Id.)

*3 RET's Articles of Incorporation establish the entity as non-profit corporation in Texas in 2004 with the purpose of rehabilitating disabled individuals by providing training and employment opportunities. (RET Articles of Incorporation, at 1.) The registered agent is Clarence Williams, and the three members of the Board of Directors are the same as those at RE. (Id.)

*3 The Board Secretary and custodian of records for RE and RET submitted an affidavit to the Area Office that stated: 1) RE and RET are both managed and controlled by their respective Boards of Directors; 2) each Board member has one vote; 3) any quorum of Board Members may call a meeting; 4) Clarence Williams, Board President for both entities, has not greater control over RE or RET than any other Board Member; 5) there is no contractual, managerial or financial relationship between RE/RET and Appellant; 6) all members of the Boards of Directors have a fiduciary duty to ensure RE and RET comply with laws prohibiting transactions or relationships with persons or entities that would allow control of their Boards by any person or entity other than their Boards of Directors; 7) all members of the Boards of Directors have a fiduciary responsibility to ensure RE and RET's compliance with laws prohibiting involvement in for-profit transactions, relationships, or dealings with persons or entities; 8) neither RE nor RET are affiliated with Clarence Williams; and 9) RE and RET are not affiliated with Appellant. Because RE and RET are non-profit entities, Appellant submitted copies of IRS Form 990, Return of Organization Exempt from Income Tax, for both firms. These returns establish that the combined annual receipts of RE and RET exceed $7.5 million. (Joe Bryant Affidavit, (Oct. 17, 2019).)

*4 The RE's IRS Form 990 identifies Calvin Williams as the Principal Officer. (RE IRS 990, at 1.) He is also listed as the person who “possesses the organization's books and records.” (Id., at 6.) The 2015 Form 990 for RE identifies Calvin Williams as the Chief Operating Officer (COO), working 65 hours a week and receiving a significant salary. (Id., at 7.) Clarence Williams is identified as the Executive Director, as working 55 hours weekly, and drawing a salary. (Id.) The other four board members only work 5 hours each and draw no salaries. (Id.) The 2016 and 2017 Forms 990 also identify Clarence and Calvin Williams as Executive Director, and COO, respectively, working the same hours as in 2015, and both individuals receive salaries from RE. (RE IRS Forms 990 for 2016 and 2017.)

*4 Calvin Williams signed the IRS Form 990s for RET and RE for all three years. (RET IRS Form 990 for 2015-17, RE IRS Form 990 for 2015-17.) The RET Forms 990 identify Calvin Williams as a “Board Member,” and as working 20 hours per week. (Id., at 6.) Clarence Williams is also identified as a “Board Member” and as working 20 hours per week. (Id.) Neither drew a salary from RET in 2017, according to the IRS form. RET's tax documents for 2015 and 2016 indicate the same information.

*4 The Area Office stated it would determine Appellant's size as of November 19, 2018, the date Appellant submitted its self-certification with its initial offer, including price. (Size Determination, at 2, citing 13 C.F.R. § 121.404(a).)

*4 The Area Office noted Appellant was incorporated on May 28, 2003 in Texas and performs landscaping and janitorial services. (Id.) The Area Office also pointed out Appellant is 51% owned by Clarence Williams, who also serves as the Board Chairman, President, and CEO. Calvin Williams, Clarence Williams's son, is the 49% owner of the company and serves as the Vice Chair. There are no other Board Members. The Area Office concluded Clarence Williams, through majority ownership, has the power to control Appellant. (Id., at 2, citing 13 C.F.R. § 121.103(a)(1).)

*4 The Area Office found that Nlynx Enterprises, the entity listed in the protest as an alleged affiliate, was not affiliated with Appellant, because it was a company that had been forfeited in Texas in 2006 and ceased to exist. (Id., at 3.)

*4 The Area Office next explored Appellant's possible affiliation with RE and RET. RE and RET were incorporated by Clarence Williams as non-profits in 1996 and 2004, respectively. (Id.) Neither RE nor RET have shareholders, because they are § 501(c)(3) entities. (Id.) The Area Office pointed out RE and RET's Articles of Incorporation show the entities had three original directors. Currently, RE's IRS Form 990 for 2017 identifies Clarence Williams as the Executive Director and Calvin Williams as the Chief Operations Officer, and “person who possesses the organization's books and records.” (Id.) The Williamses are RE's only two officers and key employees. The Articles of Incorporation for RE indicate compensation may be paid for services, and both the Williamses receive compensation from RE. (Id.) The Area Office noted the IRS returns show the Williamses each work over 50 hours per week at RE and 20 hours per week at RET. (Id.) There are six individuals on the Boards of Directors, including both Clarence and Calvin Williams, along with three original Board members, and one other individual. (Id.)

*5 The Area Office further noted RE's website indicates Appellant's address is the same as RE's headquarters address. (Id.) RE's website boasts Clarence Williams, its CEO, as “a hands-on owner/operator” who “oversees day-to-day operations.” (Id.) RE's website also identifies Calvin Williams as its the COO, and states his role is “to oversee all company policies/procedures,” along with a list of other items. (Id., at 4.) The Area Office explains Appellant admitted Clarence Williams was the CEO of RE and RET but resigned in 2013. Clarence Williams remains Board President at both companies. (Id.)

*5 The Area Office found Clarence and Calvin Williams have an immediate family relationship as described by 13 C.F.R. § 121.103(f)(1). Therefore, the Area Office found an identity of interest between the two based on their common business interests in Appellant, RE, and RET. (Id.) Appellant did not demonstrate a clear line of fracture between the two individuals. (Id.) The Area Office found Clarence and Calvin Williams would be treated as one and any business controlled by either individual is affiliated with Appellant. (Id.)

*5 The Area Office next analyzed affiliation based on common management under 13 C.F.R. § 121.103(e). First, the Area Office explained that because Clarence Williams has the power to control Appellant, and has a familial identity of interest with Calvin Williams, they are treated as one party for its analysis. (Id., at 5.) The Williamses each hold one position on RE and RET's Boards of Directors of the six total directors. (Id.) Clarence Williams is the Board President for each and Calvin Williams the COO. (Id.) There are no shareholders for RE and RET, and their Articles of Incorporation give the power to control the concerns to their Boards of Directors. (Id.) The Area Office notes OHA has held all concerns must be controlled by someone at all times, and that common management affiliation does not require that an individual manager exercise total control over a concern, merely that the individual manager possess critical influence or ability to exercise substantive control over a concern's operations. (Id., citing Size Appeal of Technibilt, Ltd., SBA No. SIZ-5304 (2011) and Size Appeal of CTSI-FM, LLC, SBA No. SIZ-5809, at 11 (2017).)

*5 The Area Office found each of the individuals on RE's and RET's Boards would have equal standing and equal power to control the concerns, because they each have one vote. (Id.) However, Clarence and Calvin Williams, with their united interests, control two of six votes, or one-third of the Boards of both entities. (Id.) The Area Office also concluded that because Clarence and Calvin Williams control the day to day business of the companies through their officer positions and full-time employment (compared to five hours uncompensated employment for the other members), Clarence and Calvin Williams have the ability to exercise substantive control over RE and RET. (Id., citing Size Appeal of Audio Eye, Inc., SBA No. SIZ-5477 (2013). The Area Office noted that non-profit status does not insulate an organization from an affiliation finding with another business, and there is no difference between for profit and non-profit entities in an affiliation analysis. (Id., citing Size Appeal of Johnson Development, LLC, SBA No. SIZ-5863 (2017) and Size Appeal of ASEE Services Corporation, SBA No. SIZ-4250 (1997).) Because Clarence and Calvin Williams have the power to control Appellant, RE, and RET, the Area Office found the three businesses are affiliated. (Id.)

*6 The Area Office included RE and RET's revenues in its size computation per 13 C.F.R. § 121.103(a)(6), and calculated Appellant, RE, and RET's annual receipts in accordance with 13 C.F.R. § 121.104. (Id., at 5-6.) The Area Office concluded Appellant alone did not exceed the applicable $7.5 million size standard, but combined with RE and RET, Appellant's receipts do exceed the applicable size standard, and Appellant is thus other than small for the instant procurement. (Id., at 6.)

*6 Appellant: (1) disputes that it is other than small for the instant procurement; (2) denies that it is affiliated with RE; (3) argues the Area Office erred in finding an identity of interest between Clarence and Calvin Williams based on their familial relationship; and (3) the Area Office incorrectly calculated Appellant's size by including the annual receipts of RE and RET. (Appeal, at 4.)

*6 First, Appellant insists the Area Office is “penalizing [Appellant] and Clarence [Williams] for failure of proper recording and information publications over which Clarence Williams clearly has no control.” (Id.) Appellant contends Clarence Williams had no control over the “failure to remove” his name from RE's website. Further, the “failure to accurately reflect the identity” of the managing officer on RE's and RET's tax forms is an act over “which Clarence Williams has no control.” (Id.) Appellant further argues that Clarence Williams's failure “to get RE and/or RET to correct their records and other documents removing his name” is evidence that his positions on the boards of RE and RET “carry no greater weight than any other board members” and that he “has no control or substantial influence in the management and operations of RE or RET.” (Id.) Appellant argues that a finding of affiliation under 13 C.F.R. 121.103(f)(1) because of a father-son relationship is not imperative, and that affiliation can be found only if there are common business interests or economic dependence, which Appellant argues the Area Office failed to establish. (Id., at 4-5.)

*6 Appellant further insists there is no evidence in its records, over which Clarence Williams has complete control, which identifies him as CEO or COO of any entity other than Appellant. (Id., at 5.) Appellant finally insists that although Appellant, RE, and RET are located in the same office complex, they are in different suites. (Id.) Appellant asserts that because Clarence Williams is the CEO, Board President, and majority shareholder of Appellant, he is the sole manager and controlling party of Appellant. (Id.)

*7 Appellant argues the fact that RE and/or RET have not corrected their records and public information to remove Clarence Williams's name, indicates he has no control, power or influence over either company. (Id.) Appellant maintains the evidence the Area Office relied upon demonstrates the absence of affiliation between itself, RE and RET. (Id., at 6.)

*7 Appellant has the burden of proving, by a preponderance of the evidence, all elements of the appeal. Specifically, Appellant must prove the size determination is based upon a clear error of fact or law. 13 C.F.R. § 134.314. OHA will disturb an area office's size determination only if, after reviewing the record, the administrative judge has a definite and firm conviction that the area office erred in making its key findings of fact and law. Size Appeal of Taylor Consultants, Inc., SBA No. SIZ-4775, at 11 (2006).

*7 Appellant insists its average annual receipts should not be combined with those of RE and RET for determining size because Appellant is not affiliated with the two non-profits, because there is no evidence of control between the entities. The Area Office found affiliation based on identity of interest based on familial relationship and affiliation based on common management.

*7 Under SBA's size regulations affiliation based on identity of interest may arise between two or more individuals or firms that have identical or substantially identical business or economic interests, such as family members, and these two individuals or firms may be treated as one party with their interests aggregated. 13 C.F.R. § 121.103(f). A relationship between a parent and child is one which gives rise to the presumption of affiliation. 13 C.F.R. § 121.103(f)(1). OHA has extensive case precedent interpreting this regulation as creating a rebuttable presumption that close family members have identical interests and must be treated as one person. Size Appeal of ProSol Associates, LLC, SBA No. SIZ-5813, at 5 (2017); Size Appeal of Knight Networking & Web Design, Inc., SBA No. SIZ-5561 (2014). The presumption arises, not from the degree of family members' involvement in each other's business affairs but, rather, from the family relationship itself. Size Appeal of Gallagher Transfer & Storage Co., Inc., SBA No. SIZ-4295 (1998). Generally, a finding of affiliation based on familial relationship is a rebuttable presumption and can be overcome by establishing a clear line of fracture between the individuals. Size Appeal of Tenax Aerospace, LLC, SBA No. SIZ-5701, at 12 (2015).

*8 Here, Clarence Williams and Calvin Williams are father and son, and have not offered a rebuttal or demonstrated a line of fracture between their business dealings. Quite the opposite, they manage and control one for profit enterprise and have substantial control over two other non-profit entities. They participate together in all their business dealings. Both are co-owners and managers of Appellant and are managers of both RE and RET. Where family members participate together in several firms, there is no clear line of fracture and identity of interest is established. Size Appeal of Tesecon, Inc., SBA No. SIZ-5985 (2019); Size Appeal of Trailboss Enterprises, Inc., SBA No. SIZ-5442, 6 (2013), recons. denied., SBA No. SIZ-5450 (2013 (PFR) (whether the family member participate in multiple businesses together is a factor in determining whether there is a clear fracture). Therefore, there is an identity of interest between Clarence Williams and Calvin Williams, and they are treated as one person with their interests aggregated for the purpose of affiliation analysis.

*8 Under the affiliation based on common management rule, concerns are affiliated when “one or more officers, directors, managing members, or partners who control the board of directors and/or management of one concern also control the board of directors or management of one or more other concerns.” 13 C.F.R. § 121.103(e).

*8 Clarence Williams is Appellant's CEO, Board Chair, President, and 51% owner. Based on his position on Appellant's Board, as an officer, and as the majority shareholder, Clarence Williams controls Appellant. Clarence Williams is also the Executive Director of RE, and a Board member of RET. Clarence Williams, unlike other board members at RE and RET, works a significant number of hours weekly (55 hours at RE, and 20 hours at RET) and draws a salary at RE. He signs the tax returns for the firms.

*8 Calvin Williams is Appellant's 49% owner and Vice Chair. He is also COO of RE, and a Board member of RET. Like Clarence Williams, he works a significant number of hours weekly in each of the non-profits (65 hours at RE, 20 hours at RET) and draws a salary from RE, while no other Board Members do so. He is responsible for RE's and RET's books and records based on his representations on tax documents.

*8 Appellant argues Clarence and Calvin Williams are each only one of six board members at RE and RET, and therefore cannot control the firms. It is true that OHA has held where an individual is only one of a number of directors, he would not have had critical influence or control of the concern. Size Appeal of Cambridge Intl. Systems, Inc., SBA No. SIZ-5516, at 6 (2013). But the finding of affiliation here is not based upon the Williamses Board positions alone.

*9 A finding of affiliation through common management does not require that the person exercising common management have total control of a concern, just critical influence or the ability to exercise substantive control over the concern's operations. Size Appeal of CopaSat, LLC, SBA No. SIZ-5918, at 5 (2018). The influence must be wielded by someone in overall management of both concerns. Id. Individuals in senior leadership positions, such as the CEO and COO, may be presumed to exercise substantive control over a firm's operations, absent significant evidence to the contrary. Size Appeal of AudioEye, Inc., SBA No. SIZ-5477, at 8-9 (2013).

*9 Here, the Williamses are to be treated as one party, with their interests aggregated. They control Appellant, holding the management positions of CEO, President, Chairman and Vice Chair. At RE, they hold the positions of COO and Executive Director, and work 65 and 55 hours a week at the firm, in the contrast to the other Board members who work 5 hours a week. Appellant's Form 355 identifies Clarence Williams as RE's Board President. Together, they make one-third of the Board. Clarence Williams signs the tax returns. It is clear that they exercise substantive control over RE. At RET, the Williamses are Board members who each work 20 hours a week, in contrast to the other Board members who work only five. Appellant's Form 355 identify Clarence Williams as RET's Board President, and Calvin Williams as its COO. They also make up one-third of the Board. Again, Clarence Williams signs the firm's tax returns, evidence that he exercises some control over the firm. It is thus also clear that the Williamses exercise substantive control over RET.

*9 Therefore, Clarence and Calvin Williams, as one party with their interests aggregated, have critical influence and substantive control over all three entities as officers, employees, and Board members.

*9 Appellant appears to argue there can be no affiliation since RE and RET because non-profits do not have owners. However, here the basis for finding affiliation is common management. Common management does not require the concerns in question to have common ownership to find affiliation, because ownership and management are two separate grounds for affiliation, each governed by separate regulations — 13 C.F.R. § 121.103 (e) versus 13 C.F.R. § 121.103(c). Size Appeal of Perry Johnson & Assoc., Inc., SBA No. SIZ-5943 (2018). Clarence and Calvin Williams clearly exercise substantive influence over RE and RET as managers, even though they hold no ownership interest.

*9 Appellant also argues Clarence Williams is no longer COO of RE. The Form 355 for Appellant identifies him as Board President, and Calvin as COO. Calvin possesses the company's books and records. But the two men are to be treated as one party. Further, IRS Form 990 for RE identifies Clarence Williams as the Executive Director of the company, and as working 55 hours per week at the entity. It is clear that the Williamses exercise substantive control over RE.

*10 Further, Appellant's argument that the inability to remove Clarence's name from RE and RET company documents supports the contention has no control over the Boards is risible. There is nothing in the record to support the contention that he has attempted to get his name removed and been rebuffed. Rather, the record supports the conclusion that Clarence and Calvin Williams control RE and RET, and no other party appears to have any ability to control the firms.

*10 Appellant is affiliated with RE and RET through the common management of Clarence and Calvin Williams, who are to be treated as one party because they have an identity of interest based on their father-son relationship. For this reason, the average annual receipts of all three entities, regardless of their status as for profit or non-profit, must be combined to determine whether Appellant is small for the NAICS code assigned to the procurement. When determining a concern's size, SBA must, by regulation, count a concern's affiliates, “regardless of whether the affiliates are organized for profit.” 13 C.F.R. § 121.103 (a)(6). OHA has found no difference in analyzing affiliation between for profit and non-profit entities and analyzing affiliation between for profit entities. Size Appeal of First Financial Associates, Inc., SBA No. SIZ-5869 (2017); Size Appeal of Johnson Development, LLC, SBA No. SIZ-5863 (2017); Size Appeal of Trailboss Enterprises, Inc., SBA No. SIZ-5564 (2014); Size Appeal of ASEE Services Corporation, SBA No. SIZ-4250 (1997).

*10 RE's average annual receipts alone exceed the $7.5 million average annual receipts size standard for the procurement's assigned NAICS code. Therefore, when the annual receipts for all three entities are aggregated, as the Area Office correctly found, Appellant exceeds this size standard.

*10 Appellant has not demonstrated the Area Office erred in finding other than small for the instant solicitation. Accordingly, the size determination is AFFIRMED, and the appeal is DENIED. This is the final decision of the Small Business Administration. See 13 C.F.R. § 134.316(d).