SIZE APPEAL OF: MARK DUNNING INDUSTRIES, INC., APPELLANT RE: THE CFS GROUP, LLC

*1 This is a protestor's appeal from an April 25, 2013, size determination on remand concluding that The CFS Group, LLC, is an eligible small business. On appeal, I affirm the size determination and deny the appeal.

*1 SBA's Office of Hearings and Appeals (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.

*1 On April 29, 2011, the U.S. Department of the Army issued Solicitation No. W91QF5-11-B-0001 for the collection of non-hazardous waste. The Contracting Officer (CO) set the procurement aside for small businesses and designated North American Industry Classification System (NAICS) code 562111, Solid Waste Collection, with a corresponding size standard of $12.5 million in average annual receipts.

*1 On June 1, 2011, bids were opened, and The CFS Group, LLC (CFS) was the apparent low bidder. Disappointed bidder Mark Dunning Industries, Inc. (Appellant) timely filed a size protest. Appellant alleged that CFS is affiliated on various grounds with certain other concerns and that their combined receipts exceed the size standard. The alleged affiliates are: Waste Associates, LLC and its holding company, Waste Associates Holdings, LLC (collectively “Waste Associates”); The East End Landfill, LLC (TEEL); East Coast Resources Group, LLC (East Coast); East End Metals Recycling, LLC (East End); Skippy's Trucking & Disposal, LLC (Skippy's); Terrapin Recycling & Disposal, LLC (Terrapin); Riverside Recycling & Disposal, LLC (Riverside); BlackEagle Partners, LLC (BlackEagle); and Tri-City Regional Landfill. The CO referred the protest to the U.S. Small Business Administration (SBA) Office of Government Contracting, Area II (Area Office) for a size determination.

*1 On June 30, 2011, the Area Office issued Size Determination No. 2-2011-114. The Area Office found that CFS was formed in 2008 to acquire the assets of Richmond Waste Services, LLC (RWS), then wholly-owned by Waste Associates. Since January 1, 2010, neither RWS nor Waste Associates has held any ownership interest in CFS.

*2 Nine individuals own equal shares of CFS. Eight are officers (one is President, one is Vice President/CFO/Secretary and Treasurer, and six are Vice Presidents). Five are Directors. The Area Office further found that no officer, director or owner of RWS or any Waste Associates affiliate serves as an officer, director, owner, or agent of CFS, that RWS never had a controlling interest in CFS, and that any relationship between CFS and RWS ended in January, 2010. Thus, CFS is not affiliated with Waste Associates or its affiliates. The Area Office did find CFS affiliated with The CFS Disposal & Recycling Services (DRS), which owns Tri-City Regional Landfill. Because the combined annual receipts for CFS and DRS are below the $12.5 million size standard, the Area Office concluded CFS is a small business.

*2 On July 29, 2011, Appellant timely appealed Size Determination No. 2-2011-114. Appellant asserted that the Area Office erred by not counting RWS's pre-purchase receipts, by failing to consider certain affiliation grounds raised in Appellant's protest, and by not investigating whether CFS is affiliated with two other entities, Invincia Corporation (Invincia) and Citizens Bancorp of Virginia, Inc. (CBV).

*2 On September 26, 2011, OHA issued Size Appeal of Mark Dunning Industries, Inc., SBA No. SIZ-5284 (2011). OHA determined that (1) RSW is affiliated with CFS, (2) the Area Office did not investigate all grounds of affiliation between CFS and the Waste Associates entities raised by Appellant's protest and supported by Appellant's evidence; (3) CFS's possible affiliation with Invincia and CBV is not a new issue on appeal but one within the scope of the original size investigation, based on CFS's responses on its Form 355. OHA remanded the matter to the Area Office for further investigation and a new size determination. Specifically, OHA ordered the Area Office (1) to obtain RWS's financial information, calculate RSW's receipts for the entire three-year measuring period, and add that figure to CFS's receipts; (2) to investigate whether CFS is affiliated with Waste Associates and related concerns through joint venture, an identity of interest, or the totality of the circumstances; and (3) to determine whether CFS is affiliated with Invincia and CBV.

*3 On April 25, 2013, the Area Office issued Size Determination No. 2-2011-162 (Size Determination), again concluding that CFS is a small business. The Area Office first requested RWS's annual receipts for the applicable years 2008, 2009, and 2010 and combined them with those of CFS, finding that even including RWS's receipts, CFS is still below the size standard.

*3 Next, the Area Office investigated whether CFS is affiliated through joint venture, identity of interest, or the totality of the circumstances with any Waste Associates entity. Based on the additional affidavits and other evidence submitted by CFS, the Area Office found that CFS has had only one contract with a Waste Associates entity, that this contract, executed in April 2008, was with The East End Landfill (TEEL) for waste disposal, and that the contract was at arm's-length, contained no unusual terms or conditions, and did not dictate how CFS is to operate or manage its business. Beyond this contract there is no business relationship or contractual tie between CFS and any Waste Associates entity. There is no joint venture agreement, no teaming agreement, no subcontract, no financial assistance, and no economic dependence, and thus no identity of interest or joint venture.

*3 Further, the Waste Associates marketing brochure presented by Appellant in its protest contains CFS's name (Container First Services), because RSW was also known by that name prior to its 2008 sale. The Area Office supported its conclusion by citing to various affidavits and other evidence submitted by CFS. Thus, the Area Office determined that Waste Associates does not have the power to control CFS.

*3 As for Invincia, the Area Office found that Mr. Frank Beale, one of CFS's nine owners (each of whom owns 11 and 1/9% of CFS), and also a CFS board member, is the president and sole owner of Invincia. Invincia provides insurance brokerage services to CFS, but is not paid by CFS. Invincia receives commissions from the insurance company. CFS provides no services to Invincia, and is under no obligation to obtain insurance from Invincia. The Area Office concluded that Mr. Beale has no power to control CFS and, thus, there is no affiliation between CFS and Invincia.

*3 The Area Office also found that Mr. Beale also is one of CBV's 11 board members, but that, as one of 11, Mr. Beale has no power to control CBV. Also, there are no contracts between CFS and CBV. The Area Office concluded there is no affiliation between CFS and CBV.

*3 Finally, and on its own initiative, the Area Office requested of CFS information regarding its relationship with two other companies: StampTech, Inc. (StampTech) and CMP Holdings, Inc. (CMP). The Area Office found that StampTech is a “disregarded entity” owned by CMP. CMP is owned by four of CFS's nine owners. These four owners together own about 45% of CFS's ownership interests, and therefore cannot control membership voting. Further, two of CMP's four owners also serve on CFS's five-member Board, but do not control Board votes. Operational control of CFS is with the President and one other officer. As for contracts, CFS provides waste removal services to CMP at normal rates, and CMP provides no services to CFS. Based on these findings, the Area Office concluded CFS and CMP are not affiliated.

*4 On May 10, 2013, Appellant filed the instant appeal with OHA. Appellant argues the Area Office clearly erred by ignoring key facts and misapplying SBA regulations to conclude that CFS a small business under the $12.5 million size standard. Specifically, the Area Office erroneously concluded that there is no affiliation between CFS and Invincia despite common management, common ownership, and a past and present business relationship.

*4 Regarding common management, Appellant points out that one of CFS's owners, Mr. Beale, who is also “the Vice President” and a board member and thus has a “controlling role at CFS” is also the President and sole owner of Invincia. (Appeal at 7) Thus, CFS and Invincia are affiliated through common management. Further, contrary to the Area Office's conclusion that there is no affiliation because Mr. Beale does not have “power to control” CFS, Appellant asserts that “““power to control” is not required under common management affiliation, “just critical influence or the ability to exercise substantial control” over operations, citing Size Appeal of DMI Educational Training LLC, SBA No. SIZ-5275 (DMIET) (2011). (Appeal at 8-9)

*4 As for common ownership affiliation, Appellant cites Size Appeal of National Technical Systems, SBA No. SIZ-2571 (1987) for the proposition that common ownership alone results in affiliation even if firms are in different industries. Thus, CFS and Invincia are affiliated through common ownership. (Appeal at 9)

*4 Appellant also asserts CFS and Invincia are affiliated based on the totality of the circumstances because the “insurance brokerage service” Invincia offers CFS is a “contractual relationship”, and because both concerns shared office space in 2008-2009. (Appeal at 10-11) Appellant asserts that when Invincia's and CMP's receipts are added to those of CFS, CFS is other than small under the applicable size standard.

*4 Additionally, Appellant faults the Area Office for erroneously failing to investigate and address the affiliation between CFS and StampTech/CMP. (Appeal at 14-16) With its appeal, Appellant moves to supplement the record with new evidence found by Appellant when it “performed its own investigation” on StampTech/CMP. (Appeal at 14) It includes Dun & Bradstreet/Hoovers reports on StampTech (Exh. D), the May 10, 2013, Affidavit of Jeremiah Jagers, accompanied by two photos of StampTech's yard including a vehicle with a “CFS” logo on it (Exh. E), and a Dun & Bradstreet report on CMP. (Exh. F.) Appellant cites Size Appeal of Gulf South Security, Inc., SBA No. SIZ-1885 (1984), for the proposition that shared facilities, employees, and technical expertise is an indicator of affiliation.

*5 As relief, Appellant requests OHA to overturn the size determination or, alternatively, to remand the matter back to the Area Office for a new size determination.

*5 On May 29, 2013, CFS responded in opposition to the appeal. CFS asserts this appeal merely rehashes Appellant's prior arguments. CFS also opposes Appellant's proposed new evidence arguing that it was available at the time of its Appellant's first protest and should have been presented then.

*5 Further, Appellant's arguments and new evidence cover ground on which CFS already submitted information and the Area Office has already thoroughly examined; for example, the Jagers Affidavit includes the previously-disclosed fact that StampTech is a regular waste removal customer of CFS's. (Response at 4-5) CFS also notes Appellant's Exhibits D and F are second-hand information and not up-to-date, in contrast to the extensive submissions CFS provided the Area Office. CFS points to its February 6, 2013 e-mail to the Area Office in which CFS stated that only its president, Robert Guidry, directly controls CFS's management and direction and that Mr. Guidry and Timothy Webb are the only members, officers, or directors that participate in CFS's ordinary daily business. (Response at 8-9)

*5 Appellant filed the instant appeal within 15 days of receiving the Size Determination, so the appeal is timely. 13 C.F.R. § 134.304(a).

*5 Evidence not previously presented to the Area Office will not be considered unless the Administrative Judge orders its submission or a motion is filed establishing good cause for its submission. 13 C.F.R. § 134.308(a). Here, Appellant has filed a motion, but has not established good cause for submitting for the first time on appeal material that was available to Appellant at the time of its protest but was not submitted then. Accordingly, good cause not having been shown, Appellant's motion for admission of new evidence is DENIED.

*5 Issues not raised on appeal are abandoned and the Administrative Judge will not consider it. 13 C.F.R. § 134.316(c). Here, the only affiliation issues Appellant's appeal raises are with Invincia and StampTech/CMP. Thus, any affiliation issues involving Waste Associates, TEEL, East Coast, East End, Skippy's, Terrapin, Riverside, CBV, and BlackEagle have been abandoned and will not be considered.

*5 Appellant has the burden of proving, by a preponderance of the evidence, all elements of its 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 the 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 or law. Size Appeal of Taylor Consultants, Inc., SBA No. SIZ-4775, at 11 (2006).

*6 It is a general principle of affiliation that concerns are affiliates of each other “when one controls or has the power to control the other, or a third party or parties controls or has the power to control both.” 13 C.F.R. § 121.103(a)(1). Further, “it does not matter whether control is exercised, so long as the power to control exists.” Id. Three grounds of affiliation are in issue here: common ownership, common management, and the totality of the circumstances. I address each in turn and conclude that CFS is not affiliated with Invincia under any of the three grounds.

*6 The size regulations provide that if two or more persons each owns, controls, or has the power to control less than 50 percent of a concern's voting stock, and such minority holdings are equal or approximately equal in size, and the aggregate of these minority holdings is large as compared with any other stock holding, SBA presumes that each such person controls or has the power to control the concern whose size is at issue. This presumption may be rebutted by a showing that such control or power to control does not in fact exist. 13 C.F.R. § 121.103(c)(2).

*6 Here, each of CFS's nine members, including Mr. Beale, owns “11 and 1/9%” of the stock. Quorum of the members, however, requires a majority in ownership and action requires a majority vote. Operating Agreement ¶¶ 4.10, 4.11. This quorum requirement rebuts the presumption of ownership control of CFS by Mr. Beale. Mr. Beal's minority interest is only one-ninth of CFS's ownership, and he cannot exercise control due to the quorum requirements. Thus, although Mr. Beale wholly owns and controls Invincia by his ownership, he does not also control CFS by his ownership of a minority interest in the concern. Appellant's argument to the contrary must fail. See 13 C.F.R. § 121.103(a)(1).

*6 The size regulations provide that affiliation arises where 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 another concern. 13 C.F.R. § 121.103(e). Common management affiliation does not require total control of a concern, just critical influence or the ability to exercise substantive control over a concern's operations. Size Appeal of Active Deployment Systems, SBA No. 5216, at 6 (2011) (citing Size Appeal of ETI Professionals, Inc., SBA No. SIZ-5403 (2004)).

*6 Appellant bases its affiliation argument largely on Size Appeal of DMI Educational Training LLC, SBA No. SIZ-5275 (2011). This decision, however, is unavailing to Appellant. In DMIET, the common management was in the person of a Dr. Morehouse, the alleged affiliate's Vice President for Operations. DMIET at 2. OHA determined he “clearly has the ability to exercise substantive control over [that concern's] operations.” DMIET at 6. Here, in contrast, Mr. Beale is one of CFS's six Vice Presidents, out of a total of eight officers (two of whom are the President and a Vice President/CFO/Secretary and Treasurer). CFS's response to the Area Office emphasized that it depends upon its president, Robert Guidry, and one other member, Timothy Webb, for its daily operations, and that no other member, officer or director participates in its ordinary daily business. Mr. Beale's position as one of six Vice Presidents does not give him management control over CFS.

*7 As for the Board of Directors, Mr. Beale is only one of five Directors of CFS, on a Board where quorum for day-to-day management is a majority and action requires a majority vote. Operating Agreement ¶¶ 5.3, 5.5. Mr. Beale does not control CFS's Board of Directors.

*7 Thus, although Mr. Beale clearly controls the management of Invincia, he has no control over the management of CFS. Appellant's argument of common management affiliation must fail. See 13 C.F.R. § 121.103(a)(1).

*7 SBA may find affiliation under the totality of the circumstances even though no single factor is sufficient to constitute affiliation. 13 C.F.R. § 121.103(a)(5). However, affiliation may be found only when “one [concern] controls or has the power to control the other, or a third party or parties controls or has the power to control both.” 13 C.F.R. § 121.103(a). “As in all affiliation analysis...the touchstone issue is control. A connection between two concerns does not necessarily cause affiliation. There must be an element of control present.” Appeal of Native Energy and Technology Inc., SBA No. SIZ-5249, at 11 (2011). To support affiliation under the totality of the circumstances, “an area office must find facts and explain why those facts caused it to determine one concern had the power to control the other.” Size Appeal of Faison Office Products, LLC, SBA No. SIZ-4834, at 11 (2007).

*7 Appellant looks to Invincia's brokerage services, but these are not indicia of affiliation at all, but merely a purchaser/vendor relationship. Invincia's compensation is in the form of commissions from the insurance companies, so the fact CFS does not pay it is irrelevant. Similarly, the sharing of office space in 2008-09 is too remote to be an indicia of affiliation today. Neither this purchaser/vendor relationship nor the historical sharing of office space gives CFS or Invincia any power to control the other. Even together they are insufficient ties to support a finding of affiliation.²

*7 The record on appeal supports the Area Office's conclusion that The CFS Group, LLC does not exceed the $12.5 million size standard. Therefore, The CFS Group, LLC is an eligible small business for the instant procurement. The Size Determination is AFFIRMED and the Appeal is DENIED.

*7 This is the final decision of the Small Business Administration. 13 C.F.R. § 134.316(d).