IN THE MATTER OF: WILLIAMS BUILDING COMPANY, APPELLANT RE: VETERANS CONTRACTING GROUP, INC.

*1 This appeal arises from a determination by the U.S. Small Business Administration (SBA) Director of Government Contracting (D/GC) concluding that Veterans Contracting Group, Inc. (VCG) is an eligible Service-Disabled Veteran-Owned Small Business Concern (SDVO SBC). Williams Building Company (Appellant), which had previously protested VCG's status as an SDVO SBC, contends that the determination is clearly erroneous and should be reversed or remanded. In response to Appellant's arguments, SBA requested that the Office of Hearings and Appeals (OHA) remand the matter for further review. For the reasons discussed infra, SBA's motion is granted, and the D/GC's determination is remanded.

*1 OHA decides appeals of SDVO SBC status determinations under the Small Business Act of 1958, 15 U.S.C. § 631 et seq., and 13 C.F.R. parts 125 and 134. Appellant filed the appeal within 10 business days of receiving the determination, so the appeal is timely. 13 C.F.R. § 134.503. Accordingly, this matter is properly before OHA for decision.

*1 On December 1, 2016, the U.S. Army Corps of Engineers issued Invitation for Bids (IFB) No. W912DS-16-B-0017 for the removal of hazardous materials and demolition of buildings at the St. Albans Community Living Center in Jamaica, New York. The Contracting Officer (CO) set aside the procurement entirely for SDVO SBCs, and assigned North American Industry Classification System (NAICS) code 238910, Site Preparation Contractors, with a corresponding size standard of $15 million average annual receipts. Bids were due January 5, 2017. (IFB, Amendment 0002.) VCG and Appellant submitted timely bids, self-certifying as SDVO SBCs.

*1 On January 5, 2017, the CO opened bids and announced that VCG was the lowest bidder. On January 11, 2017, Appellant filed protests with the CO challenging VCG's size and status as an SDVO SBC. The CO referred the size protest to SBA's Office of Government Contracting, Area I (Area Office), and the status protest to the D/GC.

*2 On February 2, 2017, the Area Office issued Size Determination No. 1-SD-2017-17, concluding that VCG is affiliated with Agency Construction Corporation (ACC) through common management and the totality of the circumstances. (Size Determination at 6-7.) However, because the combined receipts of VCG and ACC do not exceed the size standard, VCG is a small business.

*2 On February 16, 2017, the D/GC denied Appellant's status protest. The D/GC concluded that VCG is an eligible SDVO SBC because it is owned and controlled by Mr. Ronald V. Montano, a service-disabled veteran.

*2 Mr. Montano's ownership is direct and unconditional, the D/GC determined. He owns 51% of VCG, and there are no impermissible conditions on his ownership interest. Accordingly, he meets the ownership requirements of 13 C.F.R. § 125.12. (Determination at 3.)

*2 The D/GC then determined that Mr. Montano satisfies the control requirements of 13 C.F.R. § 125.13, too. As president of VCG, he holds the highest officer position and conducts daily business operations. With over 46 years of experience in general and mechanical contracting and having been president of two contracting firms, he also possesses the managerial experience necessary to operate VCG. (Id.) As VCG's sole director, he controls the board of directors. (Id. at 3-4.)

*2 Next, the D/GC addressed Appellant's protest allegation that Mr. Montano could not exercise independent judgment without great economic risk. The D/GC drew distinctions between VCG's situation and cases cited by Appellant in the protest. First, VCG was established in 2008 and has generated significant revenues since its inception. VCG, then, is not a new company with a small amount of revenue. Second, Mr. Montano has a wealth of experience in general and mechanical contracting as well as managing maintenance and mechanical contracts. In addition, the D/GC explained, VCG's lease of space from ACC does not interfere with Mr. Montano's ability to exercise independent judgment. The D/GC reasoned that because the lease contains standard commercial terms, it arose from an arm's-length transaction. “Thus, the record does not establish that [Mr. Montano] could not exercise independent business judgement with[out] grave economic risk due to VCG's reliance upon ACC.” (Id. at 4.)

*2 On February 28, 2017, Appellant appealed the D/GC's determination to OHA. Appellant contends that the D/GC committed four major errors of law and fact, and urges OHA to reverse or remand the determination. (Appeal at 8.)

*2 Appellant first takes issue with the characterization of the lease between ACC and VCG as an arm's-length transaction. This conclusion is flawed, Appellant argues, because it does not follow from the D/GC's finding that the lease contained standard commercial terms. The D/GC did not consider whether the negotiated rent was commercially reasonable, nor did he conduct market comparisons, as he should have, in making such a determination. Had he conducted a proper review, the D/GC would have discovered, as the Area Office did, that VCG pays at least twice the market rate. (Id. at 8-9, citing Size Determination at 7 n.3.)

*3 Next, Appellant argues that the D/GC applied an incorrect legal standard for determining control. The appropriate standard is whether business relationships exist such that the service-disabled veteran “cannot exercise independent business judgment without great economic risk.” (Id. at 10, quoting 13 C.F.R. § 124.106(g)(4).) The D/GC, though, instead considered whether the relationships posed “grave economic risk.” (Id.) Appellant argues that “grave economic risk” is a much different and higher standard than ““great economic risk” for assessing control. (Id. at 10-11.)

*3 Third, the D/GC's consideration of whether Mr. Montano can exercise independent business judgment was flawed in several respects. First, he did not address whether VCG is unduly reliant upon Mr. Gregory C. Masone, as Appellant had alleged. Further, his conclusion that VCG is not unduly reliant upon ACC is based on “non-probative information” contradicted by evidence in the record. (Id. at 12-13.) In addition, Appellant charges, the D/GC impermissibly recited the control requirements found at 13 C.F.R. § 125.13 to conclude that VCG is not unduly reliant upon ACC. (Id. at 13.)

*3 Appellant's fourth assignment of error concerns the determination that Mr. Montano has the requisite experience and resources to control VCG. In Appellant's view, Mr. Montano's experience “[o]verseeing contracts for the Government does not translate to managerial experience and technical expertise ... in complex engineering and construction.” (Id. at 14.)

*3 On March 15, 2017, after reviewing the protest file under the terms of a protective order, Appellant supplemented its appeal. Appellant argues that VCG's Shareholder Agreement contains several provisions that impermissibly restrict and encumber Mr. Montano's ownership. As a result, VCG does not satisfy the requirement of unconditional ownership by the service-disabled veteran. The first such provision is Article 2.03, which contains a covenant not to compete for five years after the sale of Mr. Montano's interest. (Supp. Appeal at 2-3, citing Matter of Valor Contracting, LLC, SBA No. VET-194 (2010).) Second, Article 8.01 contains a buy-sell provision giving each shareholder the right to submit an offer to buy all the other shareholders' shares. If the shareholder-offeree does not reject the offer within 30 days, he or she is obligated to sell the shares. (Id. at 3, citing Matter of Int'l Logistics Group, LLC, SBA No. VET-162 (2009).) Third, Article 9 requires the sale of shares upon a shareholder's death, a finding that the shareholder is incompetent, and in the event of insolvency. (Id. at 4-5, citing Matter of The Wexford Group Int'l, Inc., SBA No. VET-105 (2006).) Fourth, Article 10.04 provides that, in the event of a forced sale, the shareholder must resign as officer, director, or employee of VCG. (Id. at 5.)

*4 Next, Appellant contends that the Shareholder Agreement and bylaws contain provisions that preclude Mr. Montano from controlling VCG. Appellant construes Article 3.02 of the Second Amendment to the Shareholders Agreement as requiring unanimous consent for certain actions. (Id. at 6.) Article 2.4 of the bylaws contains a majority quorum requirement, but goes on to specify that “such quorum is not deemed broken by the subsequent withdrawal of any shareholders.” (Id.) Appellant envisions a situation under this provision in which a minority shareholder can control a shareholder vote.

*4 Appellant also renews its argument that “the record contains not a scintilla of evidence to support the D/GC's finding that the lease [between VCG and ACC] is an arm's-length transaction.” (Id. at 7.)

*4 On March 30, 2017, VCG responded to Appellant's pleadings. VCG argues that Appellant has not met its burden of proving that the D/GC's determination is clearly erroneous. OHA should therefore deny the appeal and affirm the D/GC's determination. (Response at 1-14.)

*4 On March 30, 2017, SBA requested that OHA remand the D/GC's determination for further review and investigation. SBA observes that the D/GC did not address the provisions of the Shareholder Agreement cited by Appellant. Likewise, the D/GC's determination that the lease was an arm's-length transaction is conclusory. SBA therefore requests the opportunity to issue a new determination that provides analysis of these issues. (Motion at 1.)

*4 OHA has held that, when SBA voluntarily requests a remand, it is appropriate to give SBA the opportunity to reconsider its decision as a matter of judicial economy. Matter of JBL Sys. Solutions, SBA No. VET-254 (2015). This is true even if one or more parties opposes the remand request. Matter of Gov't Contracting Servs., LLC, SBA No. VET-230 (2012) (granting remand over the objection of the challenged firm). After the D/GC reassesses the protest, Appellant and VCG will have the opportunity to appeal an adverse determination to OHA. Thus, remanding the case is not prejudicial to any party.

*4 For these reasons, SBA's motion is GRANTED, the D/GC's determination is VACATED, and the matter is REMANDED to the D/GC for further consideration.