SIZE APPEAL OF: MEGEN-AWA 2, LLC, APPELLANT

*1 On August 2, 2017, the U.S. Small Business Administration (SBA) Office of Hearings and Appeals (OHA) issued Size Appeal of Megen-AWA 2, LLC, SBA No. SIZ-5845 (2017) (Megen-AWA I). There, OHA affirmed the Office of Government Contracting, Area IV (Area Office) Size Determination No. 04-2017-021 (Size Determination), concluding that Megen-AWA 2, LLC (Appellant), is not an eligible small business for the subject procurement. On August 22, 2017, Appellant filed the instant Petition for Reconsideration (PFR). For the reasons discussed infra, the PFR is DENIED.

*1 The background is set out in detail in Megen-AWA I. On June 9, 2016, the Department of the Air Force, Air Force Materiel Command (Air Force) issued Request for Proposals (RFP) No. FA8601-16-R-0010. On December 7, 2016, the CO awarded Contract No. FA8601-17-D-0001 to Appellant and notified Veterans Construction Coalition, LLC (VCC), an unsuccessful offeror, of the award. On December 14, 2016, VCC filed a size protest with the CO.

*1 On May 9, 2017, the Area Office issued the Size Determination (having issued two previous size determinations which OHA remanded), this time concluding that Appellant, a joint venture between AWA Business Corporation (AWA) and Megen Construction Company, Inc. (Megen), is not an eligible small business for this procurement. The Area Office found Benjamin Nwankwo owns a majority interest in AWA, and AWA controls two affiliates. (Size Determination at 2.) Benjamin's brother Evans Nwankwo owns a majority interest in Megen. Although Benjamin once worked at Megen, he left there in 2009. Neither brother has any ownership or position in the other's firm. (Id. at 4.) The Area Office found there was no showing of clear fracture to rebut the presumption of affiliation based on family identity of interest between the owners, and the combined annual receipts of both joint venturers and affiliates exceed the size standard.

*1 On May 24, 2017, Appellant appealed the Size Determination to OHA. On August 2, 2017, OHA issued Megen AWA I, affirming the Size Determination.

*1 Appellant asserts three points of error in OHA's decision. First, OHA erred in concluding that the third sentence of 13 C.F.R. § 121.103(f) (on rebuttal of the presumption of affiliation among family members) is divorced from, and not part of, SBA's determination of affiliation. (PFR at 3.) Appellant points to this passage:

*2 (Id., quoting Megen AWA I, at 10.)

*2 Appellant maintains this analysis is “seriously misguided” and “based on an artificial and indefensible reading” of 13 C.F.R. § 121.103(f). (PFR at 3.) Appellant argues the regulation's repeated use of the word “may” describes “ongoing SBA discretion and responsibilities as the SBA considers factors that may bear on whether, in fact, affiliation exists and interests deemed to be one are in fact separate.” (PFR at 4.) While affiliation may arise from a family relationship, if evidence is presented to show interests deemed to be one are in fact separate, the determination as to whether there is in fact an affiliation should be made only after SBA considers whether the interests are in fact separate. (Id. at 4.)

*2 Appellant characterizes the decision as holding that the establishment of a family relationship is decisive in the determination of affiliation. However, the process of examining evidence presented to rebut the presumption is not separate from the determination of affiliation, but an integral part of it. A final determination as to whether affiliation exists is made only after SBA considers evidence that bears on whether the interests deemed to be one are in fact separate. (Id. at 4.)

*2 Appellant argues OHA erred in basing the determination of affiliation solely on the fact the principals of both concerns at issue are brothers. (Id. at 5.) Appellant also asserts OHA erred when it found the joint ventures were not the basis for finding affiliation between the brothers, because the Area Office clearly considered them in making the Size Determination. (Id.)

*2 Second, OHA erred in concluding the participation of AWA and Megen in joint ventures was fatal to their attempt to rebut the presumption, and that 13 C.F.R. § 121.103(h) is not applicable. (PFR at 5-6.) Specifically, OHA failed to apply the “three-in-two” rule at 13 C.F.R. § 121.103(h) to exclude the previous joint ventures from consideration. This rule allows a joint venture to be awarded three contracts over a two year period without general affiliation between the joint venturers. Appellant points to the 2012 joint venture which clearly comes within the “three-in-two” rule. OHA erred in considering this award and these receipts. (Id. at 7.)

*2 Appellant maintains the “three-in-two” rule must be read in harmony with the identity of interest rule, and there is no conflict between them. Any joint venture involving family members must be evaluated using the joint venture rules of 13 C.F.R. § 121.103(h). There is no basis not to apply the “three-in-two” rule equally to joint ventures which involve family members and those which do not. SBA limits the number of joint ventures that individuals or entities may enter before giving rise to general affiliation. Joint venturers that otherwise qualify for exemption from affiliation under § 121.103(h) cannot be deprived of that exemption because of a finding of identity of interest under § 121.103(f). Any analysis under § 121.103(f) of a joint venture involving family members also must be evaluated using the “three-in-two” rule. (Id. at 8.)

*3 Appellant does admit that firms exempted from joint venture affiliation under § 121.103(h)(3)(ii) could still be found affiliated for reasons other than those set forth in § 121.103(h), but they cannot be found affiliated for the reasons set forth in § 121.103(h). To find otherwise would discourage entities owned by family members from joint venturing together, which Appellant does not believe is SBA policy. (Id. at 8-9.)

*3 Appellant further asserts OHA erred in concluding AWA and Megen's proposal to work together on the instant procurement “almost mandates” a finding of no clear fracture. SBA approved this joint venture. (Id. at 9-10.) The two cases OHA relies upon to support its finding are inapposite. Size Appeal of ProSol Associates, LLC, SBA No. SIZ-5813 (2017) (ProSol) dealt with a subcontracting arrangement, not an 8(a) joint venture approved by SBA, and there were other facts to support a finding of identity of interest, not present here. (Id. at 10-11.) Similarly, Size Appeal of RGB Group, Inc., SBA No. SIZ-5351 (2012) ( RGB) also involved a subcontract rather than an approved joint venture and, again, other factors were present to support a finding of identity of interest. (Id. at 12.) These cases thus did not involve a joint venture reviewed and approved by SBA, as Appellant presents here. (Id. at 11.)

*3 Appellant argues OHA should not have considered the revenue in 2015 from the 2012 joint venture. SBA regulations bar OHA from considering any revenues from the joint venture. Further, that year was an aberration when the broader history of the firm is taken into account. This one-year blip in the joint venture revenues cannot reasonably be viewed as the driver of business decisions involving AWA and Megen. The concerns cannot reasonably be said to be “acting as one” on the basis of their history. (Id. at 12-14.)

*3 Third, Appellant reviews the evidence it presented to the Area Office (no common officers, employees, etc.) showing AWA and Megen have no identity of interest. (Id. at 14.)

*3 On September 7, 2017, VCC responded in opposition to the PFR, characterizing it as “mere disagreement” with Megen AWA I. (Response at 1.) VCC asserts Appellant errs when it argues OHA found affiliation solely on the basis of the family relationship. Rather, VCC points to OHA's analysis of the relationship between the two concerns, which fully explained the facts considered, and reached the conclusion that there was no clear fracture between the brothers. (Response at 6-7, citing Megen AWA I, at 9-10.)

*4 VCC asserts OHA correctly relied on ProSol and RGB, pointing out that they are consistent with OHA precedent requiring the lack of or minimal business relationships between family members for a finding of clear fracture between them. (Id. at 8.) Appellant fails to point to any facts OHA has misunderstood; rather, Appellant mischaracterizes OHA's analysis and takes issue with OHA's partial reliance on the 2012 joint venture. (Id. at 9.)

*4 Further, OHA correctly included the joint ventures between Megen and AWA in its affiliation analysis, because the existence or not of joint ventures is a factor in determining whether clear fracture exists. (Id. at 10-12.) OHA properly declined to apply the “three-in-two” rule, because compliance with the “three-in-two” rule is not an exemption from general affiliation. (Id. at 12.) The regulations provide that except as provided in § 121.103(h)(3), joint venturers on a contract are affiliated with each other with regard to the performance of that contract. (Id., citing 13 C.F.R. § 121.103(h)(2).) The exceptions, including the “three-in-two” rule, apply only to joint venture affiliation, not general affiliation. (Id. at 12-13.)

*4 VCC further asserts there is no legal basis for Appellant's policy argument that clear fracture analysis should not look at joint ventures between family members because this policy discourages family members from joint venturing with each other. (Id. at 13.) Finally, VCC argues Appellant may not raise for the first time in its PFR SBA approval of the joint venture. (Id. at 14.)

*4 OHA decides PFRs of 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 this PFR on August 22, 2017. 13 C.F.R. § 134.227(c). Accordingly, this PFR is properly before OHA.

*4 A PFR may be granted by OHA upon a “clear showing of an error of fact or law material to the discussion.” 13 C.F.R. § 134.227(c). A PFR must be based upon manifest error of law or mistake of fact, and is not an additional opportunity for an unsuccessful party to argue its position. Size Appeal of Precision Asset Management Corp. and Q Integrated Cos., LLC, SBA No. SIZ-5801 (2016) (PFR). “A PFR is appropriate only in limited circumstances, such as situations where OHA has misunderstood a party or has made a decision outside the adversarial issues presented by the parties.” Id. (citing Quaker Alloy Casting Co. v. Gulfco Indus., Inc., 123 F.R.D. 282, 288 (N.D. Ill. 1988) (quoting Above The Belt, Inc. v. Mel Bohannan Roofing, Inc., 99 F.R.D. 99, 101 (E.D. Va. 1983))). Thus, “[t]he moving party's argument must leave the Administrative Judge with the definite and firm conviction that key findings of fact or conclusions of law of the earlier decision were mistaken.” Size Appeal of TKTM Corp., SBA No. SIZ-4905 (2008) (citing Size Appeal of Taylor Consultants, Inc., SBA No. SIZ-4775, at 11-12 (2006)); Size Appeal of KVA Elec., Inc., SBA No. SIZ-5057 (2009).

*5 I must deny this PFR. Appellant points to no mistake of fact or law in the decision, points to no portion of the decision based on any fact or law outside the issues presented, and points to no misunderstanding by OHA of its arguments. Rather, it is Appellant itself who appears to be determined to misunderstand the decision in Megen-AWA I.

*5 Appellant maintains OHA misread the regulation at § 121.103(f), but Megen-AWA I does not support this argument. The decision does not hold that the establishment of a family relationship is the sole decisive fact in establishing affiliation under the identity of interest rule.

*5 Megen-AWA I, at 8.

*5 OHA read the regulation precisely as Appellant insists it should be read. The family relationship establishes the presumption of identity of interest affiliation, and then the challenged concern has the opportunity to rebut it by coming forward with evidence to establish a clear line of fracture between the family members. Appellant here failed to provide evidence of clear fracture to rebut the presumption.

*5 Now Appellant asserts that OHA found affiliation solely on the fact the principals of both concerns are brothers. That is not true. It is the family relationship which established the presumption of affiliation, and Appellant attempted to but failed to rebut that presumption with evidence of clear fracture between the two brothers. The existence of the joint ventures between the concerns was fatal to Appellant's attempt to establish clear fracture between the brothers, because the joint ventures establish ongoing business relationships that are more than minimal.

*5 Appellant also attempts to argue that the “three-in-two” rule is applicable here, but that rule has no bearing whatever on this case, because identity of interest, not joint venture, was the basis for the finding of affiliation. The decision performs identity of interest analysis, not joint venture analysis. The Area Office found Megen and AWA affiliated under the identity of interest rule at § 121.103(f). Under this rule, firms with identical or substantially identical interests such as family members are treated as one party with the interests aggregated. This presumption may be overcome by showing a clear line of fracture between concerns. The Area Office considered the joint ventures as evidence in the context of determining whether there was a clear fracture between Megen and AWA. Because these joint ventures meant the concerns were conducting business with each other, Appellant could not establish a clear line of fracture between Megen and AWA. Therefore, the Area Office found the concerns affiliated, and OHA properly affirmed that determination.

*6 Contrary to Appellant's assertions, the “three-in-two” rule at 13 C.F.R. § 121.103(h) cannot be read in harmony with § 121.103(f) because the two regulations address different affiliation issues. The regulation at § 121.103(f) addresses identity of interest affiliation, and the “three-in-two” rule is part of the rule on joint ventures. The “three-in-two” rule provides that a specific joint venture entity may be awarded up to three contracts over two years, starting from the date of the first award, without the joint venture partners being found affiliated for all purposes. Further, the same joint venture partners may create additional joint ventures, and each new joint venture may receive up to three awards over two years, without affiliation. The joint venture partners do not become generally affiliated merely because they entered into a joint venture together, so long as they observe the “three-in-two” rule. The “three-in-two” rule applies only to joint venture affiliation under 13 C.F.R. § 121.103(h), and does not reach general affiliation grounds covered in other subsections, such as family identity of interest in 13 C.F.R. § 121.103(f). The rule merely provides that the parties to a joint venture do not become generally affiliated because they entered into a joint venture together, so long as they observe the “three-in-two” rule. The rule is not a general exemption from findings of affiliation for other reasons for firms which engage in joint ventures together.

*6 Finally, Appellant maintains that Megen-AWA I would discourage family members from engaging in joint ventures together, and this cannot be SBA policy. To the contrary, the text of the regulation would support a conclusion that this is precisely SBA policy. Family members who engage in business dealings with each other run a serious risk of being found affiliated under the identity of interest rule because clear fracture between family members is difficult to establish when they continue to conduct business with each other. Even if Appellant's argument based upon policy had any foundation, an argument based solely upon policy and which is contrary to the plain language of the regulation must fail. Size Appeal of Precision Asset Management Corp. and Q Integrated Cos., LLC, SBA No. SIZ-5801 (2016).

*6 Appellant further maintains OHA erred in concluding Appellant's proposal on the instant contract “almost mandates” a finding of no clear fracture. Appellant argues the two cases OHA relied upon for this point, ProSol and RGB, each had numerous other factors supporting a finding of no clear fracture. While these cases certainly had other factors, in both cases the fact that the challenged concern and its alleged affiliate were acting in concert to bid together as a joint venture on the procurement in question established that they were acting as one to seek that procurement and that they were conducting business with each other. Here, the Nwankwo brothers have joined together and caused Megen and AWA, the two concerns they control, to act as one in a joint venture in pursuit of the instant procurement. This establishes that the brothers continue to have a business relationship, and that there is no clear fracture between them.

*7 Finally, I will not consider Appellant's argument that SBA has reviewed and approved it as a joint venture, because Appellant raises it here for the first time, and OHA will not entertain arguments raised for the first time in a PFR. Size Appeal of Competitive Innovations, LLC, SBA No. SIZ-5392 (2012) (PFR).

*7 Appellant's PFR is wholly without merit. Appellant can point to no mistake of fact or law, no misunderstanding by OHA, or to any reliance on facts or law outside the issues presented. Accordingly, I must deny the PFR.

*7 For the above reasons, I DENY the PFR and AFFIRM the decision in Size Appeal of Megen-AWA 2, LLC, SBA No. SIZ-5845 (2017). This is the final decision of the Small Business Administration. See 13 C.F.R. § 134.316(d).