Help

SIZE APPEAL OF: REO SOLUTIONS, LLC, APPELLANT RE: SAGE ACQUISITIONS, LLC

SBA No. SIZ-5751, 20162016 WL 3570100June 15, 2016

SBA No. SIZ-5751, 2016 (S.B.A.), 2016 WL 3570100
Small Business Administration (S.B.A.)
Office of Hearings and Appeals
[Size Appeal]
*1 SIZE APPEAL OF: REO SOLUTIONS, LLC, APPELLANT
*1 RE: SAGE ACQUISITIONS, LLC
*1 SBA No. SIZ-5751
*1 Appealed from Size Determination No. 3-2016-044
*1 June 15, 2016

APPEARANCES

*1 David S. Cohen, Esq.
*1 Laurel A. Hockey, Esq.
*1 Cohen Mohr LLP
*1 Washington, D.C.
*1 For Appellant
*1 Richard W. Oehler, Esq.
*1 Perkins Coie LLP
*1 Seattle, Washington
*1 For Sage Acquisitions, LLC.
 
REDACTED DECISION FOR PUBLIC RELASE
  
DECISION1
  
I. Introduction and Jurisdiction
 
*1 This appeal involves a size protest filed by REO Solutions, LLC (Appellant) against Sage Acquisitions, LLC (Sage). On March 20, 2016, the U.S. Small Business Administration (SBA) Office of Government Contracting, Area III (Area Office) issued Size Determination No. 3-2016-044, dismissing Appellant's size protest against Sage. The Area Office reasoned that the issues raised in Appellant's protest had already been rejected in a prior size determination involving the same parties and the same procurement. Appellant contends that Size Determination No. 3-2016-044 is clearly erroneous, and requests that SBA's Office of Hearings and Appeals (OHA) remand the matter to the Area Office for a proper investigation of Sage's small business status. For the reasons discussed infra, the appeal is granted, and the size determination is remanded for further review.
*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 filed the instant appeal within fifteen days of receiving Size Determination No. 3-2016-044, so the appeal is timely. 13 C.F.R. § 134.304(a). Accordingly, this matter is properly before OHA for decision.
 
II. Background
  
A. RFP
 
*1 On July 25, 2014, the U.S. Department of Housing and Urban Development (HUD) issued Request for Proposals (RFP) No. DU204SA-13-R-0005 for the management and marketing of HUD-owned properties.2 The RFP contemplated the award of Indefinite Delivery-Indefinite Quantity (IDIQ) contracts in twelve geographic areas of the United States: 3A (Illinois); 4A (Indiana and Kentucky); 5A (North Carolina and South Carolina); 6A (Alabama, Mississippi, and Tennessee); 7A (Georgia); 8A (Florida, Puerto Rico, and US Virgin Islands); 1D (Colorado, New Mexico, North Texas, and Utah); 2D (Arkansas, Kansas, Louisiana, Missouri, Oklahoma, and South Texas); 1P (Michigan); 3P (Connecticut, Maine, Massachusetts, New Hampshire, New Jersey, New York, Rhode Island, and Vermont); 4P (Ohio); and 5P (Delaware, Maryland, Pennsylvania, Virginia, District of Columbia, and West Virginia). (RFP § L.1.) Each contract would have a base performance period of approximately eight months, and four one-year options. (Id. § B.3.)
*2 The RFP explained that:
*2 Award will be made to one responsible Offeror per contract area, for a total of twelve (12) single awards, whose proposal conforms to all solicitation requirements such as terms and conditions, requirements and certifications, technical requirements, and provides the best value to the Government based on the results of the evaluation described in this provision.
*2 (Id. § M.1.2.)
*2 The RFP indicated that offerors could choose to compete for multiple geographic areas, but that each offeror could submit only one proposal. “[Offerors] proposing multiple contract areas must submit a single proposal, as specified in Section L. If an Offeror proposes multiple contract areas, each area will be evaluated based on its own merit.” (Id. § B.4.) The RFP reiterated that “Offerors must submit one proposal covering all contract areas they intend to propose.” (Id. § L.6, emphasis in original.)
*2 The RFP stated that price would be evaluated separately for each geographic area proposed:
*2 The Offeror shall provide pricing data for all Contract Line Item Numbers (CLINs) identified in the Pricing Spreadsheet .... Offerors that provide partial or incomplete pricing for one or more contract areas may be excluded from further consideration for those areas. The Government will separately evaluate the Offeror's total price for each contract area, to include the base performance period and all options, using price analysis techniques.
*2 (Id. § L.7.) In addition, the RFP advised offerors that past performance would be evaluated separately by geographic area, and that the relevance of past performance could vary by area. For example, the RFP defined the threshold for “very relevant” past performance differently, depending upon the geographic area:
*2 Very Relevant: Past/Present Performance efforts involving Asset Manager Service on minimum of number properties monthly and such efforts included essentially the same scope, magnitude of work and complexities that this solicitation requires. Very relevant efforts must have included the following: Numbers below: (= or >)
*2 Area 3A: 265 properties, Area 1D: 380 properties
*2 Area 4A: 300 properties, Area 2D: 750 properties
*2 Area 5A: 280 properties, Area 1P: 355 properties
*2 Area 6A: 490 properties, Area 3P: 290 properties
*2 Area 7A: 300 properties, Area 4P: 445 properties
*2 Area 8A: 510 properties, Area 5P: 530 properties
*2 (Id. § M.2.C, emphasis in original.)
*2 Offerors also were instructed to submit a condensed marketing plan for each geographic area proposed:
*3 The Offeror shall provide a condensed Marketing Plan that describes the Offeror's approach for marketing HUD owned properties which describes how the Contractor intends to engage Listing and Sales Brokers to market and show [[Federal Housing Administration (FHA)] [Real-Estate Owned (REO)] properties, consistent with the manner in which other non-FHA homes are listed for sale on the market, in order to meet or exceed performance objectives of the [[Performance Work Statement (PWS)]. Offerors must submit tailored condensed marketing plans, including target goals, for each proposed geographic area that only addresses the four requirements for the condensed marketing plan stated below:
*3 · Listing Broker assignment and responsibilities
*3 · Aged and Hard to Sell Properties
*3 · Broker Training
*3 · Market Analysis and Property Valuation
*3 · Ten days after the post award conference a comprehensive marketing plan that addresses all requirements stated in PWS Section 5.1.10 will be due to the Contracting Officer and the [Government Technical Representative].
*3 (Id. § L.6, emphasis in original.)
*3 Each offeror was required to establish a line of credit of $500,000 or more for each contract, which was due no more than 10 business days from the date on which the firm received notice that it was the successful offeror. (Id. § L.8.) Performance and payment bonds were also required. (Id. § C.5.1.18.)
*3 The Contracting Officer (CO) set aside nine of the geographic areas (Areas 3A, 6A, 7A, 8A, 1D, 1P, 3P, 4P and 5P) for small businesses, and assigned North American Industry Classification System (NAICS) code 531210, Offices of Real Estate Agents and Brokers, with a corresponding size standard of $7 million in annual receipts. (Id. §§ L.5, K.3.) SBA increased the size standard for NAICS code 531210 to $7.5 million, and the CO amended the RFP to adopt the higher size standard.3
 
B. Joint Venture Agreement
 
*3 Sage is a joint venture between Raine & Company, LLC (Raine) and PEMCO Limited (PEMCO). Raine is a participant in SBA's 8(a) Business Development (BD) program, and PEMCO is its SBA-approved mentor.
*3 On September 22, 2014, Raine and PEMCO entered into a joint venture agreement for the purpose of creating Sage, an unpopulated joint venture, to compete for and perform the instant procurement. (Agreement at 1.) Raine and PEMCO stipulated “that Raine shall be the managing member and shall own 51% of [[Sage]; and that PEMCO shall own 49% of [Sage].” (Id. at 2.) Further, “Raine, the 8(a) Managing Venturer, must perform at least 40% of the aggregate work performed by [Sage]” and “PEMCO, the non-8(a) Partner Venturer[,] will perform no more than 60%.” (Id.) The joint venture agreement stated that “Raine is responsible for any and all final negotiations in procuring the Contract and any subsequent contracts.” (Id. at 3.) In addition, ““[XXXXXXXXXXXXXXXXXXXXXX].” (Id. at 6.)
*4 Schedule A provided that [XXXXXXXXXXXXXXX].” (Id., Schedule A.) Schedule A continued:
*4 [XXXX]
*4 (Id.)
*4 The joint venture agreement also contained a staffing plan, to “ensure the successful execution of the work flows.” (Id. at 6.) The staffing plan estimated “[t]he total number of professionals necessary to accomplish requirements” for each proposed geographic area, “divided into seven major operational departments.” (Id., Schedule B, Exhibit A.) Those seven major operational departments were: Key Personnel, Pre-Marketing, Asset Management, Closing Department, Compliance, Customer Service, and Accounting. (Id.) A second exhibit offered a breakdown of Raine and PEMCO's respective responsibilities. (Id., Schedule B, Exhibit B.) Each responsibility was assigned a percentage of the total work:
Exhibit B
Raine & Company
PEMCO LIMITED
[XXXX]
[X]%
[XXXX]
[X]%
[XXXX]
[X]%
[XXXX]
[X]%
[XXXX]
[X]%
[XXXX]
[X]%
[XXXX]
[X]%
[XXXX]
[X]%
[XXXX]
[X]%
[XXXX]
[X]%
[XXXX]
[X]%
[XXXX]
[X]%
[XXXX]
[X]%
[XXXX]
[X]%
[XXXX]
[X]%
[XXXX]
[X]%
[XXXX]
[X]%
[XXXX]
[X]%
[XXXX]
[X]%
[X]%
[XXXX]
[X]%
[X]%
[XXXX]
[X]%
[X]%
Total
40%
60%
*4 (Id.)
 
C. Prior Proceedings
 
*5 In September 2015, HUD awarded Sage contracts for Areas 1D, 3P, 4A, 4P, 5P, 7A, and 8A. In October 2015, several unsuccessful offerors, including Appellant, protested Sage's size in conjunction with the awards of Areas 1D and 4P, which were set aside for small businesses. The protesters contended that Sage is not a small business because Raine and PEMCO are affiliated.
*5 On November 4, 2015, the Area Office issued Size Determination Nos. 3-2016-010, -011, -012, -013 concluding that Sage is a small business for the procurement. The Area Office found that Sage's joint venture agreement meets the requirements of 13 C.F.R. § 124.513(c) and (d). (Size Determination Nos. 3-2016-010, -011, -012, -013, at 7.) As a result, Raine and PEMCO are not affiliated because they qualify for the exception to affiliation for mentor-protégé joint ventures at 13 C.F.R. § 121.103(h)(3)(iii). (Id.) Neither Appellant nor any other protester appealed Size Determination Nos. 3-2016-010, -011, -012, -013 to OHA.
 
D. The Instant Size Determination
 
*5 On February 19, 2016, after the original awardee for Area 1P was determined to be ineligible, HUD awarded an additional contract to Sage for Area 1P. On February 26, 2016, Appellant protested this award, again arguing that Sage is not an eligible small business. On March 30, 2016, the Area Office issued Size Determination No. 3-2016-044 dismissing Appellant's protest on the grounds that Appellant had already challenged Sage's size for the subject procurement, and had received a decision that Sage is an eligible small business. The Area Office elaborated:
*5 [Size Determination Nos. 3-2016-010, -011, -012, -013] addressed similar issues as you raise in this protest, and used the same date for determining size as would be used here. Your firm did not appeal [Size Determination Nos. 3-2016-010, -011, -012, -013], and therefore [Size Determination Nos. 3-2016-010, -011, -012, -013] is the final decision of the agency. See 13 C.F.R. § 121.1101.
*5 Per 13 C.F.R. § 121.1009(h), SBA cannot reopen a size determination after the 15-day appeal period for filing at [OHA]. [Size Determination Nos. 3-2016-010, -011, -012, -013] was neither reopened nor appealed. Your protest is in essence, a request to reopen the previous determination. As the time period for reopening has passed, the determination cannot be reopened.
*6 (Size Determination No. 3-2016-044, at 1.)
 
E. Appeal
 
*6 On April 6, 2016, Appellant filed the instant appeal. Appellant argues that the Area Office clearly erred in dismissing its protest against Sage, and requests that OHA direct the Area Office to examine whether Sage qualifies as a small business for the Area 1P contract.
*6 Appellant contends that, in dismissing Appellant's protest, the Area Office did not consider that Appellant's two protests involved different contracts, and because Sage is a mentor-protégé joint venture, its size must be reviewed on a contract-by-contract basis. (Appeal at 7.) Although there was only one RFP and offerors were instructed to submit only one proposal, offerors were permitted to compete for multiple geographic areas. Appellant highlights that “[w]here an offeror wanted to bid on more than one Area, the Solicitation required the offeror to include separate pricing, marketing plans, and relevant past/present performance covering each Area for which it was competing.” (Id. at 8, citing RFP §§ L.6 and M.2.C.) In addition, the RFP “made clear that HUD would evaluate offerors by Area, and award 12 different contracts.” (Id., citing RFP §§ C.1.6, L.1, and M.1.) The successful offeror “also was required to separately establish a line of credit of $500,000 or more for each contract.” (Id. at 11, citing RFP § L.8.) Accordingly, “[d]espite the use of a single Solicitation asking for one proposal from offerors, HUD essentially conducted 12 different competitions, evaluated offerors in 12 different Areas, and awarded 12 stand-alone contracts to perform work in 12 distinct Areas.” (Id.)
*6 Because HUD made multiple contract awards, Appellant reasons, the Area Office was required to consider Sage's eligibility for the mentor-protégé exception, 13 C.F.R. § 121.103(h)(3)(iii), for each individual contract. (Id. at 13-14, citing 13 C.F.R. § 124.513(e).) To be eligible for the exception, the joint venture agreement must comply with 13 C.F.R. §§ 124.513(c) and (d). Section 124.513(c)(7) requires that the joint venture agreement specify the roles and responsibilities of the joint venture partners with regard to “negotiation of the contract, source of labor, and contract performance, including ways that the parties to the joint venture will ensure that the joint venture and the [protégé] will meet the performance of work requirements set forth in paragraph (d) of this section.” (Id. at 12-13.) Section 124.513(d) requires that, for an unpopulated joint venture, the protégé must perform at least 40% of the work performed by the joint venture. (Id. at 13.) Appellant contends that, given the RFP's requirements for each geographic area, Sage could not have complied with §§ 124.513(c) and (d) with a “one size fits all” joint venture agreement. (Id. at 14). Rather, Sage would require multiple joint venture agreements “in order to demonstrate exactly how Sage would ensure that Raine, as the 8(a) protégé, would perform its mandated work share.” (Id.)
 
F. Response
 
*7 On April 22, 2016, Sage responded to the appeal. Sage argues that OHA should deny the appeal because Size Determination Nos. 3-2016-010, -011, - 012, -013, which Appellant did not appeal, constitutes SBA's final decision regarding Sage's small business status for the HUD procurement.
*7 Sage contends that the Area Office was correct to dismiss Appellant's protest with respect to Area 1P, and disputes Appellant's contention that each geographic area is a separate procurement. Sage emphasizes that “the same factual circumstances” were at issue in Appellant's earlier protest as are presented here, “namely, the same HUD RFP, the same Performance Work Statement, the same Sage small business representation, the same small business representation date, the same Sage proposal, the same protester ([Appellant]), and the same Sage [j]oint [v]enture [a]greement.” (Response at 1, 6.) To afford Appellant another opportunity to protest these identical circumstances, Sage contends, would undermine SBA's regulatory scheme, which provides that a size determination not appealed to OHA becomes “the final decision of the agency.” (Id. at 1, 5, citing 13 C.F.R. § 121.1101(a).)
*7 Not only do Appellant's two protests involve the same facts, Sage points out; they also involve the same legal question. The mentor-protégé exception to affiliation states that if the size status of a joint venture is protested, the joint venture agreement must comply with 13 C.F.R. §§ 124.513(c) and (d). (Id. at 6, citing 13 C.F.R. § 121.103(h)(3)(iii).) These legal requirements are the same regardless of which geographic area is involved.
*7 Sage argues that the differences between geographic areas highlighted by Appellant are immaterial to whether Sage's joint venture agreement satisfies the requirements of 13 C.F.R. § 124.513(c) and (d). “When one considers the work to be performed, the material consideration is that each Area involves providing the same [a]sset [m]anager services pursuant to the same Performance Work Statement with the same seven major processes [in RFP § C].” (Id. at 8.) This is why each offeror submitted a single technical proposal for all areas. Moreover, Sage is providing the same asset manager services in each area awarded, so “the functions for which Raine and PEMCO are each responsible do not differ by Area.” (Id. at 9.) As a result, it is reasonable for the Area Office to perform one analysis of Sage's joint venture agreement, and of the respective responsibilities of Raine and PEMCO.
*8 Lastly, Sage argues that the Area Office acted consistent with the Federal Acquisition Regulation (FAR) in dismissing Appellant's protest. The FAR states that “an interested party ‘may protest the small business representation of an offeror in a specific offer.”’ (Id., quoting 48 C.F.R. § 19.302(a)(2).) Because Sage could only submit one offer, and did only submit one offer, Appellant had one opportunity to protest Sage's size. Appellant made such a protest in 2015 and did not challenge the resulting size determination.
 
III. Discussion
  
A. Standard of Review
 
*8 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 or law. Size Appeal of Taylor Consultants, Inc., SBA No. SIZ-4775, at 11 (2006).
 
B. Analysis
 
*8 Appellant's principal argument here is that, because this procurement would result in a separate contract award for each geographic area, the Area Office was required to examine Sage's joint venture agreement for compliance with SBA regulations on an area-by-area (i.e., contract-by-contract) basis. Appellant highlights in particular that, pursuant to 13 C.F.R. §§ 121.103(h)(3)(iii) and 124.520(d)(1)(ii), a mentor and protégé competing as a joint venture for a contract outside of the 8(a) program will be exempt from affiliation only if their joint venture agreement contains the information specified in 13 C.F.R. §§ 124.513(c) and (d). E.g., Size Appeal of IEI-Cityside, JV, SBA No. SIZ-5664 (2015), aff'd sub nom IEI-Cityside, JV v. United States, 122 Fed. C1. 750 (2015); Size Appeal of Kisan-Pike, A Joint Venture, SBA No. SIZ-5618 (2014). Therefore, Appellant reasons, although the Area Office previously found that Sage's joint venture agreement complies with §§ 124.513(c) and (d) for other geographic areas of the procurement, the Area Office should have re-examined Sage's joint venture agreement to determine whether the agreement also meets these requirements for Area 1P, the geographic area at issue in Appellant's protest. Appellant requests that the matter be remanded to the Area Office for further review.
*9 I agree with Appellant that it is appropriate to remand this question to the Area Office. As Appellant observes, Sage is a mentor-protégé joint venture competing for a non-8(a) set-aside procurement, so Sage's joint venture agreement must comport with 13 C.F.R. §§ 124.513(c) and (d) in order for Sage to enjoy the exception to affiliation for mentor-protégé joint ventures. Each geographic area of this procurement constitutes a separate contract, and many of the issues in §§ 124.513(c) and (d) — such as a description of the resources the mentor and protégé respectively will bring to performance of the contract — are particular to each individual contract. It therefore follows that to determine whether Sage complied with §§ 124.513(c) and (d) for Area 1P would require a specific review of Sage's joint venture agreement for that particular contract/geographic area. Because the Area Office has not yet undertaken a review of Sage's joint venture agreement for Area 1P, the matter must be remanded.
*9 Sage argues that the Area Office already analyzed Sage's joint venture agreement in Size Determination Nos. 3-2016-010, -011, -012, -013, and found that Sage's joint venture agreement does comply with §§ 124.513(c) and (d). As noted above, though, Size Determination Nos. 3-2016-010, -011, - 012, -013 pertained to the geographic areas/contracts that had been awarded to Sage at that time, such as Areas 1D and 4P. See Section II.C, supra. The geographic area in question here, Area 1P, was not awarded to Sage until February 19, 2016, more than three months after Size Determination Nos. 3-2016-010, -011, -012, -013 was issued. Section II.D, supra. Given this chronology, Size Determination Nos. 3-2016-010, -011, -012, -013 logically could not have considered whether Sage's joint venture agreement complies with §§ 124.513(c) and (d) for Area 1P. Further, while Sage emphasizes that it submitted only one proposal for this procurement and prepared one consolidated joint venture agreement, Sage does not dispute that the contents of the joint venture agreement are not necessarily identical for each geographic area. For instance, the staffing plan attached to Sage's joint venture agreement specified varying numbers of staff per labor category for each geographic area. Section II.B, supra. It therefore is possible that the Area Office could find differences in Sage's joint venture agreement between Area 1P and the geographic areas/contracts reviewed in Size Determination Nos. 3-2016-010, - 011, -012, -013. As a result, I cannot conclude that Size Determination Nos. 3-2016-010, -011, -012, -013 encompassed, or can be substituted for, a review of Sage's joint venture agreement for Area 1P.
*10 Sage also highlights that Size Determination Nos. 3-2016-010, -011, - 012, -013 was never appealed by Appellant or any other protester, and therefore became the final decision of the agency. 13 C.F.R. § 121.1101(a). While this is true, the issue is irrelevant here because Size Determination Nos. 3-2016-010, -011, -012, -013 did not involve Area 1P. As a result, a review of Sage's joint venture agreement for Area 1P will not undermine, or contradict, the earlier size determination.
 
IV. Conclusion
 
*10 For the above reasons, the appeal is GRANTED. Area 1P was awarded to Sage more than three months after Size Determination Nos. 3-2016-010, -011, -012, - 013, so the Area Office clearly erred in dismissing Appellant's protest pertaining to Area 1P on grounds that the matter was already decided in the prior size determination. Accordingly, Size Determination No. 3-2016-044 is VACATED, and the matter is REMANDED to the Area Office for further review.
*10 Kenneth M. Hyde
*10 Administrative Judge

Footnotes

This decision was initially issued under a protective order. Pursuant to 13 C.F.R. § 134.205, OHA afforded counsel an opportunity to file a request for redactions if desired. OHA received one or more timely requests for redactions and considered any requests in redacting the decision. OHA now publishes a redacted version of the decision for public release.
On September 4, 2015, HUD issued Amendment 000011, which included a conformed copy of the RFP. All references herein to the RFP refer to the conformed copy.
The CO explained that, “although the Solicitation was issued with the $7M size standard under the corresponding NAICS 531210, ... an interim rule was effective on July 14, 2014 [increasing the size standard] to $7.5M.” (RFP, Answers to Questions, Amendment 0011, at 8.) Therefore, “Offerors in the competitive range shall reaffirm their business size under the 7.5M standard as of July 25, 2014.” (Id.)
SBA No. SIZ-5751, 2016 (S.B.A.), 2016 WL 3570100
End of Document