In a recent size appeal SBA’s Office of Hearings and Appeals (“OHA”) reaffirmed that prior favorable size determinations are not binding on either an Area Office or OHA in a subsequent case, and each size protest must be decided based upon the facts and circumstances of the particular protest. Hopefully, this ruling will put to bed the continuing notion of some contractors that they no longer need to worry or be concerned about size once they have been found to be small in one protest.
The new decision is Advanced Projects Research, Inc., SBA No. SIZ-5504 (2013). The appeal involved a size protest challenging the size of ArmorWorks Enterprises, LLC, an Arizona limited liability company (“AWE”). AWE had two managers, Mr. William J. Perciballi and Anchor Management, LLC (“Anchor”). Mr. Perciballi was the sole owner of Anchor Works, Inc. (“AWI”), which held a 60% membership interest in AWE. The remaining 40% interest in AWE was held by C Squared Capital Partners, LLC (“C Squared”). Anchor was the manager of C Squared.
The protestor argued that (1) under applicable Arizona law, Anchor had negative control rights as to AWE by virtue of its status as a member of AWE in the absence of an agreement surrendering such rights, and (2) AWE was affiliated with a third company, Insights Enterprises Inc. (“Insight”), since both Insight and Anchor assertedly were controlled by two brothers, Mr. Timothy Crown and Mr. Eric Crown.
The Area Office, apparently relying in substantial part on an earlier 2007 Area Office decision that examined AWE’s relationship with Anchor, determined that AWE is not affiliated with Anchor, and thus is small and eligible under the applicable 500-employee size standard. Since the Area Office found that AWE is not controlled by Anchor, the Area Office did not examine the relationship between Anchor and Insight.
Both the appellant and AWE cited pleadings from an earlier court litigation between C Squared and Mr. Perciballi, and AWE quoted letters and declarations that it had submitted to the Area Office in 2007 with respect to the earlier Area Office size determination finding AWE not affiliated with Anchor.
OHA flatly rejected AWE’s reliance on the 2007 decision, stating that “Contrary to AWE’s position, the 2007 size determination is not dispositive of whether AWE and Anchor are affiliated.” OHA went on to cite a 2012 decision, Size Appeal of VMX Int’l, LLC, SBA No. SIZ-5427 (2012), explaining that, since “Area Offices are not administrative tribunals, the doctrines of res judicata and collateral estoppel do not extend to determinations issued by such offices.” OHA has reached the same conclusion in other cases, and holds that “a prior size determination is not binding on either an Area Office or OHA,” citing to Size Appeal of Miltope Corp., SBA No. SIZ-5066 (2009).
This result is hardly surprising, particularly in a situation such as present here, where the prior decision was issued some six years earlier. Size determinations are based upon the circumstances as of the initial proposal submission date. Obviously, the circumstances in 2013 might be substantially different from those at an earlier time. Moreover, information might be present and available now that was not available or considered at the time of the earlier decision.
Hopefully, OHA’s reiteration of this fundamental principle will dispel any misunderstanding among small businesses, and impress upon them that size is a moving target and that they need to ensure that they continue to meet the applicable criteria before self-certifying themselves as small for each separate procurement. A prior favorable size determination, whether by an Area Office or even OHA, will not exempt them from searching scrutiny and re-examination in a future size challenge, even one involving the same issues.
Turning to the merits in the instant case, OHA found that the Area Office failed to address the proper inquiry as to whether there was an agreement between AWE’s members, as distinct from the managers (who could not bind the members), waiving rights provided under Arizona law. OHA therefore remanded the matter for further investigation and a new decision by the Area Office. OHA instructed that, if the Area Office determined that there was no agreement restricting Anchor’s ability to exercise negative control under Arizona law, then the Area Office should continue with the affiliation analysis and determine whether the Crown brothers have the ability to control both Anchor and Insight.
Hopewell Darneille is the attorney responsible for the contents of this article.
© Jackson Kelly PLLC 2013