SBA Size Appeals: New Evidence Often Not Allowed

The SBA Office of Hearings and Appeals will reject a contractor’s attempt to submit new evidence in a SBA size appeal unless the contractor shows “good cause” to admit the new evidence.

And, as demonstrated by a recent SBA OHA size appeal decision, when the evidence was publicly available at the time the size protest was filed, but was not submitted with the size protest, it will be very difficult to convince SBA OHA to review the new evidence.

SBA OHA’s decision in Size Appeal of HBC Management Services, Inc., SBA No. SIZ-5409 (2012) involved a Navy 8(a) set-aside solicitation for armed security guard services.  After reviewing competitive proposals, the Navy announced that Action Facilities Management, Inc., or AFM, had been selected for award.

An unsuccessful competitor, HBC Management Services, Inc., filed a SBA size protest.  HBC contended that AFM’s receipts over the relevant three-year period exceeded the solicitation’s $18.5 million size standard.  HBC did not raise the issue of affiliation in its SBA size protest.

The SBA Area Office subsequently issued a size determination, finding AFM to be an eligible small business.  The SBA Area Office concluded that AFM’s three-year average annual receipts fell beneath the applicable size standard.

In addition, although the issue had not been raised in the size protest, the SBA Area Office examined potential affiliation between AFM and AJ Solutions, or AJS.  The SBA Area Office noted that AJS’s president , Donald Hill, was also the secretary and a minority owner of AFM.  However, because another individual, Diane Lewis, was AFM’s sole owner and director, the SBA Area Office concluded that Ms. Lewis, not Mr. Hill, had the power to control AFM.  Accordingly, the SBA Area Office found no affiliation under the common management affiliation rule.  The SBA Area Office also determined that AFM was not affiliated with AJS under the identity of interest affiliation rule.

HBC filed a size appeal with SBA OHA, arguing that the SBA’s size determination should be reversed.  HBC presented evidence that Ms. Lewis is Mr. Hill’s mother, and presumably asked SBA OHA to find the firms affiliated under the identity of interest affiliation rule by virtue of the family relationship.  HBC argued that because it was unaware of AJS prior to the size determination, it had been unable to submit the evidence with its initial size protest.  HBC also argued that AFM was affiliated with another company, K-Ray Inc., and offered publicly available new evidence in an effort to prove this affiliation, as well.

SBA OHA refused to admit the new evidence.  It wrote that, as a general matter, “OHA’s review is based upon the evidence in the record at the time the Area Office made its determination.”  Although SBA OHA retains the discretion to admit new evidence on appeal, it will only do so if the party introducing the evidence shows good cause why it should be admitted.

In this case, SBA OHA held that good cause did not exist.  It noted that “[t]he evidence [HBC] seeks to admit was publicly available at the time [HBC] submitted its protest.”  Accordingly, HBC “could, and should, have produced it to the Area Office during the size review.”

SBA OHA wrote that “[w]ithout this evidence, the appeal collapses.”  However, SBA OHA noted that even if AFM and AJS were affiliated, their combined three-year average annual receipts fell below the applicable size standard, meaning that AFM would still have been an eligible small business for the Navy contract.

Had the SBA Area Office been aware of the familial relationship between Ms. Lewis and Mr. Hill, it may well have found the two companies affiliated–although, as SBA OHA noted, it would not have ultimately made a difference for purposes of this contract.  In many cases, however, an affiliation will push a small business over the applicable size standard.  As such, the HBC Management Services size appeal demonstrates the critical importance of presenting the SBA with a thoroughly researched size protest, including all relevant evidence.

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