Application of the Presumption of Affiliation Based on Identity of Interest Requires Clear Notice to Protested Firm

In the Size Appeal of Gregory Landscape Services, Inc., the U.S. Small Business Administration (“SBA”) Office of Hearings and Appeals (“OHA”) heard an appeal following a Size Determination in which the SBA Area Office held that Gregory Landscape Services, Inc. (“Appellant”) was not a small business under the applicable size standard associated with the subject procurement.  Through its decision, OHA made clear that a protest based on identity of interest through a familial relationship (see 13 CFR 121.103(f)) will only be presumed if the protested firm is given clear notice that identity of interest it being claimed and the precise familiar relationships at issue.

At issue was a U.S. Army procurement for grounds maintenance of airfields and stage fields.  The procurement was set aside for women-owned small businesses (“WOSB”) and assigned the North American Industry Classification System code for Landscaping Services, with a size standard of $7.5 million average annual receipts.  Appellant was the apparent awardee.

On June 22, 2016, a disappointed bidder filed a size protest alleging that Appellant was affiliated with its purported subcontractor for the project, NaturChem.  Although the Area Office dismissed the disappointed bidder’s size protest as untimely, the SBA’s Area Director concluded that the protest raised valid concerns and adopted the disappointed bidder’s protest, directing that a size determination be performed on Appellant.  The Area Office informed Appellant of its size investigation via a letter explaining that it would investigate whether “NaturChem is using [Appellant] to bid on WOSB set asides” and whether “there are familial and ownership interests between [Appellant] and NaturChem,” possibly meaning that the two entities are affiliated.  However, the Area Office did not advise Appellant about what specific familiar relationships it was investigating.

In its Size Determination, the Area Office found Appellant affiliated with NaturChem through the identity of interest rule – familiar relationships.  Specifically, the Area Office concluded that Appellant’s majority owner had an identity of interest with her spouse, who had an identity of interest with his parents, who owned NaturChem.  The Area Office similarly found Appellant affiliated, under the same rule, with companies owned by Appellant’s majority owner’s spouse’s siblings.  Because Appellant had failed to rebut the presumption, Appellant was deemed affiliated with all of these other companies.  Based on these affiliations, the Area Office concluded that Appellant was not a small business.

On appeal, OHA reversed and remanded the matter back to the Area Office.  Specifically, the OHA found that because the Area Office had never explicitly raised the question of identity of interest, and did not notify Appellant that it intended to presume an identity of interest between the spouse and his parents and siblings, Appellant never had a fair opportunity to rebut those presumptions of identity of interest.   On remand, OHA directed the Area Office to solicit a narrative from Appellant as to whether Appellant’s majority owner’s spouse shared an identity of interest with his parents and siblings, and whether Appellant is affiliated with NaturChem pursuant to 13 C.F.R. § 121.103(f).

This decision shows that as a pre-requisite to an Area Office applying the rebuttable presumption of identity of interest, the protestor or the Area Office must explicitly communicate to the protested concern that identity of interest is being alleged, and specifically what familial relationships are being used to create this identity of interest.  Absent very clear notice to the protestor, OHA will not uphold an application of this rebuttable presumption.

Image courtesy of flickr (licensed) by Isabell Schulz