Metropolitan Area Contractors, Inc., No. 4229 (November 18, 1996)
Docket No. SIZ-96-9-10-67


                    UNITED STATES OF AMERICA

                  SMALL BUSINESS ADMINISTRATION

                 OFFICE OF HEARINGS AND APPEALS

                        WASHINGTON, D.C.


_______________________________
                               )
SIZE APPEAL OF:                )
                               )
Metropolitan Area Contractors, )
Inc.                           )
                               )
     Appellant                 )  Docket No. SIZ-96-9-10-67
                               )
8(a) Size Determination        )
No. 03-SD-96-106               )
Philadelphia, Pennsylvania     )             
_______________________________)


                             DIGEST

Where the record demonstrates the challenged firm has been
financially dependent upon a large firm since its establishment,
to the extent that approximately 99 percent of its overall
revenues derive from a single subcontract with the large firm,
the large firm has power to control the challenged firm, creating
affiliation.  13 C.F.R. Section 121.103(a)(2).

Technical and management assistance provided by a large (mentor)
firm to the challenged (protege) firm under the Federal Mentor-
Protege Program is excluded from affiliation consideration, and
does not create affiliation.

For size determination purposes, SBA size regulations, including
rules of affiliation, promulgated under the authority of the
Small Business Act apply, notwithstanding Federal case precedent
and other Federal agency rules of affiliation to the contrary.

Where a challenged firm is not listed as an affiliate of its
alleged large affiliate in a credit report, this omission is not
material if affiliation is found between the challenged firm and
its alleged large affiliate under SBA regulations.


                            DECISION

                        November 18, 1996

BLAZSIK, Administrative Judge:

                          Jurisdiction

     This appeal is decided under the Small Business Act of 1958,
15 U.S.C. Sections 631 et seq., and 13 C.F.R. Parts 121 and 134
(1996).


                             Issues

     Whether the challenged firm is affiliated with a large firm
where approximately 99 percent of its revenues since its
establishment derive from one subcontract with the large firm.

     Whether technical assistance given by a large (mentor) firm
to the challenged (protege) firm under the Federal Mentor-Protege
Program creates affiliation.

     Whether SBA size regulations, including affiliation
standards, apply in determining small business size status when a
challenged firm applies for assistance under the Small Business
Act, notwithstanding Federal case precedent and other Federal
agency affiliation regulations to the contrary.

     Whether a challenged firm still can be considered affiliated
with a large firm for size determination purposes when a credit
report on the large firm does not list the challenged firm as an
affiliate of the large firm.

                              Facts

     On April 15, 1996, Metropolitan Area Contracts, Inc. (MACI
or Appellant), filed an application for assistance under the
SBA's 8(a) program.  On July 3, 1996, Betty Toulson, Chief of the
Small Business Administration's (SBA), Region III, Division of
Program Certification and Eligibility, requested the SBA's
Philadelphia Office of Government Contracting, Area 2 (Area
Office) to conduct a size determination on MACI.  13 C.F.R.
Section 121.1001.  Ms. Toulson did so based on evidence that
MACI, since its incorporation in 1992, has received approximately
99 percent of its total revenues from one subcontract with
DynCorp, a company which, according to a recent Dun & Bradstreet
report, earns over $900 million in revenues.  The applicable
Standard Industrial Classification (SIC) code is 8742, with a $5
million average annual receipts size standard.

     The Area Office file contains MACI's SBA Form 355, its
corporate charter and bylaws, its last annual statement to
shareholders, its Federal income tax returns and financial
statements for the last three calendar years, and its response to
Ms. Toulson's assertions.  The Area Office file also contains the
Dun & Bradstreet report relied on by Ms. Toulson, which shows
DynCorp's revenues as over $900 million.

     MACI's SBA Form 355 shows Ms. Angela Afflick is MACI's
President and owns 33 percent of its stock; Mr. Sterling Afflick
is MACI's Chief Operating Officer and Vice President and owns 34
percent of its stock; and Sylvia Edwards is MACI's General
Counsel and Vice President and owns 33 percent of its stock.   
MACI's Federal income tax returns and its SBA Form 355 reveal
that, by itself, MACI's average annual receipts for the last
three fiscal years are below the $5 million size standard. 
MACI's financial submissions show approximately 99 percent of its
total revenues derive from the one subcontract with DynCorp. 

     In response to Ms. Toulson's allegations of alleged
affiliation with DynCorp, MACI acknowledged it has an ongoing
business relationship with that company.  It entered into a
Teaming Agreement with DynCorp in June 1992, to bid on a
procurement for the U.S. Department of Justice (DOJ) Asset
Forfeiture Contract.  In June 1993, DOJ awarded the contract to
DynCorp which, pursuant to the terms of the Teaming Agreement,
subcontracted to MACI two portions of the procurement, the
quality control and compliance audit services.  In August 1993,
MACI became one of five DynCorp proteges under the Department of
Defense's Mentor-Protege Program.  MACI stated DynCorp continues
to provide it with technical advice and assistance, depending on
its needs.

     However, Appellant denied affiliation with Dyncorp.  MACI
asserted a protege firm is not an affiliate of a mentor firm
solely because the former receives assistance from the latter
under the Federal Mentor-Protege Program.  Other specific
evidence is required to show affiliation.  MACI also asserted
that, since the beginning its mentor-protege relationship with
DynCorp, the parties have not subcontracted with each other, and
neither party has ever had "any interest, shares, holdings or
affiliations in the other."

                    Area Office Determination

     On August 7, 1996, the Area Office issued its determination,
finding that MACI is affiliated with DynCorp and, therefore, is
an other-than-small business under the instant size standard. 
The Area Office made the following factual findings to support
its conclusion:  First, the pertinent SBA regulation provides
that affiliation will not be found "solely because the protege
firm receives assistance from the mentor...."   13 C.F.R. Section
121.103(b)(6).  Nonetheless, because MACI and DynCorp entered
into the Mentor-Protege Agreement after the award of the
subcontract, it also found the Mentor-Protege Agreement does not
affect the subcontract, citing Size Appeal of American Eagle
Industries, Inc., No. 3709 (1992).  

     Second, since the subcontract with DynCorp accounts for 99
percent of MACI's total revenues, MACI is dependent upon the
latter firm for its economic viability.  The Area Office relied
on two cases to support its findings:  Size Appeal of PRWT
Services, Inc., No. 3805 (1993) and Size Appeal of AA Engineers
and Associates, Inc., No. 3824 (1993).  The Area Office concluded
that MACI is economically dependent upon DynCorp and, thus,
"MACI's autonomy and viability have been compromised and DynCorp
possesses the power to control it."  After aggregating MACI's and
DynCorp's revenues, the Area Office concluded MACI was other than
small.

     MACI received the size determination on August 12, 1996, and
filed an appeal that was postmarked September 5, 1996.  On
September 27, 1996, this Office received a pleading from MACI
styled "Response to Notice and Order."  The Presiding Judge
treats this pleading as a supplement to MACI's appeal.

                       Arguments on Appeal

     MACI first asserts the Area Office erred because it failed
to explain or to cite any evidence to support its conclusion that
DynCorp controls MACI.  MACI asserts the Area Office relied
solely on DynCorp's "assistance" to MACI under the Mentor-Protege
Program.  MACI asserts the Area Office ignored MACI's contract
with the National Guard Bureau, as well as its numerous bids on
other procurements.  

     Second, MACI asserts the Area Office failed to evaluate
properly the tax and financial statements MACI submitted.  MACI
asserts these documents clearly demonstrate MACI and DynCorp are
not affiliates, and that the Area Office failed to apply general
corporate rules of affiliation and Internal Revenue Service
regulations on affiliation.  MACI cites numerous Federal cases
purportedly holding that separate corporate entities, such as
MACI and DynCorp, are not affiliates.  Similarly, MACI cites IRS
regulations to demonstrate that, for Federal tax purposes, MACI
and DynCorp are not affiliates.  MACI asserts that, if the IRS
does not consider MACI an affiliate of DynCorp, the Area Office
cannot draw an opposite conclusion because different Federal
agency's regulations must not contradict each other.  MACI does
not cite any authority for this proposition.  MACI also impliedly
asserts Federal case precedent and IRS regulations supersede SBA
regulations. 
     
     Finally, MACI asserts PRWT Service and AA Engineers, cited
by the Area Office to support its determination, are factually
distinguishable from the instant proceeding.  In PRWT Service
PRWT had been financially dependent upon a large firm since its
establishment, while MACI from its January 1992 establishment
operated independently until it won its first contract in 1993.  
MACI asserts AA Engineers sold its products only to one company,
whereas MACI sells and markets its services to any interested
Federal or local government agency seeking its services. 

     In the supplement to its appeal, MACI asserts the Area
Office relied only upon a portion of the information contained in
a Dun & Bradstreet Report on DynCorp, ignoring other portions
which would have "provided proof" MACI and DynCorp are not
affiliates.  The report lists all of DynCorp's affiliates and the
date they were acquired.  MACI is not listed as an affiliate.

     In addition, MACI submits copies of data contained in the
Directors of Corporation Affiliation of 1994.  This publication,
which reports the ownership of all major United States public
companies and their affiliates, does not list MACI as a DynCorp
affiliate.

                           Discussion

     Since the appeal does not involve a pending procurement and
was filed and served within 30 days after service of the Area
Office's size determination, the appeal is timely.  13 C.F.R.
Section 134.304(a)(2).

     The Area Office fully supported its finding that DynCorp
controls Appellant, notwithstanding Appellant's assertion to the
contrary.  As the Area Office noted, the record clearly shows
that approximately 99 percent of Appellant's revenues since its
1992 establishment derived from one large subcontract with
DynCorp.  While Appellant may have bid on other contracts during
that time, the evidence fails to show Appellant was awarded these
contracts or received any earnings from other bids.

     Further, the Area Office clearly distinguished between the
revenues earned from Appellant's sole subcontract with DynCorp
and the assistance this firm has given Appellant under the
Mentor-Protege Program.  First, because the subcontract preceded
the Mentor-Protege Program agreement affiliation would be
determined from the subcontract date, also the date of self-
certification, not from the Mentor-Protege agreement.  Second,
the assistance Appellant received under the Mentor-Protege
Program the Area Office correctly excluded from its affiliation
finding, consistent with the exclusion provision in 13 C.F.R.
Section 121.103(b)(6).  Hence, the Area Office based its
affiliation finding solely on Appellant's subcontract with
DynCorp.  Under well-established case precedent, even absent
common management, common ownership, or common salaries between
two firms, where a great majority of a challenged firm's earnings
are derived from a subcontract with a large firm, the latter firm
has the power to control the challenged firm.  See PRWT, supra
and Size Appeal of BMSI, Inc., No. 3551 (1991). See, also, AA
Engineers, supra.
     
     Similarly, the Presiding Judge rejects Appellant's assertion
that the Area Office ignored Federal corporate cases and IRS
regulations demonstrating the two firms are not affiliated. 

     The Small Business Act (Act), 15 U.S.C. Section 631 et seq.,
expressly authorizes SBA to assist small business in a variety of
ways, which includes making size determinations for small
business set asides.  Specifically, section 3(a)(1) establishes
certain statutory criteria defining a "small-business concern."   
Section 3(a)(2) authorizes the SBA Administrator to establish
size standards, including "detailed definitions or standards by
which a business concern may be determined to be a small business
concern for the purposes of this Act or any other Act." 
15 U.S.C. Section 632(a)(2)(A)(1).  These standards may use, in
addition to the statutory criteria, the number of employees,
dollar volume of business...."  15 U.S.C. Section 632(a)(2)(B). 
Further, the Act prohibits other Federal agencies from
prescribing size standards unless specifically authorized by
statute or unless the Administrator approves the proposed size
standard.  15 U.S.C. Section 632(a)(2)(C)(iii).

     In addition, section 5(b)(6) authorizes the Administrator to
promulgate regulations implementing the above authority
(15 U.S.C. Section 634(b)(6)) and, in particular, to determine
whether a business is small for size purposes.  SBA has done so. 
See 13 C.F.R Sections 121 and 134 (1996).  These regulations
require that a firm's affiliates must be included when
calculating a firm's size status, and set the standards to
determine whether affiliation exists.  Appellant here seeks
certification as an 8(a) firm under the Act.  Because SBA has the
sole responsibility among Federal agencies (with very limited
exceptions) for determining size in the context of small business
and because affiliation is a sub-issue in determining size,
Appellant must demonstrate it is small under the SBA size
regulations.  

     Thus, the cases and the IRS regulations cited by Appellant
are a general corpus of law inapposite to the instant proceeding. 
More important, Appellant cited no authority or case precedent
that general corporate and tax principles should supersede the
specific SBA statutory authority and its implementing
regulations.  
 
     Further, Appellant fails to show why two of the three cases
cited by the Area Office are inapposite here.  Quite the contrary
is true.  In PRWT, the challenged firm admitted that its
principal source of revenues since its establishment, came from
its numerous subcontracts with the alleged large affiliate.  In
contrast, the challenged firm's other subcontracts amounted to
only 0.3 percent of its total revenues.  OHA held that the firms
were affiliated because of the challenged firm's financial
dependence upon the large firm.  Since 99 percent of Appellant's
total revenues came from its one subcontract with DynCorp,
clearly PRWT is applicable here.

     In AA Engineers, the record showed that the challenged firm
received approximately 89 percent of its total revenues during
the 12 months prior to its 8(a) application from sales of its
products to one firm, the alleged large affiliate.  The other
sales clearly accounted for a minimal amount of the total.  This
was 10 percent less than Appellant's sales to DynCorp.  Even
though Appellant claims to have other contracts with other firms,
the record fails to show any such contract awards or earnings. 
AA Engineers, thus, is applicable here and the Area Office was
correct in citing it.

     Finally, the fact that Appellant is not listed as a DynCorp
affiliate in Dun & Bradstreet and the Directors of Corporation
Affiliation of 1994, has no bearing on whether Appellant is
affiliated with DynCorp under SBA regulations.  Because DynCorp
and Appellant satisfy the regulatory criteria, the Area Office
correctly found they are affiliated.  

     For all of the above reasons, the Presiding Judge concludes
Appellant is an other-than-small business because of its
affiliation with DynCorp, an undisputed large firm.  While
Appellant's average annual receipts, alone, are below the instant
size standard, those of DynCorp and Appellant together compel a
conclusion that Appellant is large.

                           Conclusion

     The Presiding Judge AFFIRMS the Area Office determination,
and DENIES the appeal.

     This is the final decision of the Small Business
Administration.  See 13 C.F.R. Section 134.316(b).


                              _______________________________
                              Gloria E. Blazsik 
                              Administrative Judge

____________________