Ute Indian Machine and Manufacturing, Inc., No. MSB-451 (February 7, 1994)
Docket No. MSBE-92-4-3-4

                    UNITED STATES OF AMERICA
                                
                  SMALL BUSINESS ADMINISTRATION
                                
                 OFFICE OF HEARINGS AND APPEALS
                                
                         WASHINGTON, DC

IN THE MATTER OF:             )
                              ) Docket No. MSBE-92-4-3-4
Ute Indian Machine and        )
Manufacturing, Inc.           )

                           APPEARANCES

For the Petitioner:                For the Agency:

Sandra Hansen, Esq.                John T. Spotila, Esq.
Robert S. Thompson, Esq.           General Counsel
Whiteing & Thompson                Amy Mertz Brown, Esq.
1136 Pearl Street                  Agency Representative
Boulder, CO 80304                  Small Business Administration
                                   409 Third Street, SW
                                   Washington, DC 20416

                             DIGEST

The regulations published at 54 Federal Register 34692, et seq.,
on August 21, 1989 and codified at 13 CFR Part 124 must be used
to evaluate all applications for participation in the Agency's
8(a) Program pending as of August 21, 1989 or filed thereafter.
13 CFR 124.1(a)(2)(i).

An applicant for participation in the 8(a) Program has the burden
of proving, by a preponderance of the evidence, all elements of
its eligibility.

The management and daily business operations of a tribally-owned
concern must be controlled by individual members of an economi-
cally disadvantaged tribe, who do not manage and control more
than one other tribally-owned 8(a) Program Participant.

The individual members of the eligible tribe who control the
management and daily business operations of the tribally-owned
concern must be found to possess the requisite management or
technical capabilities as determined by the Agency. 13 CFR
124.112(c)(4).

Although the management and daily business operations of a
tribally-owned concern may be delegated by the individual members
of the eligible tribe to a committee, team, board or individual
who is controlled by such individual members of the tribe, the
individual members of the tribe who control the concern must
possess the requisite management or technical capabilities as
determined by the Agency. 13 CFR 124.112(c)(4).

The individual members of the eligible tribe who control the
management and daily business operations of the tribally-owned
concern may be found to possess the requisite management or
technical capabilities as determined by the Agency if they (or
any one or more of them) possess either managerial or technical
expertise and competency directly related to the primary industry
in which the applicant concern is seeking Section 8(a) Program
certification; they need not possess both technical and mana-
gerial competency and expertise. 13 CFR 124.104(a)(1).

Although individuals who are not members of the tribe may be in
volved in the management or operation of the firm, no nonmember
may control the firm or have the power to control the firm. 13
CFR 124.112(c)(4).

While the ability of a nonmember of the tribe to supply technical
expertise necessary for the operation of a business may - but
does not, in and of itself - afford that individual the power to
control the firm, evidence of such ability, coupled with an 
apparent lack of necessary expertise on the part of the members of
the tribe, may well combine to afford a rational basis for a
conclusion adverse to the applicant firm.

The regulation codified at 13 CFR 124.112(c)(4), as applied here,
does not conflict with Congressional intent to have the Small
Business Administration, through the 8(a) Program, improve busi-
ness opportunities for small businesses owned by Indian tribes.

A determination by the AA/MSB&COD that individual members of the
eligible tribe do not control the Petitioner will not be reversed
as arbitrary, capricious or contrary to law if there is a reason
able factual basis or supporting rationale for that conclusion in
the record that was before the AA/MSB&COD at the time he made the
determination; if it is clear from the determination itself that
all of the evidence adduced by the Petitioner was considered by
the AA/MSB&COD in making his determination; and if there was no
error in considering the evidence adduced or in interpreting or
applying the law and regulations to the facts.

Section 8(a)(9) of the Act authorizes the Administrative Law
Judge to decide questions concerning whether the AA/MSB&COD's
determinations are contrary to the law; consistency of an Agency
regulation with the underlying Act constitutes such a question.

                         FINAL DECISION

                        February 7, 1994

USHER, Administrative Law Judge:

Jurisdiction

Authority for these proceedings is found in Section 409 of the
Business Opportunity Development Reform Act of 1988, Public Law
100-656 (Section 8(a)(9) of the Small Business Act of 1958, as
amended; 15 U.S.C. 637(a)(9)), hereinafter referred to as "the
Act," and in the regulations codified at 13 CFR Parts 124 and
134, which are referred to hereinafter by section numbers only.

Issues

Is there a reasonable factual basis and an evidential rationale
for the conclusion of the AA/MSB&COD 1/ in the record that was
before him at the time he made his determination on remand; and
is it clear from the record and from the determination itself
that the AA/MSB&COD did not err in interpreting the facts or the
law or in applying the law to the facts found in the record?

Facts and Procedural History

The Petitioner filed its application for admission to the
Agency's Section 8(a) Program with the Agency's Salt Lake City,
Utah District Office on July 13, 1990. On February 2, 1991, the
Associate Administrator denied the Petitioner's application for
several specified reasons. Additional information was submitted
by the Petitioner with a request for reconsideration on March 13,
1991, and, on the basis of the additional information, the Asso-
ciate Administrator again denied the Petitioner's application in
a letter dated February 18, 1992, because it was determined that
the members of the Ute Tribe of the Uinta and Ouray Reservation
do not control the Board of Directors, and, according to the
AA/MSB&COD, "current 8(a) program eligibility criteria require
that a tribally-owned concern's application for 8(a) participa-
tion be declined if it is determined that tribal members do not
control and manage the daily business operations of the concern,
or if control or power to control the concern resides in nondis-
advantaged individuals."

On April 3, 1992, Counsel for the Petitioner appealed to me to
review the reconsidered determination of the Associate Adminis-
trator, arguing:

     [The Agency's] denial of 8(a) program admission to
     [P]etitioner...which was based upon a negative finding
     of control pursuant to 13 C.F.R. 124.206...is arbi-
     trary, capricious and contrary to law.

     Regulations of the Small Business Administration, upon
     which [the Agency's] denial of 8(a) program admission
     to [P]etitioner...was based, are arbitrary, capricious
     and contrary to law.

Following my review of the matter, I issued a Decision and Remand
Order, dated November 27, 1992, which reads, in pertinent part:

     Thus, I am asked in this appeal to decide: 1) whether
     the regulations promulgated by the Agency, as they 
     apply to Tribally-owned concerns, are arbitrary, capri-
     cious, or contrary to the Act; and 2) considering the
     evidence of record, whether the AA/MSB&COD acted arbi-
     trarily, capriciously or contrary to the law when she
     made her adverse determination about the Petitioner's
     eligibility on February 18, 1992.

                          * * * * * * *

     As the adjudicator selected to preside over this pro-
     ceeding, I am charged by  8(a)(9) of the Act to decide
     whether the Agency's proposed denial of admission of
     the Petitioner to the Section 8(a) Program is "arbi-
     trary, capricious or contrary to law." I cannot agree
     with the contention of the Agency's Counsel that I have
     no authority to rule on the question of whether the
     regulations are contrary to the provisions of the Act.
     [Footnote and quotation omitted here.] [2/]

                          * * * * * * *

     The assertions made by the Petitioner's Counsel con-
     cerning the Tribe's inability to comply with the 
     restrictive requirements of the regulation found at
     124.112(c)(4)(i), as well as the obvious intent of the
     Act, suggest that a conflict exists between the Act and
     the regulation promulgated under its authority, at
     least as it applies to this Petitioner. If, in fact,
     the Petitioner's assertions regarding its inability to
     comply with the provisions of  124.112(c)(4)(i) are
     proven, a conflict exists, and the regulation as pro-
     mulgated must be found to be inapplicable to the facts
     obtaining here, and an adverse determination based on
     it must be found to be contrary to the law.

     However, except for the general assertions made by the
     Petitioner's Counsel that "few, if any, small business
     concerns owned by Indian tribes will qualify for 8(a)
     participation" if the requirements of 124.112(c)(4)(i)
     are adhered to, and that "an Indian from an economical
     ly disadvantaged tribe, with the education and exper-
     ience to manage and control the day-to-day operations
     of a manufacturing concern...is the rarest of people,"
     there is little information, and no evidence, in the
     record concerning the allegation of the Petitioner's
     Counsel that the regulation found at 124.112(c)(4)(i)
     does not comport with the purposes of the Act and the
     intent of the Congress in its enactment. [Footnote
     omitted.]

     If, therefore, facts can be adduced to support the con-
     clusion that the requirements of the disputed section
     of the regulations impose an undue or insurmountable
     burden upon Indian tribes that seek to avail themselves
     of the benefits of the Act, and on this Tribe in par-
     ticular, there ought to be a forum for the evaluation
     of such evidential facts and a decisionmaker to whom
     those facts can be presented.

                          * * * * * * *

     A careful review of the record in these proceedings
     indicates with clarity that the Agency has not con-
     sidered all of the facts with regard to the Peti-
     tioner's eligibility. Further, and of greater
     significance, it is apparent that the Associate Admin-
     istrator applied a regulatory standard that may con-
     flict with the statute when applied to the facts
     obtaining here.

                          * * * * * * *

     It is not evident that the Agency here has considered
     all relevant factors concerning the Petitioner's
     eligibility for admission to the Section 8(a) Program
     and correctly applied the law; it is not possible to
     ascertain whether the determination is arbitrary,
     capricious or contrary to the law; therefore, the
     matter is REMANDED TO THE ASSOCIATE ADMINISTRATOR for
     further consideration and a determination not incon-
     sistent with this Order.

     The Petitioner shall be allowed 30 days from the date
     of this Order to submit any additional evidence and
     argument necessary for a proper determination of the
     question of the applicability of the regulation found
     at 124.211(c)(4)(i) and for a final determination of
     the Petitioner's eligibility under the provisions of
     the Act and the regulations as correctly interpreted
     and applied.

After several requests for extensions of time to comply with my
November 27, 1992 Remand Order, the Associate Administrator
issued his Remand Determination on April 15, 1993, affirming the
conclusions reached in the reconsideration determination of
February 18, 1992. Although the AA/MSB&COD's Determination on
Remand was submitted to me on April 16, 1993 (and docketed on
April 19, 1993), it was not accompanied by the administrative
record upon which it was based, i.e., the additional submissions
by the Petitioner as mandated by my Remand Order. In spite of a
specific request in April or May, 1993 that the full and complete
administrative record be forwarded for my review, it was not
received in this Office until December 8, 1993. 3/

In reviewing the record submitted on December 8, 1993, I find
that the Petitioner's Counsel had adduced argument and evidence
to the Agency on February 26, 1993 to substantiate its position
that "the regulation found at 13 CFR  124.112(c)(4)(i) conflicts
with Congress' intent to have the Small Business Administration,
through the 8(a) program, improve business opportunities for
small businesses owned by Indian tribes." Her argument, set forth
in response to the invitation in my Decision and Remand Order,
is, in pertinent part, as follows:

     Indians comprise less than one-half of one percent of
     the population of the United States. By its own regu-
     lations, SBA acknowledges that Indian people have been
     discriminated against in education and employment 
     opportunities because of their status as Indians. Never
     theless, SBA requires that, before an Indian-owned firm
     can qualify for 8(a) participation, the tribe must 
     locate the rarest of people - an Indian, from an econom-
     ically disadvantaged tribe, who has somehow acquired an
     education and experience to manage and control the day-
     to-day operations of a small manufacturing firm, who is
     willing to work for reduced wages in a remote rural
     area.

     Indications of how rare such a person [is] are found in
     applications that the Ute Indian Tribe has received to
     two recent position vacancies. To fill the position of
     general manager of Ute Indian Machine and Manufactur-
     ing, the Tribe contracted with Defense Consultants
     International, a Salt Lake [City] executive recruitment
     firm. The firm concluded that the three most qualified
     applicants were Sam Cooper, B.J. Pitchford and Raymond
     Connolly. None of those applicants was Indian. Indeed,
     there is no indication that any Indian, much less a
     qualified Indian, applied for the position. Certainly,
     no Indian was referred to the Tribe for an interview by
     Defense Consultants International.

     More recently, the Tribe attempted to fill the position
     of manager of its wood products program. While the
     required qualifications were minimal, i.e., requesting
     that applicants have a high school diploma, or its
     equivalent, and "some management and supervision exper-
     ience," no Indian with any business management exper-
     ience applied for the position. The selected applicant
     ...has a bachelor's degree with a major in biology, and
     experience as a juvenile counselor, probation officer
     and security supervisor. Clearly, he would not be
     qualified to manage a small manufacturing firm - or,
     perhaps, even a wood products enterprise, under SBA's
     strict requirements.

     The lack of qualified candidates is not attributable to
     there being a dearth of available employees on the Uinta
     and Ouray Reservations. A 1989 study by the Bureau
     of Indian Affairs indicates that unemployment on the
     Reservation stands at 55.6 percent. While the unem-
     ployment figures are for 1989, there has been no eco-
     nomic climate in the Uinta Basin (that part of north
     eastern Utah in which the Reservation is located) which
     would indicate that the figures have changed.

     The lack of qualified Indian applicants is attributable
     to there being a paucity of Indians who have pursued
     education and/or employment in business and business-
     related fields. Records of the Ute Indian Tribe Higher
     Education Department reflect that six members of the
     Ute Indian Tribe have received post-high-school train-
     ing or education in business, either from an accredited
     college or vocational school, in the past 33 years.
     Thus, the pool of potential applicants who might satis-
     fy SBA's qualification requirements, which never have
     been fully disclosed to the petitioners, and who might
     be available to manage a tribally-owned manufacturing
     enterprise on the Reservation is s1x.

     Given this hard data, it is no surprise that the Tribe
     was compelled to hire a non-Indian to serve as general
     manager of Ute Indian Machine and Manufacturing. The
     economic and educational situation existing at the Ute
     Indian Tribe and on the Uinta and Ouray Reservation are
     not uncharacteristic of Indian country, in general. In
     the past, Indians have been encouraged to pursue 
     careers in education, the law, and, more recently, medi-
     cine. As reflected by the data from the Ute Tribe's
     higher education department, few Indians have pursued
     careers in business. By requiring the day-to-day
     operations of an Indian-owned concern to be managed by
     an Indian, the SBA has virtually precluded any Indian-
     owned business from qualifying for 8(a) certification.
     Such a result is contrary to Congress' intent that the
     8(a) program be operated in such a manner as to provide
     assistance to Indian-owned businesses.

     Because the SBA regulation requiring an Indian-owned
     concern to be managed by an Indian is totally unreal-
     istic and conflicts with Congressional intent, and be
     cause UIM&M's application for 8(a) certification was
     denied for the reason that the company's day-to-day
     operations were not managed by an Indian, the SBA
     should reconsider its decision and award UIM&M 8(a)
     certification. [Emphasis in original. Citations to
     authorities, regulations and evidence omitted.]

In his Determination on Remand, 4/ the Associate Administrator
maintains that "Section 124.112(c)(4)(i) of the regulations
accords with the Small Business Act and does not impose an
insurmountable burden on tribally-owned concerns; [t]he
assertions of UIMM have no merit...." He argues further that
     
     [S]ection 124.112(c)(4)(i), which requires that the
     management and daily business operations of a tribally-
     owned concern be controlled by an individual member or
     members of an economically disadvantaged Indian tribe,
     reflects exactly the statutory language created by
     Congress in the Small Business Act.

     As it pertains to Indian-owned concerns, the Small
     Business Act states--

          (4)(A) For purposes of [section 8(a)], the term
          "socially and economically disadvantaged small
          business concern" means any small business concern
          which meets the requirements of subparagraph B and
          -- (i) which is at least 51 per centum
          unconditionally owned by--

                          * * * * * * *

                    (II) an economically disadvantaged
          Indian tribe (or a wholly owned business entity of
          such tribe)

                          * * * * * * *

                 (ii) in the case of any publicly owned
          business at least 51 per centum of the stock of
          which is unconditionally owned [by]--

                          * * * * * * *

                    (II) an economically disadvantaged
          Indian tribe (or a wholly owned business entity of
          such tribe)

                          * * * * * * *

               (B) A small business concern meets the
          requirements of this subparagraph if the
          management and daily business operations of such
          small business concern are controlled by one or
          more--

                          * * * * * * *

                 (ii) members of an economically disad
          vantaged Indian tribe described in subparagraph
          (A)(i)(II) or subparagraph (A)(ii)(II).

     15 U.S.C.  637(a)(4) (emphasis added). Clearly, by
     statute, the management and daily business operations
     of a tribally-owned 8(a) concern must be controlled by
     one or more members of an economically disadvantaged
     Indian tribe. SBA's regulation at Section
     124.112(c)(4)(i) simply reiterates this requirement.
     [Emphasis in original.]

     UIMM also challenges SBA's regulatory requirement that
     individual members of an economically disadvantaged
     Indian tribe who manage a tribally-owned concern, "must
     be found to possess the requisite management or techni-
     cal capabilities as determined by SBA." SBA must ensure
     that only tribally-owned concerns controlled by
     individuals who are members of economically disadvan-
     taged Indian tribes enter into the 8(a) program. SBA
     has a legitimate interest in preventing "fronts," con-
     cerns that do not meet the statutory requirements and
     intent of the Small Business Act, from receiving the
     benefits of the 8(a) program. Thus SBA must assure that
     the individuals who are said to control the firm in
     fact have the ability to do so, in order to ensure that
     control is not in fact exercised by individuals other
     than those whom the Act mandates must control the firm.
     UIMM asserts that it was impossible to find such an
     individual among the Ute Indian Tribe and, therefore,
     UIMM was compelled to hire a non-Indian as its General
     Manager.

     SBA's regulations do not require that an Indian of the
     same tribe which owns the 8(a) concern control the
     management and daily operations of the concern. Thus,
     UIMM could have searched for a member of any economi-
     cally disadvantaged Indian tribe to perform the job of
     General Manager at UIMM. [Emphasis in original.]

     As of March 10, 1993, there were 17 tribally-owned
     concerns participating in the 8(a) program. All of
     these concerns had to meet the requirements of SBA's
     regulations, including the requirements of [Section]
     124.112(c)(4)(i), in order to gain admission to the
     8(a) program. Clearly, SBA's regulations do not pose an
     insurmountable burden upon tribally-owned concerns.

                          * * * * * * *

     We must make our remand [determination] based on the
     information in UIMM's application file at the time of
     the reconsideration [determination]. [5/] Based on
     UIMM's corporate records and other documents provided
     to SBA as of February 18, 1992, we concluded that the
     management and daily business operations of UIMM are
     not controlled by and [sic] individual member or mem-
     bers of an economically disadvantaged Indian tribe who
     were found to possess the requisite management and
     technical capabilities. Our conclusion was based on our
     determinations that Mr. Cooper, a non-Indian, controls
     the management and daily operations of UIMM and that
     the members of the Board of Directors of UIMM, a
     majority of which is composed of members of the Ute
     Tribe, do not possess the requisite managerial or
     technical manufacturing expertise necessary to control
     the management and daily operations of UIMM. Based on
     further review of the record, and for the additional
     reasons discussed above, we reaffirm the conclusions
     stated in our reconsideration [determination] and again
     decline UIMM's application for the 8(a) program.

Discussion

I am convinced by the argument adduced by the AA/MSB&COD in his
Determination on Remand that the regulation found at Section
124.112(c)(4)(i) comports with the provisions of the Act and
obvious Congressional intent.

Further, I am satisfied that the AA/MSB&COD has properly applied
the law and the regulations to the facts found in the record that
was assembled as the result of the Petitioner's submission of
evidence, that is the record as it appeared when the reconsidered
determination was made on February 18, 1992, with the addition of
the evidence and argument which was adduced by the Petitioner's
Counsel in compliance with my Remand Order. Thus, when properly
considered in light of the law and the regulations, the record
does support the Associate Administrator's conclusion that the
Petitioner has not adduced preponderant evidence to support its
application and thus has not carried its burden of proving its
eligibility for admission to the Agency's Section 8(a) Program.

Citizens to Preserve Overton Park. Inc. v. Volpe, 401 U.S. 402,
28 L.Ed.2d 136, 91 S.Ct. 814 (1971), instructs me that to make a
finding that the Associate Administrator has not acted arbitrar-
ily or capriciously or abused his discretion, I must consider
whether his determination was based on a consideration of all of
the relevant factors and whether there has been an error of
judgment on his part. See Burlington Truck Lines, Inc. v. United
States, 371 U.S. 156, 9 L.Ed.2d 207, 83 S.Ct. 239 (1962); Bowman
Transportation, Inc. v. Arkansas-Best Freight System, Inc., 419
U.S. 281, 42 L.Ed.2d 447, 95 S.Ct. 438 (1974); United States
Lines, Inc. v. Federal Maritime Commission, 584 F.2d 519 (D.C.
Cir. 1978).

It is now apparent that the Associate Administrator has con-
sidered all of the relevant data; there was no clear error of
judgment. Motor Vehicle Manufacturers Association of the United
States, Inc. v. State Farm Mutual Automobile Insurance Company,
463 U.S. 29, 77 L.Ed.2d 443, 103 S.Ct. 2856 (1983).

Conclusion

The Agency's April 15, 1993 Determination on Remand, finding the
Petitioner, Ute Indian Machine and Manufacturing, Inc., ineligi-
ble for admission to the Section 8(a) Program, is reasonably
based upon the record that was before the AA/MSB&COD at the time
he made that determination, and it is not contrary to the law or
the regulations; thus, I find that it IS NOT ARBITRARY,
CAPRICIOUS OR CONTRARY TO LAW.

This constitutes the final decision of the Small Business
Administration, and it is binding upon the Petitioner, the Agency
and those within the employ of the Agency. See Sections
124.210(i) and 134.32(a)(4) of the regulations.

                                   _____________________________
                                   Benjamin G. Usher
                                   Administrative Law Judge

1/ The Associate Administrator for the Agency's Office of
Minority Small Business and Capital Ownership Development may be
referred to herein as the "Associate Administrator" or the
"AA/MSB&COD," and either term may refer to the Acting Associate
Administrator, where applicable.

2/ See Carozza v. United States Steel Corporation, 727 F.2d 74 (3
Cir. 1984).

3/ When it seemed that the record was unobtainable from the
office of the AA/MSB&COD, an unanswered request was directed to
the Petitioner's Counsel in an effort to obtain a copy of the
material she had submitted to the AA/MSB&COD.

4/ Nine pages of the AA/MSB&COD's 26-page Determination on Remand
were devoted to a refutation of my assertion of authority to rule
on the question of whether Section 124.112(c)(4)(i) of the
regulations as applied here is contrary to the provisions of the
Act. The lengthy argument of the AA/MSB&COD is not at all
persuasive; for the reasons set forth in the Decision and Remand
Order issued in this matter on November 27, 1992 (and repeated in
part above), I remain convinced that I have authority to decide
questions relating to whether the Associate Administrator's
determinations are contrary to the law and that consistency of an
Agency regulation with the underlying statutory scheme set forth
in the Act constitutes such a question. See Matter of Ute Indian
Machine and Manufacturing. Inc., No. 419 (November 27, 1992) at
pages 17 and 18. The reasoning of the court in Carozza, cited
above, clearly applies here. Not unlike the statutory language in
33 U.S.C.  921(b)(3), the Act being considered here empowers me
to hear and determine appeals, which raise substantial questions
of law and fact, taken by parties in interest from determinations
of the AA/MSB&COD with respect to entitlement to the benefits of
Section 8(a) of the Act.

5/ This statement is in error; the remand determination should be
based on the record as the AA/MSB&COD found it following the
submission of the evidence and argument allowed by the Remand
Order. See the discussion below.