Garvin Enterprises, Inc. d/b/a Lloyd Staffing, No. 4544
(April 4, 2003), Docket No. SIZ-2002-07-01-26

                                
                    UNITED STATES OF AMERICA
                  SMALL BUSINESS ADMINISTRATION
                 OFFICE OF HEARINGS AND APPEALS
                        WASHINGTON, D.C.
                                
                                 )     
SIZE APPEAL OF:                  )     
                                 )     
Garvin Enterprises, Inc. d/b/a   )     Docket No. SIZ-2002-07-01-26
Lloyd Staffing                   )     
                                 )     
     Appellant                   )     Decided:  April 4, 2003
                                 )
Solicitation No. RFP 673-63-02   )
Department of Veterans Affairs   )
James A. Haley Veterans'         )
Hospital                         )
Tampa, Florida

                                
                                
                           APPEARANCES
                                
David P. Metzger, Esq., Christina C. Pak, Esq., Holland & Knight
                              LLP,
                          for Appellant
                                
        James S. Ganther, Esq., Ganther Law Office, P.A.,
                  for Seaborn Healthcare, Inc.
                                
         Kenneth Dodds, Esq., Office of General Counsel,
          for Intervenor Small Business Administration
                                
                             DIGEST
                                
In  the case of a temporary employment agency operating under  a
franchise  agreement which provides that the temporary employees
will be the employees of the franchisor, and the franchisor will
finance the payroll, process the payroll, pay the payroll taxes,
pay  the  employees, invoice the customers, own and collect  the
accounts receivable and their proceeds, and deduct all money due
it  before  remitting  money to the franchisee,  the  franchisor
controls the franchisee, and the two firms are affiliated.
                                
                                
                            DECISION
                                
HOLLEMAN, Administrative Judge:

                          Jurisdiction

      This  appeal  is decided under the Small Business  Act  of
1958, 15 U.S.C. Section 631 et seq., and 13 C.F.R. Parts 121 and
134. [1]

                              Issue
                                
      Whether  a temporary employment agency operating  under  a
franchise  agreement which provides that the temporary employees
will be the employees of the franchisor, and the franchisor will
finance the payroll, process the payroll, pay the payroll taxes,
pay  the  employees,  invoice the customers,  own  the  accounts
receivable  and  their proceeds, and deduct  all  money  due  it
before remitting money to the franchisee, is affiliated with its
franchisor.
                                
                         I.  BACKGROUND

                    A.  Procedural Background

      On  March  18,  2002, the Department of Veterans  Affairs,
James  A.  Haley  Veterans' Hospital, in  Tampa,  Florida  (VA),
issued  the  subject  solicitation for on-site  medical  billing
services.   The  Contracting Officer (CO)  set  the  procurement
totally  aside  for small businesses and assigned  to  it  North
American Industry Classification System (NAICS) code 524298 (All
Other  Insurance  Related Activities), with an  annual  receipts
size  standard of $6 million. [2]  Initial offers were due April
8, 2002.

      On  May  13, 2002, the CO awarded the contract  to  Garvin
Enterprises, Inc. d/b/a Lloyd Staffing (Appellant), and notified
the  other  offerors of the awardee.  On May 16,  2002,  Seaborn
Healthcare, Inc. (Seaborn), filed a timely size protest with the
CO.    Seaborn  alleged  Appellant  is  affiliated  with   Lloyd
Personnel  Systems, Inc. (Lloyd), an undisputed  large  concern.
On  May  17, 2002, the CO issued a stop work order to Appellant.
On  May  20,  2002, the CO forwarded the protest  to  the  Small
Business    Administration's   (SBA)   Office   of    Government
Contracting,  Area  III,  in  Atlanta,  Georgia,  for   a   size
determination.   Later that same day, the  SBA  reassigned  this
matter  to  its Office of Government Contracting,  Area  IV,  in
Chicago, Illinois (Area Office), for processing.

       The  Area  Office  file  contains  Appellant's  corporate
documents,  Federal  income tax returns,  financial  statements,
loan  papers,  and office lease; Lloyd's Offering Circular;  the
Franchise  Agreement  and Modification No.  1;  and  Appellant's
response  to  the  protest allegations.   These  documents  show
Appellant  was incorporated in the State of Florida on  February
17,  2000, and Jacquelyn D. Garvin and Samuel M. Garvin, Jr. are
its  only shareholders, officers, and directors.  Appellant,  by
itself,  is below the applicable size standard, but if  combined
with Lloyd, it would be other than small.

      On  June  11,  2002,  the  Area  Office  issued  its  size
determination.  The Area Office found Appellant affiliated  with
Lloyd and, therefore, other than small.

      The Appellant received the size determination on June  14,
2002.

                   B.  The Franchise Agreement

      The  Franchise Agreement provides that Lloyd will  be  the
legal   employer  of  all  temporary  employees  whose  services
Appellant  provides to its customers.  Lloyd will  employ  these
temporary  employees, finance the payroll, process the  payroll,
pay  the payroll taxes, pay the temporary employees, and invoice
the  customers for their services.  The accounts receivable  and
proceeds  of  all  collected accounts belong  to  Lloyd.   Lloyd
deducts money from its payments to Appellant for any sums due it
under  the  Franchise Agreement.  Appellant may not do  business
with any customer Lloyd does not deem creditworthy.

      The  Franchise  Agreement contains the  schedule  of  fees
charged  Appellant by Lloyd.  Appellant pays  royalties  on  its
gross profits, surcharges if the prime interest rate rises above
10%,  a fee to cover national advertising, a fee if it transfers
the  business, a termination fee, a fee for arbitrating disputes
with Lloyd, a fee of 98% of an account if it becomes delinquent,
and an audit fee.

      Appellant's  office  location, layout,  office  equipment,
signs,  stationery and advertising material are all  subject  to
approval  by  Lloyd.  Lloyd specifies the accounting  procedures
and formats and computer software Appellant will use.  Appellant
will  maintain its own permanent employees who will devote their
full  time to Appellant's business.  These employees may not  be
independent  contractors.   Lloyd  will  train  these  permanent
employees.   In event of termination, Appellant must assign  its
lease and telephone number to Lloyd.

                   C.  The Size Determination

      The  Area  Office reviewed the provisions of the Franchise
Agreement, and characterized the financial relationship  between
the  firms by stating that Appellant does not pay Lloyd,  rather
Lloyd  pays  Appellant, and compared Appellant to a  salesperson
working   on  commission.   The  temporary  employees  Appellant
locates  and  the  customers  it  develops  do  not  become  its
employees  or customers; rather, they are Lloyd's employees  and
customers.  Applying this Office's precedent in Size Appeals  of
Dani  Enterprises, Inc. and C. Patrick Kennedy, SBA No. SIZ-3345
(1990),  reaffirmed  on  reopening,  SBA  No.  SIZ-3379   (1990)
(hereinafter  referred to collectively as Dani), and  13  C.F.R.
Section  121.103(a)(3), the Area Office determined the Franchise
Agreement gave Lloyd control over Appellant, and thus the  firms
were affiliated.

                         D.  The Appeal

      Appellant  filed its appeal with this Office  on  July  1,
2002.   The  appeal  contains  12  attachments,  including   the
contract award documentation, stop-work order, and several items
that also are in the Area Office file.

      On  July  2,  2002, the Administrative Judge notified  the
parties of this appeal, and ordered the SBA to file its comments
by  July 23rd, with Appellant's reply to the SBA's comments  due
on August 6, 2002, the date the record would close.  On July 19,
2002,  Appellant moved to admit the attachments  to  its  appeal
into  the  record.   On  July  22nd,  the  CO  filed  the  award
documentation  and the stop work order.  On July 23rd,  the  SBA
filed its comments, and Seaborn, the protestor below, filed  its
response to the appeal.

      On August 1, 2002, the International Franchise Association
(IFA)  submitted a letter in support of the appeal.  This letter
was  not  served  on all parties.  On August 6, 2002,  Appellant
filed  its  reply  to the SBA's comments.   On  that  same  day,
Appellant  moved  to  further supplement  the  record  with  six
exhibits.   On  August 7, 2002, Spherion Corporation  (Spherion)
submitted  a letter in support of the appeal.  This  letter  was
not served on all parties.

      On  August  15, 2002, the Administrative Judge convened  a
telephone conference with the parties to discuss the closure  of
record,  the  availability of a protective order for Appellant's
proprietary  and  confidential  information,  and  the  unserved
letters  this  Office  had received from the  IFA  and  Spherion
regarding this matter.

      On  August  21,  2002, Appellant filed  a  request  for  a
protective  order.   Also  that  day,  IFA  and  Spherion  filed
certificates of service for their letters, and Express Personnel
Services (EPS) filed a letter in support of the appeal,  with  a
certificate  of service.  On August 23, 2002, the SBA  filed  an
opposition   to  Appellant's  August  6th  motion   to   further
supplement the record.  Also on August 23rd, Time Services, Inc.
filed  a  statement,  not properly served on  all  parties.   On
August 26, 2002, Accountants, Inc. did the same.  Also on August
26,  2002,  the Administrative Judge issued a protective  order.
[3]   On August 28, 2002, EPS filed a statement, properly served
on all parties.

                                
                   E.  New Evidence on Appeal

      This  Office's regulations limit the role of new evidence,
submitted  on  appeal, which the Area Office  has  not  had  the
opportunity to consider.  Such evidence may be admitted only  if
a  motion  is filed and served establishing good cause  for  its
submission.   See  13  C.F.R. Section 134.308(a).   This  Office
allows such evidence only when it finds the evidence is relevant
to  the  issues on appeal, does not unduly enlarge those issues,
and has the potential to clarify the facts on those issues.  See
Size  Appeal  of Pointe Precision, LLC, SBA No. SIZ-4434,  at  4
(2001).

      Appellant  provided twelve attachments  with  its  appeal.
Attachments  A through G and I either are already  in  the  Area
Office   file   or  are  part  of  the  contract  documentation.
Accordingly, these do not require a ruling.  Attachment H  is  a
declaration  by  Jacquelyn  D.  Garvin,  Appellant's  principal.
Exhibit  J  is  the  declaration  of  Vincent  Albanese,   Chief
Financial  Officer of Lloyd, Appellant's franchisor.  Attachment
K is the declaration of Joel A. Klarreich, an attorney and self-
described   expert  on  the  legal  problems  of  the  franchise
industry.   Attachment  L is a copy of  a  blank  Instrument  of
Assignment.

      Appellant argues Attachment L is relevant as an example of
a  common  contract financing arrangement, which it  asserts  is
similar  to  that  used by Appellant, and supports  one  of  its
arguments  on  appeal.  The Administrative  Judge  concurs,  and
ADMITS  the  document.   Attachments  H,  J,  and  K  constitute
Appellant's  main argument in this case.  They are relevant  and
do   not   unduly   enlarge  the  issues,  and   therefore   the
Administrative Judge ADMITS them into evidence.

      Appellant also provided six exhibits on August 6, 2002, in
reply  to the Agency's Response. [4]  Exhibits A, B, and  C  are
declarations of its employees, describing their duties.  Exhibit
D  is  another  declaration of Ms. Garvin,  disputing  the  Area
Office's  interpretation of the Franchise Agreement.  Exhibit  E
is  an unsigned, undated copy of a modification to the Franchise
Agreement.   Exhibit F is a copy of information  posted  on  the
website  of  the  National Association of Professional  Employer
Organizations (NAPEO).

      The  Administrative Judge finds Exhibits A through  C  are
repetitive of other information already in the record and do not
enlarge  the  understanding of the issues here, and accordingly,
EXCLUDES  them.   Exhibit D is argument about a  document  which
speaks  for itself, and is thus EXCLUDED.  Exhibit E is  in  the
Area  Office  file.  Exhibit F merely provides more  information
from  a  trade association website and is not relevant  to  this
case, and is EXCLUDED.

                     F.  Arguments on Appeal

                         1.  The Appeal
                                
      Appellant  asserts this Office erred in  its  decision  in
Dani.   There, this Office held that, where the employees  of  a
franchised  temporary employment agency were  employees  of  the
franchisor  (rather than of the franchisee), and the  franchisor
handled  all  bookkeeping, payroll, and billing, the  franchisor
had  control  over the ultimate product of the  franchisee,  and
thus   the  franchisor  and  two  franchisees  were  affiliated.
Appellant  argues the practices this Office found as indicia  of
affiliation are, in fact, normal industry practices.   Appellant
asserts Dani failed to adequately analyze and explain why  these
practices constitute control.

      Appellant makes nine arguments.  First, Appellant  asserts
the  handling  of payroll is a ministerial service  which  Lloyd
performs  as  a  service for its franchisee.   It  makes  little
difference  from  the  standpoint  of  the  employees  and   the
customers  who  pays them.  This is service for the  franchisee,
which  it  could have performed elsewhere, but has performed  by
the franchisor.  Similarly, the billing and collection functions
are  ministerial  services.  Further, Appellant asserts:  "Lloyd
depends  on  the  collections,  made  possible  only  by  timely
billings,  to  recoup the loan made to Garvin by  advancing  the
payroll  costs paid each pay period to the temporary employees."
Appeal  at 18.  These collections are Lloyd's source of  payment
of  royalties  and  surcharges provided  for  in  the  franchise
agreement.   Appellant asserts obligations are created  once  an
employee works, and there is no discretion in the payment  which
Lloyd  must  make  once  this has happened.   Appellant  further
argues  that  since  it  is in direct touch  with  the  clients,
Appellant,  not Lloyd, controls the process. Appellant  has  the
capacity  to  harm,  and thus to control, Lloyd  by  mishandling
client relations.

      Second,  Appellant asserts Lloyd performs the payroll  and
billing  functions  for  legitimate  business  reasons.    Lloyd
provides  a  form of financing for the franchisee, and  protects
its   mark   and  good  name.   Also,  this  practice  maximizes
Appellant's  profits,  by  offering  economies  of  scale,   the
franchisor's  expertise, and by performing  these  functions  in
place of a commercial payroll service.

      Third,  Appellant asserts franchisor processing of payroll
and  billing is a customary and common practice in the temporary
employee  services industry.  Appellant points to  a  phrase  in
Dani,  which  referred  to  this  practice  as  a  "noncustomary
intrusion"  into  the operations and management of  franchisees,
and  asserts this statement is in error and thus Dani's  holding
is erroneous.

     Fourth, Appellant asserts its practice is analogous to bank
financing   through  assignment  of  claims   under   Government
contracts.    This   practice   is   common   among   Government
contractors, and has not resulted in any findings of affiliation
between banks and their customers.

     Fifth, Appellant asserts SBA's own regulations provide that
businesses which lease employees from concerns primarily engaged
in   leasing  employees,  or  which  enter  into  a  co-employer
agreement  with a Professional Employer Organization (PEO),  are
not  affiliated  with the leasing company or the  PEO.   See  13
C.F.R.  Section 121.103(b)(4).  Appellant faults  Dani  for  not
considering  this  rule, and argues this  rule  is  inconsistent
with, contradicts, and undermines the holding in Dani.

      Sixth,  Appellant asserts this Office's case  law  is  not
consistent.   Appellant points to Size Appeal  of  Coastal  Base
Services,  SBA  No. SIZ-3662 (1992) (hereinafter Coastal  Base).
Appellant   claims   there   is  no   difference   between   the
relationships held to constitute affiliation in Dani  and  those
found  not to constitute affiliation in Coastal Base.  Appellant
asserts Coastal Base is correct.  Appellant argues the fact  the
billing   arrangements  in  Coastal  Base   were   optional   is
irrelevant, as they still could result in a finding of  control,
if analyzed under the Dani precedent.

      Seventh, Appellant also points to Size Appeal of B&L,  LLC
d/b/a  Orange Grove Medical Specialties, P.A., SBA No.  SIZ-4279
(1997) (hereinafter Orange Grove) as another inconsistent  case.
Appellant  asserts  this  case  properly  holds  that  extensive
control  over the administration of a firm's business  does  not
result in a finding of affiliation.

      Eighth,  Appellant argues Dani is based upon a fundamental
error.   The product of the temporary services firm is  not,  as
Dani  held, the temporary employees.  Rather, it is the services
the  firm  provides  to locate, recruit, hire,  train,  promote,
discipline the temporary employees, and to match them  with  the
customers' needs.

       Ninth,  Appellant  asserts  the  size  determination   is
factually   erroneous.   The  size  determination  characterizes
Appellant  as working for Lloyd, because customers  remit  their
payments to Lloyd, which takes its share and sends Appellant the
remainder.   Appellant asserts this is form over substance,  and
contains  little  analysis  or reasoning  why  this  constitutes
control.  Appellant asserts there are factors which indicate its
independence  from Lloyd, such as lack of common  ownership  and
common  management.  Further, Appellant has sole  responsibility
for  recruiting,  hiring,  training  and  firing  the  temporary
employees; selection of clients; and control over certain  other
business   decisions.   No  Lloyd  employees   are   Appellant's
employees.  Other provisions the Area Office cited as indicia of
control  are  dismissed  as  customary  to  the  industry.    In
addition,  Appellant  asserts this case is distinguishable  from
Dani  because  Appellant bears the full burden of  uncollectible
accounts.  This emphasizes the fact that Appellant has the right
to make a profit and bears a risk of loss, commensurate with its
work.

      As  relief, Appellant requests this Office to reverse  the
size determination for the instant and future contracts, and  to
conclude that Appellant is eligible for the 8(a) program.

                     2.  The Agency Response

     SBA asserts billing and collecting is a fundamental element
of  any business.  An independent business has control over  its
income  and  expenditures.   The  central  issue  here  is   who
ultimately  controls  the accounts receivable.   The  legitimate
business reasons Appellant relies on to justify the relationship
are irrelevant.

      SBA  also  asserts Appellant's contention that Lloyd  must
employ  the  temporary  employees  to  ensure  compliance   with
employment  laws  and protect its mark is meritless.   Appellant
already   employs  its  own  office  staff,  and  non-franchised
temporary employment concerns have to comply with the employment
laws.   Further,  all franchisors are concerned with  protecting
their  mark  and  good name, yet many manage to  do  so  without
creating affiliation with their franchisees.

       SBA  points  to  provisions of  the  franchise  agreement
assigning  its  lease  and  telephone  numbers  to  Lloyd   upon
termination  of  the franchise and requiring it  to  immediately
transfer  its  entire business to Lloyd as further  evidence  of
affiliation.

      SBA  also  distinguishes Appellant's franchise arrangement
from  an assignment of claims, which, first is optional; second,
is  generally  contract-specific; and third, is an  arm's-length
transaction.

      SBA  further asserts its regulation dealing with PEOs  was
written so as not to disturb this Office's existing precedent on
franchise affiliation.

     SBA further asserts cases Appellant claims are inconsistent
with  its  precedent  are  not.  In Coastal  Base,  the  billing
arrangement  was  voluntary.   In  Orange  Grove,  the  ultimate
product  the challenged firm was offering was medical  services,
and thus not controlled by the management firm.

      SBA asserts the ultimate product of a temporary employment
concern  is  the temporary employees provided by the concern  to
its  customers.   This product is provided by  Lloyd,  as  these
workers  are its employees.  Appellant provides the services  it
describes  not  so  much to the government as  to  Lloyd,  whose
employees  it  locates, recruits, hires, trains,  promotes,  and
disciplines.

     SBA further asserts many of the provisions of the franchise
agreement  regarding  billing  establish  that  Lloyd   controls
Appellant.   Lloyd has complete discretion to  deduct  from  the
receivables any costs, fees, or penalties it determines are  due
it   under  the  franchise  agreement,  prior  to  remitting  to
Appellant.   These can include amounts due Lloyd for failure  to
acquire Lloyd's written consent for certain transactions, or  to
maintain  adequate  insurance, a surcharge  if  the  prime  rate
exceeds 10%, advertising, late payments, delinquent charges, and
audit fees.

     Finally, SBA points to provisions that Appellant may not do
business with any client Lloyd does not find creditworthy, and a
prohibition  against employing any of its own  office  staff  as
independent contractors as further evidence of control.

                      3.  Appellant's Reply
                                
      Appellant reasserts that temporary employees are  not  the
product  of temporary staffing firms.  Appellant points  to  the
extensive services it provides.  The essence of the services  is
the  "skill,  creativity,  imagination, persistence,  knowledge,
innovation,  interpersonal  skills and  other  human  qualities"
Appellant provides to its customers.  Reply at 11.  The services
can  be summarized as finding prospective customers; determining
their  needs;  and finding, training, assigning and  supervising
the temporary employees the customers require.

       Appellant  denies  that  billing  and  collecting  is   a
fundamental  part  of an independent business.   Appellant  also
disputes  SBA's  characterization of the  assignment  of  claims
process.  They are not always contract-specific, but may include
all  the  firm's  receivables.  Further, while they  are  arm's-
length  transactions, so are franchise agreements.   While  they
are optional, so is entering into franchise agreements.

       Appellant  asserts  Lloyd  seeks  to  ensure  labor   law
compliance not because Appellant is unable to do so but, because
if it failed to do so, Lloyd's reputation would suffer, and this
should not be an indicia of affiliation.

      Appellant  reasserts SBA's regulation  excluding  PEOs  is
inconsistent  with  the Dani precedents, as PEOs  routinely  co-
employ employees and perform the same functions Lloyd and  other
franchisors perform for their franchisees.

      Appellant  asserts  SBA  has  not  properly  distinguished
Coastal Base, and the voluntary nature of the affiliation  there
should  not be determinative.  Appellant asserts the concept  of
affiliation  by election is unknown to this Office's  case  law,
and  should  not  be decisionally significant.   Appellant  also
asserts it cannot compete for federal contracts unless it is  as
an eligible small business.

      Appellant  further asserts SBA's characterization  of  the
franchise  agreement is in error.  Appellant  will  provide  the
services,  not  Lloyd.  Appellant disputes the  characterization
Lloyd  will  really provide the services to  the  VA  under  the
contract,  because Appellant will be the party to  the  contract
and  will  provide the services required.  Further, the transfer
of  the contract is prohibited by law (41 U.S.C. Section 15), so
Lloyd could not have a role in the contract and a novation would
be required for Lloyd to step in if Appellant could not perform.

       Appellant  also  asserts  it  has  negotiated  a  special
provision for the termination of its business.  Lloyd has  first
right  of refusal to purchase the business at Appellant's price.
If Lloyd does not meet this price, Appellant can sell to another
buyer.

      Appellant asserts franchising industry practices are  very
relevant  to  the  issue  of whether  Appellant  and  Lloyd  are
affiliated.  The fact that this arrangement is customary to  the
industry is further evidence Lloyd is not interested in managing
and controlling Appellant.

      Finally, Appellant asserts SBA failed to address  some  of
its  arguments.   Appellant bears the risk of loss  commensurate
with  its  ownership  because it  bears  98%  of  the  costs  of
uncollected  revenues.  SBA failed to comment  on  the  list  of
factors  that establish Appellant controls its business  through
management,   such  as  the  fact  none  of  Lloyd's   officers,
directors,  or key employees had any ownership interest  or  any
management role in Appellant.  SBA also ignored the many aspects
of  Appellant's business it clearly does control.  SBA also made
no  attempt to demonstrate how control can arise from the simple
ministerial   fact  Lloyd  technically  employs  the   temporary
employees and handles the billing.

                       4.  Other Pleadings

      Seaborn, the protestor below, opposes the instant  appeal.
It  asserts  the Area Office's size determination followed  this
Office's   long-established,  applicable   precedent.    Seaborn
further  asserts Appellant's argument its financing  arrangement
is  similar to an Assignment of Claims is inapposite because  an
assignment  of claims from Appellant to Lloyd would  violate  41
U.S.C.  Section 15.  Seaborn points to other provisions  of  the
Franchise  Agreement  which  demonstrate  Appellant's   economic
dependence upon Lloyd, such as a non-competition provision.

      IFA's,  Sperion's,  and  EPS's  filings  generally  repeat
Appellant's arguments that Dani was wrongly decided,  that  this
Office's   precedents  are  inconsistent,  and  that   Dani   is
inconsistent with industry practices. [5]
                         II.  DISCUSSION

                   A.  The Standard of Review

      Appellant  filed  the instant appeal  within  15  days  of
receiving  the  size  determination and,  thus,  the  appeal  is
timely.  13 C.F.R. Section 134.304(a)(1).

      Appellant has the burden of proving, by a preponderance of
the evidence, all elements of its appeal.  Specifically, it must
prove  the  Area Office size determination is based on  a  clear
error of fact or law.  See Size Appeal of Rebmar, Inc., SBA  No.
SIZ-4173,  at  4  (1996);  13 C.F.R.  Section  134.314.    After
examining  the  record,  and  considering  Appellant's  asserted
points  of  error, the Administrative Judge concludes  Appellant
has failed to meet its burden.

      It  is undisputed that Appellant, by itself, is below  the
applicable  size standard, and that Lloyd is large.   Thus,  the
only substantive issue raised in this appeal is whether the Area
Office erroneously found Appellant affiliated with Lloyd.

      Firms  are  affiliated when one firm controls or  has  the
power   to   control   the  other.   See   13   C.F.R.   Section
121.103(a)(1).   Among the factors SBA considers in  determining
whether    affiliation   exists   are   a   firm's   contractual
relationships.   See  13 C.F.R. Section 121.103(a)(2).   In  the
case  of  franchises, SBA's regulations provide that  restraints
imposed  on  a  franchisee  relating  to  standardized  quality,
advertising,  accounting  format, and other  similar  provisions
generally will not be considered in determining affiliation, but
that  affiliation may arise through other means.  See 13  C.F.R.
Section 121.103(g).

      It  is clear, and indeed, it is undisputed, that the  Area
Office   applied  this  Office's  Dani  line  of  precedent   in
determining   Appellant's  size,  and  that  the  precedent   is
applicable here.  Appellant launches a frontal assault  on  this
line   of   precedent,   asserting  it   must   be   overturned.
Accordingly, the Administrative Judge must consider this line of
cases.

                     B.  The Dani Precedents

      Dani  involved two firms which were franchisees of Norrell
Services,  Inc.  (Norrell), a large employment firm.   Norrell's
contract   with  its  franchisees  provided  all  the  temporary
employees  furnished to customers were hired by the franchisees,
but  were Norrell's employees.  Norrell provided their  pay  and
benefits,  handled  all  bookkeeping and payroll  accounts,  and
billed the customers.  Franchisees paid Norrell a continuing fee
equal  to 60% of gross profits or 15% of net billings, whichever
was  greater.  The losses from uncollectible accounts were borne
60% by Norrell, 40% by the franchisees.

      This  Office  found this franchise agreement  resulted  in
Norrell  controlling its franchisees, and thus  the  franchisees
were affiliates of Norrell.  Dani, SBA No. SIZ-3345, at 5.

      This  Office  reopened the matter on  its  own  motion  to
consider filings made after the first decision issued.  The Dani
appellants  argued  the  provisions of Norrell's  contract  were
normal  to a franchise agreement, and were necessary for Norrell
to  perform  payroll and billing functions provided for  in  the
agreement.    The   Dani  appellants  also   argued   they   had
considerable  discretion in the operation of  their  businesses,
including recruiting, training, assigning, and disciplining  the
temporary  employees; selecting clients; all decisions regarding
their own permanent office staff, as well handing their pay  and
benefits;  and handling advertising and insurance on their  own.
Further,  the  Dani  appellants  asserted  the  arrangement  was
standard in the temporary help industry.

      This Office rejected the Dani appellants' arguments.  This
Office concluded first, Norrell, not the franchisees, controlled
the  franchisees'  ultimate product,  the  temporary  employees'
personnel   services  the  franchisees  provided  to  customers.
Second,  the  billing and collection process was  a  fundamental
element  of  any  business, and Norrell clearly controlled  that
aspect of the franchisees' business.  Third, Norrell bore 60% of
the losses from uncollectible accounts, and thus the franchisees
did  not bear the risk of loss in a manner characteristic of  an
independently owned and operated business.  This Office went  on
to  hold  that, under these conditions, the franchisor  had  the
power  to  control  the  franchisee, and  the  firms  were  thus
affiliated.  Dani, SBA No. SIZ-3379, at 6.

      The  Dani  appellants,  together  with  Norrell,  filed  a
complaint for declaratory and injunctive relief against  SBA  in
the  U.  S.  District  Court for the  District  of  Columbia  to
restrain the Agency from enforcing this Office's decisions.  The
Dani appellants argued because the franchisees had the right  to
profit  and bore the risk of loss, and there was no evidence  of
shared  management, centralized stock ownership, or  centralized
business or contractual decision-making, this Office should  not
have  concluded the franchisor and franchisees were  affiliated.
The  court  rejected  these arguments, and  held  this  Office's
decision  was  not arbitrary and capricious, but  based  upon  a
reasonable   interpretation   of   SBA's   regulations   clearly
consistent  with  the plain meaning of the regulations  and  the
Congressional mandate embodied in the Small Business Act.   Dani
Enterprises,   Inc.,   et   al.  v.   U.   S.   Small   Business
Administration, 757 F. Supp. 99, 102-106 (D.D.C. 1991).

      This Office has consistently applied Dani over the past 12
years,  relying  upon  the  precedent  numerous  times  in   its
decisions. [6]

                  C.  The Merits of the Appeal
                                
                 1.  The Coastal Base Precedent

      Appellant  first asserts this Office has been inconsistent
in applying the Dani precedent.  It relies largely on two cases,
Coastal  Base and Orange Grove.   In Coastal Base, however,  the
temporary  employees whose services the franchisee  provided  to
its  customers  were  not  reported as being  the  franchisor's,
rather than the franchisee's, employees.  See Coastal Base, at 2-
4.  Regardless of industry practice, in assessing a precedent we
must  evaluate it in light of the facts as reported in the case.
Accordingly, the Administrative Judge must conclude there  is  a
vitally important distinction between the facts in Coastal Base,
on the one hand; and in Dani, its progeny, and the instant case,
on the other.

       Further,  the  contract  in  Coastal  Base  provided  the
franchisor  would  handle the franchisee's payroll  and  billing
only  at  the  franchisee's option.  Id.  Appellant argues  this
second  distinction  is irrelevant, because  if  the  franchisee
exercises  it,  the  franchisor will still  be  controlling  its
payroll  and  billing.  Appellant argues SBA does not  recognize
the  concept of affiliation by election.  However, this  is  not
true.  The concept is properly identified as affiliation through
contractual  arrangements, which result in one firm  controlling
another.   13 C.F.R. Section 121.103(a)(2).   The franchisee  in
Coastal  Base had options as to how it would handle its  payroll
and  billing.  The franchisees in Dani, like Appellant,  had  no
option,  and thus were more subject to the franchisor's  control
than   the   franchisee  in  Coastal  Base.   Accordingly,   the
Administrative Judge concludes Coastal Base is not  inconsistent
with  Dani, but rather is distinguishable, because the temporary
employees  whose  services the franchisee was providing  to  its
customers  were  not  the employees of the  franchisor  and  the
franchisee  had  the option of either turning  its  payroll  and
billing  functions  over  to  the franchisor,  or  making  other
arrangements.

                 2.  The Orange Grove Precedent

      In  Orange Grove, this Office held a medical practice  was
not affiliated with a large management firm which handled all of
its  non-medical administrative functions.  The  basis  for  the
holding  was  that, by retaining control over  all  the  medical
aspects  of  its  practice,  the challenged  firm  had  retained
control  of the core of its business, and its ultimate  product.
Orange  Grove,  at  7-9.  The management firm  was  clearly  the
medical firm's servant.

     It is important to note that Orange Grove did not involve a
franchise,  and  thus  is distinguishable  from  Dani  on  those
grounds.    Appellant  argues,  however,  the   arrangement   is
sufficiently   similar   that  the  precedent   is   applicable.
Appellant's  reliance on Orange Grove goes to the  core  of  its
argument  and  its  assertion of a fundamental  flaw  at  Dani's
heart.   What  is the ultimate product of Appellant and  similar
temporary  help  firms?  Appellant argues  the  declarations  it
submits  establish its product is the services the firm provides
to  identify prospective customers; determine their  needs;  and
find,  train, assign, and supervise the temporary employees  the
customers  require.  Performing these services requires  "skill,
creativity,  imagination,  persistence,  knowledge,  innovation,
interpersonal  skills  and other human qualities."   Appellant's
declarations  provide an impressive discussion of the  range  of
tasks  Appellant  performs  and  the  diligence  with  which  it
performs them.

      However, the final judge of a firm's ultimate product must
be  its  customers; the question being, what  do  they  seek  to
procure?   Here, the VA seeks to procure temporary personnel  to
perform  billing services.  The Solicitation is  concerned  with
the  qualifications,  training, and  ability  of  the  temporary
personnel the eventual awardee will supply, not with the efforts
of  the  awardee  in  finding,  training,  and  assigning  those
temporary  personnel.  Solicitation, at 5-13,  42-43.   This  is
true  of  any  customer  of temporary personnel  services.   The
product they seek to procure is the temporary personnel and  the
services these employees perform.  Appellant's argument confuses
the  efforts and tasks needed to produce and supply its  product
to  its customers with the product itself.  One does not seek to
purchase  from General Motors marketing skill, design expertise,
and   manufacturing  efficiency;  one  seeks  to   purchase   an
automobile.

      Here,  Appellant's product is the temporary employees  and
the   services  they  perform.   These  employees  are   Lloyd's
employees, and Lloyd controls their payroll, invoices for  their
services,  and  collects the accounts receivable their  services
generate,  turning  over to Appellant only those  funds  due  it
under  the  Franchise Agreement.  This leads to the  inescapable
conclusion that Lloyd controls the core of Appellant's business,
and  its ultimate product.  Accordingly, the Dani precedent  and
instant case are clearly distinguishable from Orange Grove.

                                
                                
                       3.  Other Arguments

      Appellant's argument that payroll, billing, and collection
are mere ministerial services is without merit.  These functions
are  the handling of the firm's cash flow, the very heart of any
business.  Further, it is instructive that Appellant's own brief
stresses  how  important it is to Lloyd that Lloyd handles  this
cash  flow,  as Lloyd depends upon these collections  to  obtain
payments.    The   Franchise  Agreement   appears   to   arrange
Appellant's  fiscal  affairs with an  emphasis  on  what  is  to
Lloyd's  advantage, not Appellant's.  Lloyd's control  of  these
functions  is  an  important  indicator  of  its  control   over
Appellant.   It  may be important to Lloyd that  Appellant  only
does business with customers it deems creditworthy, but this  is
a  judgment  independent businesses usually make for themselves.
Similarly,  the  fact Appellant lacks the discretion  to  decide
whether   its   own  staff  will  be  employees  or  independent
contractors is also an indication of control by Lloyd.

      The  fact there may be good business reasons for this does
not  change the fact that Appellant's cash all flows into Lloyd,
any  money  it receives comes from Lloyd, and this leaves  Lloyd
with  a significant amount of control over Appellant.  That  the
obligation  to  make  payments arises when a temporary  employee
works does not alter the fact it is Lloyd who controls the money
and makes the payments.  Appellant's argument that Lloyd has  no
discretion in the making of payments is belied by the fact  that
it  is  Lloyd which holds the money, and decides what deductions
must  be made and what payments are due.  If Appellant disagrees
with  Lloyd's  calculations,  it  must  resort  to  arbitration.
Simply   put,  Lloyd  controls  Appellant's  money.  [7]    That
Appellant's  mishandling of client relations  could  harm  Lloyd
does not alter the reality that it is Lloyd who bills, collects,
and  disburses  all  the funds.  Further,  Appellant  gives  the
discretion  to  decide under what terms it will retain  its  own
personnel.  They must be employees, not independent contractors.

     Appellant does appear to have established that this type of
arrangement  is  customary  for  many  firms  in  the  temporary
employment industry.  In that sense, Dani's finding that such an
arrangement   is  a  "noncustomary  intrusion"   is   incorrect.
However,  Dani's finding, viewed in the context of  business  in
general,  is  correct.   Even in franchise  arrangement,  it  is
highly  unusual  for  one  firm to give  another  such  complete
control over its cash flow.  And it is the element of control to
which SBA must look in determining affiliation.  The fact it  is
customary   in  the  temporary  employment  industry   for   the
franchisor  to take such a degree of control does  not  diminish
the  fact that the control exists, and it results in affiliation
between franchisor and franchisee.  Appellant seeks an exception
for  its industry from normal rules of affiliation based on  its
industry practices.  This is a policy question, and thus  beyond
this Office's jurisdiction.

     Appellant's argument that SBA's regulation on PEOs supports
its   position  is  meritless.   The  regulation  provides  that
concerns which lease employees from concerns engaged in  leasing
employees  (i.e.,  firms like Appellant's  customers)  or  which
enter  into a co-employment arrangement with a PEO (i.e.,  firms
like  the  challenged firm in Orange Grove) are  not  affiliated
with   the   leasing  firm  or  the  PEO.   13  C.F.R.   Section
121.103(b)(4).  SBA first issued this rule in its 1996  revision
of  its  regulations. [8]  See 60 Fed. Reg. 57982, 57985,  57996
(Nov.  24, 1995) (proposed rule); 61 Fed. Reg. 3280, 3287  (Jan.
31,  1996) (final rule).  The regulation was revised in 2000  to
include  a  specific reference to PEOs.  See 65 Fed. Reg.  35810
(June  6,  2000)  (final  rule).   In  the  2000  revision,  the
accompanying  preamble  clearly stated  the  rule  was  narrowly
written  "so as not to impact findings of affiliation  based  on
control  or other grounds."  Id. at 35812.  The commentary  also
clearly  stated  that  where  a  franchise  agreement  gave  the
franchisor  control  of the temporary employees  the  franchisee
leases out, the firms are affiliated.  See Id. at 35812.

      The  regulation is part of the section where SBA sets  out
certain  narrowly defined exceptions to findings of affiliation,
in   situations  where,  but  for  the  exception,  there  might
otherwise  be  a finding of affiliation.  See 13 C.F.R.  Section
121.103(b).  It is clear this regulation was precisely  tailored
to  cover  only  firms  which utilized  PEOs  and  customers  of
temporary   employment  agencies,  and   not   cover   temporary
employment   firms  which  are  franchisees  of   large   firms.
Appellant's   assertion  of  inconsistency  in  inapposite.    A
narrowly tailored exception is of course not entirely consistent
with  a  general  principle.  In this case, SBA  made  a  policy
decision  an exception was appropriate and enacted the exception
under   its   rulemaking  authority  using   proper   rulemaking
procedures.  SBA also clearly left undisturbed the Dani line  of
precedent.

      Appellant's argument that its financial relationship  with
Lloyd  is  analogous to assignment of claims financing  is  also
inapposite.   Such  assignments may be made  only  to  banks  or
similar  financial institutions.  See 41 U.S.C. Section  15;  48
C.F.R.  Section 32.802(b).  Conventional arm's-length  financing
of  this sort is not a basis for a finding of affiliation.   See
Size Appeal of Calcasieu Refining Company, SBA No. SIZ-3583,  at
16  (1992).   On  the other hand, financing, when combined  with
other  factors  which  give  the firm  extending  the  financing
control or the power to control the challenged firm, is a  basis
for a finding of affiliation.  See Size Appeal of American Guard
Services,  SBA  No.  SIZ-4397, at 6-8 (2000).  [9]   Appellant's
receipt  of  financing from Lloyd, in the context of  the  other
provisions  of  the  Franchise  Agreement,  is  clearly  another
indicium of control.

      Appellant's  remaining arguments amount to  the  assertion
that  the Area Office erred in failing to find that the  various
aspects  of its business it clearly does control establish  that
Appellant does have control over its business, despite the other
provisions of the Franchise Agreement.  Appellant's bearing  the
burden   of  uncollectible  accounts  is  one  example.    After
reviewing    Appellant's   pleading   and   declarations,    the
Administrative Judge concludes the Area Office did  not  err  in
rejecting Appellant's argument.  The Area Office was relying  on
this Office's clear, long established precedent that a franchise
agreement  containing  provisions  similar  to  those   in   the
Franchise  Agreement between Appellant and Lloyd amounted  to  a
degree  of  control which necessitated a finding of affiliation.
While  there  are  factors, among them Appellant's  bearing  the
burden  of uncollectible accounts, lack of common ownership  and
management  between  the firms, and its  special  provision  for
termination  of the business, which weigh against a  finding  of
affiliation,   they  are  outweighed  by  the  many   provisions
discussed  above which establish Lloyd's control over  Appellant
and  mandate  a  finding  of  affiliation.   The  other  factors
Appellant  raised demonstrate the firm is not a shell,  and  its
officers and employees perform real work.  They do not, however,
outweigh  the  provisions  of  the  Franchise  Agreement   which
establish Lloyd's control over Appellant.

                          4.   Summary
                                
      Appellant  seeks  to overturn one of this  Office's  long-
established precedents.  Dani was carefully considered  by  this
Office,  which  reached the conclusion that, in the  case  of  a
temporary  services  firm, where there is a franchise  agreement
which  provides that the temporary employees leased out  by  the
firm  are  to  be  the  franchisor's employees;  the  franchisor
controls  the payroll, billing and collection of the franchisee;
and  the agreement provides the franchisor will control  60%  of
the  firm's  uncollectible  accounts, that  franchise  agreement
gives  the  franchisor  control or  the  power  to  control  the
franchisee, and the firms are thus affiliated.

      Dani  was  affirmed by the U.S. District  Court,  and  has
remained  undisturbed for twelve years.  SBA has  rewritten  its
regulations  several times since Dani was decided, and  yet  has
left  this  precedent undisturbed.  Further, SBA carved  out  an
exception to its affiliation rules dealing with PEOs,  yet  made
clear this exception did not disturb Dani.

      Appellant now seeks to overturn this precedent.  Appellant
argues  Dani  lacks analysis; yet one wonders if any  degree  of
analysis  would  suffice for Appellant.   Appellant's  stock  in
trade,  the product it supplies to its customers, is a corps  of
temporary employees who are, in fact, Lloyd's employees.   Lloyd
controls  all  the  money for the business.  It  bills  for  the
temporary employees' services, collects the accounts receivable,
and  pays  the  employees.  Lloyd then  remits  those  sums  due
Appellant, after deducting those sums due to Lloyd.  There is an
extensive schedule of fees Appellant must pay Lloyd.   Money  is
the  heart  of  any business, its reason for being,  and  it  is
frivolous   to   take  any  other  position.    Lloyd   controls
Appellant's cash flow.  Lloyd also has a great deal  of  control
over  many  aspects of the day-to-day operation  of  Appellant's
business.   Simply  put, this Franchise Agreement  is  far  more
restrictive  than  the one considered in Dani.   The  degree  of
control  the Franchise Agreement gives Lloyd mandates a  finding
of affiliation between the firms.

      Appellant's argument there are good business  reasons  for
the  arrangements  is  inapposite.   First,  it  is  clear  from
Appellant's  own brief that many of these arrangements  are  for
Lloyd's  benefit, which reinforces the conclusion they  lead  to
Lloyd's  controlling  Appellant.   Second,  merely  because   an
arrangement  is  a good business practice does  not  preclude  a
finding   that  one  firm  controls  another.   Even   accepting
Appellant's argument that the Franchise Agreement embodies  good
business  practices,  the  control it grants  Lloyd  mandates  a
finding of affiliation.  Appellant had a choice to make, between
independence and sheltering under Lloyd's wing.  Having made the
one  choice, it cannot expect the benefits meant for  those  who
choose the other.

     In essence, Appellant is making a policy argument here that
Dani  is  bad law, bad policy, and franchisees in the  temporary
employment  industry should have an exclusion  from  affiliation
coverage.  As noted above, this Office is not the forum for this
argument.  This Office must enforce the regulations as  written,
relying   on  our  established  precedents.   Under   both   the
regulations  and  the case precedent, it is clear  Appellant  is
affiliated  with  Lloyd, and thus other  than  small,  and  that
therefore Appellant has failed to establish that the Area Office
erred in its size determination.
                                
                        III.  CONCLUSION

     For the above reasons, the Administrative Judge AFFIRMS the
Area  Office's size determination and DENIES the instant appeal.
[10]

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

__________________________________
                                     CHRISTOPHER HOLLEMAN
                                     Administrative Judge

_________________________

         The  Small  Business  Administration  has  revised  its
regulations  governing  the  small business  size  determination
program  and  its regulations governing size appeals.   67  Fed.
Reg.   47244  (July  18,  2002).   However,  because  the   size
determination  which is the subject of this  appeal  was  issued
prior  to  the September 16, 2002, effective date of this  rule,
the prior regulations apply to this appeal.
      2   Effective February 22, 2002, the SBA changed the  size
standard  for  NAICS code 524298 to $6 million.   67  Fed.  Reg.
3041, 3051 (Jan. 23, 2002).
      3   The Administrative Judge has reviewed the record,  and
concludes  that  he  has  not  included  in  this  decision  any
proprietary  material requiring a Protective Order covering  the
decision  itself.  This decision does not discuss in detail  the
material   in   the  declarations  Appellant   submitted.    The
provisions of the Franchise Agreement are discussed, as they are
in  all  of  this Office's franchise decisions.  To redact  them
would render the decision unintelligible.  Appellant's financial
information is not discussed.  Accordingly, this decision is not
being issued under the Protective Order.
      4  The six exhibits are: Exhibit A, Declaration of Deborah
J.  Egan (Egan Declaration); Exhibit B, Declaration of Lance  E.
Goldstein  (Goldstein Declaration);  Exhibit C,  Declaration  of
Kurt  A.  Halls  (Halls  Declaration); Exhibit  D,  Supplemental
Declaration of Jacquelyn D. Garvin, with two attachments (Second
Garvin  Declaration);  Exhibit E,  Modification  No.  1  to  the
Franchise  Agreement and related correspondence; and Exhibit  F,
Material  from the National Association of Professional Employer
Organizations (NAPEO material).  Exhibit E is also in  the  Area
Office file.
      5   The  pleadings of Time Services, Inc. and Accountants,
Inc.  are  not  considered here, because they were not  properly
filed   and  served.   13  C.F.R.  Sections  134.204,   134.307.
However, they also largely repeat Appellant's arguments.
     6  See, e.g. Size Appeal of Hawaii Personnel Services, Inc.
d/b/a  ADECCO,  SBA No. SIZ-4341 (1999); Size  Appeal  of  Evins
Personnel  Consultants,  Inc., SBA  No.  SIZ-4245  (1997);  Size
Appeal  of  Western Temporary Services, Inc., SBA  No.  SIZ-3677
(1992).
      7  Lloyd's Offering Circular states Lloyd may deduct money
from  its payment to Appellant without express authorization  in
the Agreement.  Lloyd's Offering Circular, at 8.
      8   It thus goes without saying that this Office could not
have  taken  the  rule into account in Dani, decided  six  years
prior to the promulgation of the rule.
      9  Appellant is correct that an assignment of its contracts
to  Lloyd  might  run afoul of 41 U.S.C. Section  15.   In  this
context,  the  SBA's  statement that Lloyd,  not  Appellant,  is
providing the services under the contract might be viewed not as
error,  but as an overstatement, based on the fact that  Lloyd's
employees will perform the actual services procured.
      10   Appellant's  plea  that it be admitted  to  the  8(a)
program  is beyond this Office's jurisdiction, even  if  it  had
prevailed   in   its   appeal.   SBA's   regulations   governing
eligibility for and admission to the 8(a) program are  found  at
13 C.F.R. Sections 124.101 - 124.207.

                                              Posted: April, 2003