Omnisec, International and Securiguard, Inc., No. 3761 (April 8, 1993).
Docket No. SIZ-92-6-1-59

                    UNITED STATES OF AMERICA

                  SMALL BUSINESS ADMINISTRATION

                 OFFICE OF HEARINGS AND APPEALS

                        WASHINGTON, D.C.

                                

SIZE APPEALS OF:                   )
Omnisec, International             )
     and                           )
Securiguard, Inc.                  )
                                   )
     Appellants                    )  Docket Nos. SIZ-92-6-1-59
                                   )              SIZ-92-6-2-60
Solicitation No.                   )
SSA-RFP-91-0849                    )
Department of Health and           )
  Human Services                   )
Social Security Administration     )
Baltimore, Maryland                )

                             Digest
                                
When an appellant is notified by a contracting agency,
subsequent to a dismissal of its appeal for mootness, that the
agency intends to terminate the appellant's contract should the
Regional Office determination appealed not be reversed, a
petition for reconsideration will be granted.

When a large concern is found to be affiliated as an ostensible
subcontractor of a small business in a Regional Office size
determination, the large firm lacks the "direct stake" in the
outcome of the controversy necessary to comply with the standing
requirement in 13 CFR 121.1703.

A concern is affiliated with its ostensible subcontractor when
their respective nonmanagement employees are intermingled and
discharge the same type of duties necessary to perform the
contract.

            DECISION ON PETITION FOR RECONSIDERATION

                          April 8, 1993
                                

WRIGHT, Administrative Judge, Presiding:

Jurisdiction

These Petitions for Reconsideration are decided under the Small
Business Act of 1958, 15 U.S.C. 631 et seq. and the regulations
codified at 13 CFR Part 121.

Issues

Whether the Petitions for Reconsideration present new questions
raised by the decision concerning which Petitioners had no
previous opportunity to present evidence or argument.

Whether a large concern has standing to appeal the Regional
Office's adverse determination regarding its affiliate.
Whether a concern is a joint venturer when its nonmanagement
employees are commingled with those of its ostensible subcon
tractor in performing the same duties.

Facts

On September 4, 1992, both Omnisec, International (Omnisec) and
Securiguard, Inc. (Securiguard) filed timely Petitions for
Reconsideration 1/ of our dismissal of Size Appeals of Omnisec
International and Securiguard Inc., No. 3660 (1992), issued on
August 18, 1992. That decision dismissed, as moot, two appeals,
consolidated for convenience, of a Regional Office determination
that Omnisec was affiliated with its ostensible subcontractor,
Securiguard, a large concern. Our dismissal was premised on the
prior award of the contract to Omnisec and the fact that the
contract-specific finding of the Regional Office could have no
effect on Omnisec's participation in future procurements.

In the present Petitions, Omnisec and Securiguard aver that "new
evidence" suggests that the Contracting Officer intends to
terminate the contract with Omnisec if the adverse Regional
Office determination stands. Petitioner, Omnisec, asserts that
it was apprised of this possibility only as of September 4,
1992, subsequent to our issued decision, and argues that information
acquired for the first time on that date constitutes new
evidence within the meaning of 13 CFR 121.1721(b) and Size
Appeal of Analytical & Research Technology. Inc., No. 3556
(1992).

Both petitions are opposed by Stay, Inc. (Stay), which urges
their dismissal. Regarding the petition of Omnisec, Stay asserts
that the grounds therein argued do not constitute 8'new
questions concerning which Petitioner had no previous
opportunity to present as argument." In reply, Omnisec disputes
the facts of Stay's argument and its interpretation of them.

Stay also claims that Securiguard, as a large concern, lacked
standing to bring its appeal in the first instance and, in
consequence, its present petition should be dismissed. In
opposition, Securiguard asserts that it is an interested party
within the meaning of 13 CFR 121.1703 with standing to appeal
and, derivatively, to bring the present Petition for
Reconsideration.

Returning to the basis of Omnisec's Petition for Reconsidera
tion, we note that it asserts that its first notice of SSA's
intention to terminate the present contract came in the form of
a letter addressed to it and dated September 4, 1992. In
pertinent part, the letter informed Omnisec that

     [a]s we understand it, OHA's decision, which dismissed
     your appeal as moot, did not invalidate the SBA
     Philadelphia Regional Office's May 20, 1992 determina-
     tion that Omnisec was a large business for purposes of
     its present contract with SSA. The Department of Health
     and Human Services (DHHS) represented to GAO that if the
     Regional Office's determination was upheld, SSA would
     terminate the contract and award the contract to Stay,
     Inc. Therefore, in accordance with these
     representations, we intend to terminate Omnisec's
     contract and to award the contract to Stay.  See Watkins
     Security Agency. Inc., B-248309 (GAO Aug. 14, 1992) at 3
     & n.1.

Stay disputes that the September 4, 1992 letter was Omnisec's
first notice of the Agency's intention to terminate. It claims
that a letter dated May 22, 1992, from the Social Security
Administration to the Government Accounting Office (GAO) came
into Omnisec's possession during the pendency of the appeal,
prior to our dismissal for mootness. This letter indicated, in
pertinent part, the following:

     Copies of the report are being furnished to the protester,
     Watkins Security Agency, Inc. (Watkins) and to Omnisec
     International (Omnisec), an interested party.
                                
            *        *        *       *      *     *
                                
     [T]he appropriate corrective action to be taken by SSA
     will involve terminating Omnisec's contract and award-
     ing to the next offeror in line for award, which is
     Stay, Inc.
  
Stay suggests that the "appropriate corrective action" referred
to in this letter was notice of the Agency's intention to
terminate the contract and award it to Stay, should the Regional
Office's determination, for some reason, remain in effect.

Petitioner Omnisec disagrees with this interpretation and argues
that it "...goes well beyond the clear meaning and intent of HHS
in the May 22 letter."

Petitioner Securiguard also argues that it first became aware of
the Contracting Agency's intention to terminate, by means of the
September 4, 1992, letter to Omnisec, which was forwarded to it.

In dismissing this case on the basis of mootness, we were
uninformed that a determination on the merits might affect the
present solicitation. As in Size Appeal of Analytical & Research
Technology, Inc., No 3556 (1991), the Appellants should not be
required to anticipate our exercise of judicial discretion,
invoking mootness as the basis to dismiss this case.

We further find that the letter of May 22, 1992 was insufficient
to put either Omnisec or Securiguard on notice that the
Contracting Agency actually intended to terminate its contract
with it. Examining all other evidence of record, we conclude
that neither Omnisec nor Securiguard received notice, prior to
the letter dated September 4, 1992, of Agency intentions. Thus,
as "new evidence" of that intention was received after issuance
of our decision, we conclude a determination on the merits is
appropriate and grant the Petitions in order to render that
determination.

The size determination challenged in this appeal was issued by
the Philadelphia Regional Office on May 20, 1992. In it, the
Regional Office determined that, pursuant to a teaming agreement
executed between the parties, Omnisec is unduly reliant on its
ostensible subcontractor, Securiguard, for performance of the
present contract. This determination was based on "the totality
of the circumstances, regulations and precedent decisions" and
the Regional Office's conclusion that

  Securiguard (the incumbent large business) played a principal
  role in winning the contract, collaborated significantly in
  proposal preparation, will perform vital functions of the
  contract, and has at least negative power to control Omnisec's
  level of participation in vital contract actions.
  
The size determination also noted that the proposed Project
Manager is the present Project Manager for Securiguard; that
Securiguard is the incumbent contractor, with extensive
experience in Federal government contracts in the Baltimore
Washington area; that Omnisec has previously performed only four
small non-government guard service contracts in Fort Wayne,
Indiana; and that

     [b]oth parties agree that "Omnisec and Securiguard will
     mutually prepare and integrate data required for the proposal"
     with Omnisec designated as the prime contractor and
     Securiguard as subcontractor. The Agreement further provides
     that the "parties will together participate in oral
     discussions concerning their respective contribution to the
     proposal"; both parties will "receive all documentation and
     information concerning oral discussions and negotiations
     between either party and the Government;" and "neither party"
     will in any way modify the proposal during the discussions to,
     or decrease potential cost or fee recovery unless both parties
     specifically approve."
  
     Emphasis in the original.
  
The Regional Office further observed that administrative
activities, including "recruitment, personnel screening and
processing, examination, qualification, testing, training,
payroll, uniforming, etc" were to be conducted, under the
proposal, at Catonsville, Maryland. This, it observed, was the
location of Securiguard's office. The proposal further provided
that the joint team would utilize the Securiguard uniform and
accessories and further that

     [t]he proposal states that "Omnisec/Securiguard will provide
     official bonding, pay any fee or costs required by the State
     of Maryland relating to arming of our employees...." Only
     Securiguard was in possession of a Private Detective License
     from the State and Maryland and Federal Communications
     Commission (FCC) License. Omnisec has applied for a State of
     Maryland Private Detective License.
     
The Regional Office then performed an analysis of the proposed
method of contract performance based upon seven factors 2/
employed in Size Appeal of Ideal Services, Inc., No. 3317 (1990)
for analyzing the "totality of the circumstances" surrounding
contract performance in order to determine whether a joint
venture exists between the prime contractor and its ostensible
subcontractor:

      (1)  who will manage the contract
      
      (2)  which party possesses the requisite background and expertise
           to carry out the contract
      
      (3)  which party "chased the contract"
      
      (4)  what degree of collaboration was there on the bid or
           proposal
      
      (5)  are there discrete tasks to be performed by each or is there
           commingling of personnel and materials
      
      (6)  what is the amount of work to be performed by each
      
      (7)  which party performs the more complex and costly contract
           functions

Regarding the management factor, the Regional Office noted that
the incumbent Project Manager, an employee of Securiguard, is to
become the Project Manager of Omnisec for purposes of the
contract. As no first-line supervisors are identified under the
contract, and all are currently employed by Securiguard, it
notes that it is impossible to determine which firm will employ
them for purposes of the contract. It points to the paucity of
Omnisec's experience and contrasts it with the incumbent,
Securiguard's, "acknowledged expertise in performing numerous
security guard contracts for the Federal Government in the 32
years it has been in business." The Regional Office, identifying
Securiguard's incumbency and awareness of the issuance of a new
contract (for which it was disqualified), acknowledges it to be
difficult to determine which concern chased this contract. It
further concludes that, although both firms prepared the
proposal, "a significant, if not decisive, amount of the effort
must have been performed by Securiguard in view of Omnisec's
lack of experience." The Regional Office points to the lack of
any specific delineation of performance tasks in the proposal
and notes that ["t]he proposal and the teaming agreement merely
provide that contract hours and costs will be shared 45/55
between Securiguard and Omnisec." Further, it notes that

     [i]t also appears that the equipment currently being
     used by Securiguard will be utilized by the Omnisec/
     Securiguard team for this effort. Further, the office to
     be utilized by the Omnisec/Securiguard team is that of
     Securiguard in Catonsville, MD.
     
Regarding which party performs the more complex and costly
contract functions, the Regional Office observes:

     As stated previously, it appears that the employees of
     both firms will be performing the same functions. We are
     also hard pressed to determine that the firms are not
     sharing profits, since it appears that everything
     (including profits) will be split on a 45/55 ratio.
     
Concluding that Securiguard has at least negative power to
control Omnisec's proposal, the Regional Office observes that

     both Omnisec and Securiguard together are required to
     participate in all discussions and negotiation to take
     place with the Government. The Teaming Agreement further
     provides that neither party is permitted to modify the
     proposal which would result in an increase in
     performance or decrease in potential cost or fee
     recovers unless both parties specifically approve.
     Additionally, a joint review of the cost proposal was
     required, and failure of both Omnisec and Securiguard to
     agree on the final prices to be proposed would result in
     termination of the agreement.
     
     Emphasis in original

In its timely 3/ appeal filed in the Office of Hearings and
Appeals, Omnisec argues that the Regional Office made an
erroneous size determination on the basis of its factual
conclusions. It specifically claims that, as the solicitation
contained no requirement that the offerors identify first
line supervisors, this Office should not now use the failure
to do so against it.

Omnisec suggests the determination underestimates the background
of Omnisec as reflected in the prior experience of its officers;
that nothing it the record indicates Omnisec's lack of experi
ence, and, in any event, the security requirements of this
solicitation are not sophisticated; and that, furthermore, while
Securiguard's status as the incumbent contractor was helpful in
the present submission, it was not determinative of background
and expertise to carry out the contract.

Omnisec further argues that, as the guard service solicitation
did not require a specific division between the concerns of
discrete contract tasks, the Office of Hearings and Appeals
should not now do so. It also asserts that the use of
Securiguard's office is due only to the State of Maryland
requirements. Finally, it urges that the Regional Office's
discussion of negative control is inappropriate to the present
determination and that the principal cases cited by the Regional
Office to support its conclusion are distinguishable from the
present circumstances.

For reasons which will be discussed below, we will not discuss
the grounds of Securiguard's appeal; these resemble those
proffered by Omnisec.

In response to the foregoing assertions by Appellant, Stay, Inc.
presents a different characterization of this solicitation,
describing it as a large contract with technically complex
specifications. Nor does it agree with Omnisec's self-charac
terization of its background and expertise. Thus, it notes that
Omnisec's prior year revenues amount to less than one million
dollars and it has never before supplied security guards service
to the Federal government. In contrast, Stay asserts, the
expertise of Securiguard is demonstrably substantial.

Stay notes that the teaming agreement between the concerns
requires Securiguard's express approval for any change to the
proposal and that, although the solicitation requires one,
Omnisec did not have a current Maryland private protective
license, and "it submitted Securiguard's license to prevent the
rejection of its offer."

Stay urges that the Regional Office was correct in its evalua
tion, considering all evidence "including reasonable inferences
therefrom, based upon the relationship between Omnisec and
Securiguard." Stay reviews, and comments on the propriety of (he
Regional Office's analysis of the seven factors found in D. P.
Associates. Inc., No, 2719 (1987). Stay claims that, in fact,
"Securiguard will effectively control and manage the entire
contract" and suggests this is demonstrated in the use of
Securiguard's prior Project Manager, employees and their
training and quality control which Securiguard concedes it will
supply for the project. Stay suggests that, "[w]hile it is
common to hire the incumbent's work force when a service
contract changes hands, it is quite uncommon to subcontract that
work." Thus, it urges, the parties are not functionally sharing
the contract, "according to functions which each are qualified
to perform but instead have divided the contract by geographic
locations or posts." As profits are on the basis of work hours,
this geographic arrangement, Stay urges, is a simple way to cut
Securiguard in on the profits of a set aside contract, for which
it is disqualified.

Moreover, Stay claims the failure of the proposal to delineate
tasks for the parties renders it impossible to know whether
Omnisec's supervisory personnel will be responsible and
accountable for Omnisec employees. Accordingly, although the
parties argue that a 55/45 basis was the only practicable way of
bidding the contract, "[w]ithout knowing if Omnisec employees or
Securiguard employees will be stationed at the post, it is
impossible to evaluate who will be in control and manage the
personnel." Thus, Stay asserts, the Regional Office "reasonably
inferred that it could not be shown that Omnisec will manage the
contract."

Regarding requisite background and expertise, Stay noted that

     [t]he project manager, all of the first-line super
     visors, and all of the security guards were all
     employees of Securiguard when it had the contract.
     Without ever performing a comparable contract and by
     utilizing Securiguard's entire work force and
     experience, the SBA reasonable inferred that it would be
     Securiguard which possessed the requisite background
     and expertise to carry out the contract. The telling fact is
     that it is Securiguard's and not Omnisec's experience which
     earned Omnisec a favorable rating on this point. See SBA
     decision at p. 6. Although an individual's experience may be
     transferable to a corporation, Omnisec's officers have not
     performed any federal guard contracts in this area.
     
Stay argues that, because of Securiguard's dominance in relation
to Omnisec, it was Securiguard which chased the present
contract. Likewise, in relation to proposal collaboration Stay
asserts:

     Without Securiguard's information, it is unlikely
     Omnisec would have been able to submit a competitive
     proposal. The SBA's conclusion that Securiguard's
     contribution in the preparation of the proposal was
     invaluable and a necessity for a successful proposal was
     reasonable under the totality of the circumstances.
     
Stay points to an intermingling of personnel and materials for
the contract and the impossibility of determining which party
performs the more complex and costly functions because of the
failure to delineate the supervisors's task in managing the
contract. Stay further suggests that, as the teaming agreement
between the parties provides that "neither party [will be]
permitted to modify the proposal which would result in an
increase in performance of decrease in potential cost or fee
recovery unless both parties specifically approve," it becomes
impossible to determine which party will perform the more
complex an costly contract functions since the precontract
functions or negotiations were not entirely controlled by one
party. Thus:

     If Securiguard did not agree on the final prices in the
     proposal it would have resulted in a termination of
     their agreement with Omnisec. This type of control is
     not indicative of a subcontracting arrangement. A
     subcontractor does not have the power to control or veto
     a prime contractor's negotiation and performance of the
     contract. This is more akin to a joint venture where
     both parties have significant control of the direction
     of the joint venture.
     
Watkins Security Agency, Inc. joined in opposition to the size
appeals of Omnisec and Securiguard. In general, Watkins Security
Agency, Inc. agrees with the characterizations of Stay, Inc. and
asserts that the Appellant fails to carry its burden to demon
strate the error of the Regional Office's determination. In sum,
it argues that

     [t]he "totality of the circumstances" establishes,
     unequivocally, that Omnisec is unusually reliant upon
     Securiguard, its ostensible subcontractor. The two concerns
     are therefore affiliated under 13 CFR 121.401(1).
                                
           *       *         *       *        *      *
                                
     As in Caliber Associates, Omnisec should not now be allowed
     to "disavow its representations in its proposal respecting
     its relationship with its proposed subcontractor..." To do
     so would allow Omnisec to "amend" the Technical and Cost
     Proposals on appeal. Id.

Discussion

In our original decision in this matter, we consolidated the
appeals of Omnisec and Securiguard as a matter of economy and
convenience. While we cited in that decision the regulations
found at 13 CFR 121.1702, in light of the dismissal of it, we
did not discuss the issue of Securiguard's standing to appeal
the adverse Regional Office determination. We cannot now avoid
doing so.

As we stated in Size Appeals of Mela Associates Inc. and Encore
Computer Corporation, No. 3632 (1992), the Office of Hearings
and Appeals has

     traditionally rejected the contention that a large
     subcontractor has standing either to protest a firm's small
     business size status in the context of a small business set
     aside or to appeal a size determination, holding with
     respect to the latter, that a subcontractor lacks that
     'direct stake' in the outcome of the controversy necessary
     to comply with the requirement in 13 CFR 121.1703 that the
     appellant be an 'interested person who was a party to or
     has been adversely affected by a formal size determination
     made pursuant to 121.1601 through 121.1608.'

We conclude that the Petitioner, Securiguard, has demonstrated
no compelling reason to depart from our traditional treatment of
this issue in the present case. Accordingly, as Securiguard, a
large concern, lacked standing to challenge the adverse Regional
Office size determination in this case, our dismissal of its
appeal stands. See Size Appeal of Advanced Technology, Inc., No.
2647 (1986).

Although Securiguard is not a lawful Appellant, we must also
decide whether it has standing as a party for purposes of 13 CFR
121.1721(b), which provides, as follows:

     Within 20 calendar days after issuance of a written
     decision and upon notice to all parties and persons
     specified in 121.1706(a)(6), and upon other persons
     determined to be interested by the Presiding Judge, any
     party may file a petition for reconsideration of such
     decision, setting forth the relief sought, and the
     grounds in support of the petition. Such grounds must be
     confined to new questions raised by the decision
     concerning which the petitioner had no previous
     opportunity to present evidence or argument.
     
No evidence suggests that Securiguard's "direct stake in the
outcome of the controversy..." differs from that which formed
the basis for our denial that it was a lawful Appellant in the
present case. Accordingly, with respect to its standing for the
purposes of 13 CFR 121.1721(b), we conclude that it is not an
interested party for purposes of reconsideration of our
decision. As a consequence of its further lack of standing, it
is not a party allowed to file a Petition for Reconsideration,
and its attempt to do so is, accordingly, ordered dismissed.

Turning to the merits of the case presented by the remaining
Petitioner, we note Omnisec's acknowledgment that no delineation
of any kind was made of an individual firm's assigned tasks
under the alleged arrangement between prime and subcontractor.
The executed Teaming Agreement between Omnisec and Securiguard
memorializes, without any specific enumeration, a 55 to 45
percent split of both supervisory and non-supervisory positions.
The record contains no other information elucidating the
arrangement on the agreement between the two concerns. While
other evidence may buttress our conclusion, evidence of this
criterion, standing alone, supports our conclusion that these
facts suggest a joint venture arrangement. In arriving at this
conclusion, we have not considered either the lack of identified
first line supervisors or the lack of division between the two
concerns of discrete contract tasks to be dispositive, in
itself, of our resolution here.

In our decision in Size Appeal of Analysis & Research &
Technology & Inc., No. 3556 (1991), we observed that

     [i]mplicit in the Regional Office's determination (and
     explicit here) is the assumption that a firm's proposal
     need not be deficient with respect to each of these
     factors [the seven evaluative criteria, supra], and
     review of the case law establishes that some criteria
     are, in themselves, dispositive of the issue of undue
     reliance and joint venture status.
     
In that case, we extensively quoted Size Appeals of Geo
Marine,Inc. and Menendez-Donnell & Associates, No. 3459
(1991) regarding the issue of a proposal which "commingled
staff to discharge the same group of activities," and
concluded, under those facts, that the two concerns'

     respective nonmanagement employees will be treated as a
     single personnel asset, bespeaking that concert of effort
     that is indicative of a joint venture. Absent the
     allocation of discrete tasks that reserve certain contract
     functions to the subcontractor while reserving the
     remainder of contract performance to the prime contractor,
     we cannot conclude that the proposal represents a
     legitimate prime and subcontractor relationship within the
     meaning of 121.401(1)(1).

Inasmuch as the evidence in the present case suggests a similar
undifferentiated use of employees in the bid submitted by
Omnisec and Securiguard, reserving no specific tasks for either,
we, accordingly, conclude that the challenged proposal does not
represent a legitimate prime and subcontracting relationship
within the meaning of 13 CFR 121.401(1)(1), but is a joint
venture. Because of this conclusion, it is unnecessary to
address the other challenges to the Regional Office findings
which were raised.

Conclusion

The Petitions for Reconsideration having been GRANTED, the
Regional Office determination is AFFIRMED; the relief sought in
the appeal is DENIED.

This constitutes the final decision of the Small Business
Administration.

                         _____________________________________
                         G. Stephen Wright (Presiding)
                         Administrative Judge
                         
                         
                         ______________________________________
                         Gloria E. Blazsik (Concurring)
                         Administrative Judge
                         
                         
                         _______________________________________
                         Elwin H. White (Concurring)
                         Administrative Judge

_______________

     1/ These Petitions are hereby consolidated.
     2/ As we stated in the footnote found in Size Appeal of
Analytical & Research Technology, Inc., No. 3556 (1991), "these
factors are not dispositive of the issue of undue reliance but
merely provide guidance in determining whether a joint venture
exists between a prime contractor and its ostensible
subcontractor."
     3/ Jurisdictional and perimetric facts may also be found in
our original decision, Size Appeals of Omnisec. International
and Securiguard. Inc., No 3660 (1992).