Frontier Applied Sciences, Inc., No. 4316 (July 31, 1998)
Docket No. SIZ-98-02-27-11

                REDACTED COPY FOR PUBLIC RELEASE

                    UNITED STATES OF AMERICA
                 SMALL BUSINESS ADMINISTRATION
                 OFFICE OF HEARINGS AND APPEALS
                        WASHINGTON, D.C.

_________________________________
                                 )
SIZE APPEAL OF:                  )
                                 )
Frontier Applied Sciences, Inc.  )
                                 )
     Appellant                   )   Docket No. SIZ-98-02-27-11
                                 )
Solicitation No.                 )   Decided: July 31, 1998
DAAB07-97-R-0017                 )
U.S. Army Communications-        )
  Electronics                    )
Command Acquisition Center       )
Fort Huachuca, Arizona           )
________________________________ )

                           APPEARANCES

                          for Appellant

                      David A. Vogel, Esq.
                     Richard J. Webber, Esq.
             Arent Fox Kintner Plotkin & Kahn, PLLC
                                
                 for Data Systems Analysts, Inc.
                                
                     Edward J. Hoffman, Esq.
                     Robert G. Fryling, Esq.
               Blank Rome Comisky & McCauley, LLP
                                
              for the Small Business Administration
                                
                      Sandra L. Park, Esq.
                    Office of General Counsel
                                

                                
                             DIGEST

An  offeror  has  standing to make a size protest,  and  an  Area
Office  has  authority  to  make  a  size  determination,  in  an
unrestricted procurement where status as a small business may  be
beneficial.

An  Appellant has not demonstrated good cause for submitting  new
evidence on appeal, on the grounds it had not known it needed  to
produce evidence on an issue to the Area Office where that  issue
was the subject of a written question from the Area Office.

A  firm which was formed by a second firm, which spun off one  of
its  divisions less than one month before self-certification,  is
managed  and  controlled by former key employees  of  the  second
firm,  is  in  a line of business related to that of  the  second
firm,  is  performing  all the contracts  of  the  second  firm's
division,  either  as prime or as subcontractor,  and  which  the
shareholders  purchased  for a Note to the  shareholders  of  the
second  firm,  which  Note  now is held  by  the  spouse  of  the
President and principal shareholder of the second firm, and which
Note  provides  for additional revenues to be paid  to  the  Note
holder  in  the  event the firm succeeds financially,  and  which
cannot  demonstrate  a clear fracture with the  second  firm,  is
affiliated  with  the second firm as a newly  organized  concern,
under the totality of the circumstances.

                          DECISION [1]

HOLLEMAN, Administrative Judge:

                          Jurisdiction

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

                                
                             Issues
                                
     Whether an offeror has standing to make a size protest,  and
an  Area Office has authority to make a size determination, in an
unrestricted procurement where status as a small business may  be
beneficial.

     Whether  an  Appellant  has  demonstrated  good  cause   for
submitting  new  evidence on appeal, on the grounds  it  had  not
known  it  needed to produce evidence to the Area  Office  on  an
issue,  where  that issue was the subject of a  written  question
from the Area Office.

     Whether a firm which was formed by a second firm, which spun
off  one  of  its  divisions less than  one  month  before  self-
certification, is managed and controlled by former key  employees
of  the second firm, is in a line of business related to that  of
the  second  firm,  performing all the contracts  of  the  second
firm's  division, either as prime or as subcontractor, and  which
the  shareholders purchased for a Note to the shareholders of the
second  firm,  which  Note  now is held  by  the  spouse  of  the
President and principal shareholder of the second firm, and which
Note  provides  for additional revenues to be paid  to  the  Note
holder  in  the  event the firm succeeds financially,  and  which
cannot  demonstrate  a clear fracture with the  second  firm,  is
affiliated  with  the second firm as a newly  organized  concern,
under the totality of the circumstances.

                         I.   BACKGROUND
                                
                      A. Procedural History
                                
      On August 8, 1997, the U.S. Army Communications-Electronics
Command  Acquisition Center Fort Huachuca, Arizona (Army)  issued
the  subject solicitation for software engineering and  technical
support services.  The Contracting Officer (CO) assigned  to  the
procurement Standard Industrial Classification (SIC)  code  7379,
Computer  Related  Services,  Not Elsewhere  Classified,  with  a
corresponding $18 million average annual receipts size  standard.
The  contract was not set aside, either in whole or in part,  for
small business.

     However,  the  solicitation stated the Army's  intention  to
make multiple awards (up to three), with at least one award to  a
small  business  and  a  goal of 30-40% of  the  contract  value.
Proposals were due on September 8, 1997.1 [2] The CO issued minor
amendments  to  the  solicitation on August  18th,  August  29th,
September  3rd, September 4th, and November 3rd.  Best and  Final
Offers were due on November 26, 1997.

      On  January  16, 1998, the Army made an award  to  Frontier
Applied  Sciences, Inc. (Appellant).  On the same day,  the  Army
notified  unsuccessful offerors by telecopier.   On  January  23,
1998, Data Systems Analysts, Inc. (DSA), an unsuccessful offeror,
filed  a  size  protest with the CO.  DSA asserted Appellant  was
affiliated  with Frontier Electronic Systems Corporation  (FESC).
On  January 26, 1998, the CO forwarded the protest to  the  Small
Business   Administration  (SBA)  Area  V  Office  of  Government
Contracting  in Fort Worth, Texas (Area Office).  On January  28,
1998, the Army issued a stop work order on the contract.

     On  January 28, 1998, the Area Office informed Appellant  of
the  protest, and requested it submit an SBA Form 355 and certain
other  information.  On February 2, 1998, Appellant timely  filed
the  requested information.  On February 10, 1998,  DSA,  through
counsel,  submitted  supplemental  information  to  support   its
protest.   The  Area Office treated this submission  as  untimely
filed and did not consider it.
     
     On February 12, 1998, the Area Office wrote to FESC, with  a
copy to Appellant, informing it of the size protest, and asking a
number  of  questions.   Question  7  stated:   "Describe  Edward
Shreve's  relationship  with FESC or  its  owners/managers."   On
February  13th, Peggy J. Shreve, FESC's President, replied  that,
prior to August 15, 1997,
     
                                               Ms.   Shreve  then
stated:  "Edward L. Shreve is married to Peggy J. Shreve."    The
letter  said nothing more about the relationship between Mr.  and
Ms.  Shreve,  and  Appellant submitted no evidence  to  the  Area
Office concerning that relationship.
     
     On  February  17,  1998,  the  Area  Office  issued  a  size
determination concluding Appellant was affiliated with FESC  and,
thus,  was  other  than small.  On February 18,  1998,  Appellant
received the size determination.  On February 27, 1998, Appellant
filed  the  instant appeal.  Appellant failed to  serve  the  SBA
Office  of  General Counsel, and served only a redacted  copy  on
DSA.  On March 5, 1998, DSA objected to the redactions and to the
new evidence introduced in the appeal.
     
         On  March  5, 1998, the Administrative Judge  issued  an
Order directing Appellant to serve its appeal in accordance  with
13  C.F.R. Section 134.204(a) and, if Appellant wished to protect
any  portion  of its pleadings, also to seek a Protective  Order.
On  March  6,  1998, Appellant filed a request for  a  Protective
Order, which the Administrative Judge granted on March 17, 1998.
     
     The  Administrative Judge also ordered Appellant to respond,
by filing a motion for admission of new evidence and establishing
good  cause  for its admission for the first time on  appeal,  to
DSA's  objection to Appellant's new evidence.  The Administrative
Judge  further ordered both parties to address the issue of  this
Office's  jurisdiction  over  the  instant  appeal  because   the
procurement was not set aside for small business; he also invited
comments from the CO and SBA on this issue.
     
     On  March  24,  1998, the Army responded to the  March  17th
Order, asserting this Office should take jurisdiction.  On  March
30,  1998,  DSA  filed  a Motion for Leave to  Submit  Additional
Evidence.   On April 3rd, the Administrative Judge ordered DSA to
proffer  its  new  evidence on the issue of the Shreves'  marital
status  only,  and to show good cause for its admission  for  the
first  time  on  appeal.  The Administrative Judge  reserved  his
decision  on whether to admit this new evidence, and also  denied
other portions of DSA's March 30th Motion.
     
     On April 6, 1998, Appellant filed a Motion for Consideration
of New Evidence, and a Memorandum on Jurisdiction, in response to
the  March 17th Order, together with new evidence.  On  April  7,
1998, DSA filed its response to the appeal, and to the March 17th
and April 3rd Orders, together with new evidence.
     
     On  April  7, 1998, SBA, through counsel, moved to intervene
as  of right under 13 C.F.R. Section 134.210(a), and requested an
extension  of  time  to file its comments.   On  April  8th,  the
Administrative Judge granted this request. [3]
     
     On April 16, 1998, the Administrative Judge held a telephone
conference  to  discuss procedural matters.  That same  day,  the
Administrative  Judge  issued  an  Order  permitting  Appellant's
counsel  to  release  portions  of  the  protected  material   to
Appellant;  permitting DSA's counsel to release the non-protected
portion  of  its brief to its client; permitting the  parties  to
file,  by April 21st, responses to the new evidence in the  April
6th and 7th submissions; and setting May 1, 1998 as the close  of
record.   The Administrative Judge also reserved his decision  on
the admissibility of the new evidence.
     
     On  April  21, 1998, Appellant responded to DSA's April  7th
filing, and proffered additional new evidence.  Also on April 21,
1998,  DSA moved to exclude Appellant's new evidence.  SBA  filed
its  comments on April 21st.  On May 1, 1998, Appellant  and  DSA
replied to SBA's filing.
                                
                               B.
                     The Size Determination
                                
     The Area Office discussed Appellant's corporate history.  In
January  1996,  Robert  L.  Johnston  and  Royce  D.  Chancellor,
employees  of  FESC's  predecessor,  Frontier  Engineering,  Inc.
(FEI),  approached  Peggy J. Shreve, FEI's majority  stockholder,
about  purchasing FEI's Technical Services Division.   Edward  L.
Shreve, Ms. Shreve's husband, was FEI's minority stockholder.
     
     The   Area  Office  found  that,  on  July  17,  1997,   FEI
incorporated   Appellant  as  a  wholly-owned   subsidiary,   and
transferred  to Appellant all assets, liabilities, and  employees
of  its  Technical Services Division.  On August  15,  1997,  FEI
changed its name to FESC.  Also on August 15th, FESC sold 100% of
its  stock in Appellant to the former Technical Services Division
employees through an Employee Stock Ownership Plan (ESOP).
     
     The ESOP purchased the stock from Mr. and Ms. Shreve with  a
Promissory  Note for       , secured by Appellant's assets.   Ms.
Shreve assigned her interest in the Note to Mr. Shreve, in return
for all of his stock in FESC.  The Note contains a purchase price
adjustment  which  requires Appellant  to  pay  the  holder  (Mr.
Shreve)     %  of  gross revenues over $    and, if Appellant  is
sold,  a  percentage of the sales price in excess of the original
purchase  price.  [4] The ESOP is held in a trust,  the  original
trustees  of  which  were Ms. Shreve and Mr. Shreve.   On  August
15th, Mr. Johnston and Mr. Chancellor became the trustees.
     
     Mr.  Johnston  is Appellant's President and a Director,  Mr.
Chancellor   is   Appellant's  Executive  Vice-President,   Chief
Financial Officer and a Director.  Neither Mr. Johnston  nor  Mr.
Chancellor is an officer, director, or stockholder of  FESC,  and
neither has worked for FESC since August 15, 1997.  FESC assigned
all  of its Technical Services Division's contracts to Appellant,
except  for  two  8(a)  contracts,  which  it  subcontracted   to
Appellant.
     
     The  Area  Office  further found Ms.  Shreve  is  President,
Treasurer, sole Director and 92% shareholder of FESC.  Mr. Shreve
does  not own stock in, and is not an officer of, FESC.  Further,
FESC does not employ Mr. Shreve in any capacity.
     
     However, Mr. Shreve is Appellant's landlord, because he owns
the office space Appellant occupied after August 15th.  Appellant
moved to this space gradually, over a period of three weeks after
the  purchase,  completing the move three days before  its  self-
certification, on September 5, 1997.
     
     The Area Office found Appellant and FESC were not affiliated
based on common ownership or common management.  Conversely,  the
Area  Office also found Appellant was affiliated with FESC, as  a
newly   organized   concern,  based  on  the  totality   of   the
circumstances.   Before its self-certification  for  the  subject
procurement,  Appellant  had existed for  only  two  months,  was
independently owned for less than a month; and was located  apart
from FESC for only a few days.

     Appellant has competed for some awards,                ; and
                                                   The firms  are
in  the  same or similar lines of business.  A majority  of  FAS'
employees  were former employees of FESC, and nearly all  of  its
contracts  formerly were FESC's.  Appellant's Officers  and  ESOP
trustees  previously  were FESC executives.   Further,  the  Area
Office  found  an  identity of interest between  the  Shreves  as
husband  and  wife  and,  because they are Appellant's  principal
creditor  and  FESC's President and majority  shareholder,  found
this was another indicia of affiliation.

      In  sum, the Area Office concluded Appellant and FESC  were
affiliated,  computed their average annual receipts  accordingly,
and determined Appellant was other than small.

                    C.   Arguments on Appeal
                                
                        1.   Jurisdiction
                                
     Appellant asserts, in its April 6, 1998 memorandum  to  OHA,
that  the appeal is not moot and OHA has jurisdiction.  Appellant
seeks a decision regarding its ability to self-certify as a small
business   in   future  procurements,  and   asserts   the   size
determination still prevents it from doing so.
     
     Appellant's  May  1st filing asserts SBA  has  authority  to
issue  a  size  determination only if the offeror benefits  in  a
competition  from  being  a  small business  concern.   Appellant
further asserts the CO's report in the GAO case established  that
the  award decisions were made independent of any offeror's  size
status.   Further, the GAO decision held DSA lacked  standing  to
protest  the award because, among all eligible offerors,  it  was
not  next in line for award after Appellant; and the contract was
not  set aside for small business.  Accordingly, because its size
was  not  a  factor in the award, Appellant asserts  it  did  not
benefit  from being a small business and, therefore, this  Office
should vacate the size determination.

      DSA  also asserts this Office has jurisdiction to hear  the
appeal.   First, this Office has jurisdiction over  size  appeals
from   Area  Office  size  determinations.   Second,  SBA's  size
regulations cover all procurement programs for which size  status
as  a  small  business is required, and the solicitation  clearly
stated  that  at  least  one award would  be  given  to  a  small
business.   Third,  SBA's  regulations allow  another  government
agency   to  request  an  SBA  size  determination  for  use   in
determining  compliance with small business requirements  in  its
statutes,  regulations,  or programs.   Fourth,  SBA  regulations
permit  an offeror to file a size protest in a procurement  where
small   business   status   "may  be  beneficial".    13   C.F.R.
Section  121.1001(a)(5).  Here, the solicitation  clearly  stated
the  Army's  intent  to award at least one contract  to  a  small
business.

      The  Army  asserts  this Office's  decision  would  not  be
advisory  because, if this Office affirms the size determination,
the Army will re-evaluate its award.

     SBA asserts the Area Office has the authority to make a size
determination  in  any case where small business  status  may  be
beneficial,  regardless of whether the solicitation is  a  formal
set-aside.  Further, since the Area Office had authority to  make
this  size  determination, this Office has jurisdiction  to  hear
this appeal. [5]

                  2. Admission of New Evidence

     Appellant  attempts to rebut the presumption of identity  of
interest,  based  on  the Shreves' marriage, by  introducing  new
evidence  showing                    Appellant  attaches  to  its
appeal a February 27, 1998 letter from Mr. Shreve asserting
     
The    alleged    rationale   for    the    spin-off    was    to
.
     
     Appellant submits with its Motion for Consideration  of  New
Evidence  an April 2, 1998 affidavit from Mr. Shreve, reiterating
that                  ,   and  that  they  decided  to  establish
Appellant       to                             .         Although
,          they          do         not          plan          to
.   Appellant submits, with its May 1st filing, an April 20, 1998
affidavit   from  Mr.  Shreve,  replying  to  the  evidence   DSA
submitted.  He asserts
     
                         .
     
      Appellant asserts, in its Motion for Consideration  of  New
Evidence, that its evidence satisfies this Office's precedent for
the  submission  of new evidence on appeal where  good  cause  is
shown.    Appellant  asserts  the  Shreves'  marital  status   is
relevant, and its proposed evidence does not enlarge the  issues.
Appellant asserts the Area Office improperly failed to inform  it
that  the Shreves' marital status might be an issue, and made  an
assumption  contrary to the facts.  Appellant further asserts  it
could  not have known this would be an issue, because neither  of
the Shreves owned or controlled Appellant.

     DSA's   April  7th  submission  proffers  new  evidence   to
establish   that   Mr.   and  Ms.   Shreve   are          ,   but
.  DSA's evidence includes
                                   .

     DSA  further asserts the Administrative Judge should exclude
Appellant's  evidence, because Appellant knew at the Area  Office
level,  from  the  size regulations, SBA Form 355  and  the  Area
Office's  February 12th letter, that the Shreves' marital  status
was  relevant.  Conversely, the Administrative Judge should admit
DSA's  proffered  new evidence, because it had  no  prior  notice
Appellant would attempt to argue a lack of affiliation  based  on
the Shreves'             .

     DSA  also submits as new evidence a Dun & Bradstreet report,
which  states  Mr.  Chancellor still was an  FESC  consultant  on
August  21st.  In reply, Appellant submits an affidavit from  Mr.
Chancellor,  asserting the Dun & Bradstreet report cited  by  DSA
was erroneous
     
                        3.   Affiliation
                                
     Appellant  asserts  first, it is not  affiliated  with  FESC
based on its creditor, Mr. Shreve's marriage to FESC's President,
Ms.  Shreve, because they are  .  Second, Appellant asserts FESC,
not   FESC's  former  key  employees,  established  it.    Third,
Appellant asserts the firms are not in the same line of business.
FESC  designs equipment and manufactures while Appellant,  FESC's
former  services  division, provides information  technology  and
engineering-related services.
     
     Further,   Appellant  receives  no  financial  or  technical
assistance from FESC; and FESC neither controls nor has the power
to control it.  In addition, Appellant's rental of space from Mr.
Shreve  is not an indicia of affiliation, because it is an arm's-
length  rental of the only available office space.  Further,  the
debtor-creditor relationship with Mr. Shreve is not an indicia of
affiliation, because the Promissory Note is subordinate  to  bank
debt.
     
     Appellant  also asserts all the findings used  by  the  Area
Office to characterize Appellant as a newly organized concern are
common  to  all businesses spun off from another business,  e.g.,
the  three  weeks  when some of Appellant's employees  worked  at
FESC;  and  do not support a finding of affiliation.   The  firms
currently  share  no  facilities.   The  firms  have  no  ongoing
contractual relationship, except for two 8(a) subcontracts.   SBA
would  not  novate these contracts to Appellant, and FESC,  after
the  spin-off,  no  longer has the capability  to  perform  them.
Appellant responds to the Area Office's finding, that it has  not
yet  demonstrated it is able to win awards, by  pointing  to  the
instant award.
     
      DSA asserts only    or a similar clear fracture can end the
identity of interest between Mr. and Ms. Shreve.  DSA asserts its
new evidence establishes an             between the Shreves.

     DSA   further   asserts  the  Area  Office's   findings   of
affiliation  are  supported  by  this  Office's  precedent,   and
Appellant has failed to establish a clear fracture between itself
and  FESC.   DSA  also  asserts the Promissory  Note  establishes
affiliation, because Appellant gave it initially to both Shreves,
and  the large amounts due to them give them a financial interest
in Appellant's business success.

     DSA reiterates that, because the Shreves receive significant
funds  from  Appellant, Appellant is contractually  dependent  on
FESC.   In  addition,  OHA should affirm the  size  determination
because  Appellant's  key  employees  came  from  FESC,  most  of
Appellant's  contracts were transferred from FESC, and  Appellant
has not demonstrated financial independence.

      In  its  April  21st filing, Appellant  asserts  DSA's  new
evidence  fails to rebut its evidence of the Shreves'    because,
although
                              ,                              they
                         .

                         II.  DISCUSSION

                 A. Timeliness and Jurisdiction

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

       The  threshold  question here is whether this  Office  has
jurisdiction over the instant appeal.  SBA's current  regulations
specifically  permit any offeror to file a size protest  in  "any
unrestricted Government procurement in which status  as  a  small
business  may  be beneficial".  13 C.F.R. Section 121.1001(a)(5).
The  Administrative Judge holds that, because the Area Office has
jurisdiction  to make formal size determinations in  such  cases,
this  Office has jurisdiction to hear the resulting appeals.   13
C.F.R.   Sections   121.1002;   134.102(k).     Accordingly,   he
explicitly   overrules  the  previous  cases  which   have   held
otherwise,  because these decisions were based on SBA's  previous
size   regulations,   which  limited  SBA's  size   determination
authority.  See Size Appeal of Control Data Corporation, No. 3056
(1989) (citing 13 C.F.R. Section 121.8(a) (1989)).
     
     The  prior  precedent held that, where the solicitation  has
not  been  set aside in whole or in part for small business,  the
Area  Office should dismiss the size protest.  If the Area Office
issues  a  size determination in such a case, this  Office  would
vacate the size determination.  Size Appeal of Herk Elevator Co.,
Inc., No. 1876 (1984).  This Office subsequently recognized SBA's
expanded size determination authority, albeit without noting that
the  current regulations overrule the earlier cases.  Size Appeal
of  Intercontinental Manufacturing Co., No. 3879  at  3-4,  n.  1
(1994).
     
     The  remaining  jurisdictional question  is  whether,  under
these  facts,  the  Area Office has authority  to  issue  a  size
determination   adverse  to  Appellant.    That   is,   in   this
unrestricted procurement, would Appellant's small business status
be   beneficial.    13   C.F.R.  Section   121.1001(a)(5).    The
Administrative Judge rejects Appellant's assertion that its small
business  status would not be beneficial, because it is  directly
contradicted by the Army's express statement in the solicitation,
that it intends to make an award to small business.
     
     Moreover,  13  C.F.R. Section 121.1001(a)(5) clearly  is  an
independent   grant  of  authority,  intended  to  expand   SBA's
authority  to make size determinations in procurements  that  are
not  formal  set  asides,  where small  business  status  may  be
beneficial.  [6] Accordingly, in order to protest, DSA  need  not
establish  that  Appellant's  small business  status  created  an
actual  benefit, but only that it may have.  The standard is  not
high, and DSA's protest met it here.
     
     In  this case, because the Administrative Judge finds status
as   a  small  business  is  beneficial,  the  Area  Office   had
jurisdiction to entertain the size protest, and this  Office  has
jurisdiction over the appeal. [7]

                        B.   New Evidence

      The Administrative Judge next must address whether to admit
the   new   evidence   Appellant   proffers   on   appeal.    The
Administrative Judge will not consider evidence a party failed to
present  to the Area Office, unless a motion is served and  filed
establishing good cause for the submission, or the Administrative
Judge orders it.  13 C.F.R. Section 134.308(a).

     Here, Appellant asserts as good cause that it could not have
known  the Shreves'  would be an issue.  The Administrative Judge
rejects   Appellant's  argument  for  several  reasons.    First,
Question  7  of the Area Office's February 12th letter explicitly
informed  Appellant  that  Mr.  Shreve's  relationship  with  Ms.
Shreve, FESC's President and majority shareholder, was an  issue.
Appellant  could have responded to the Area Office, by  notifying
it  of the Shreves'                 .  Instead, Appellant allowed
into  the  record,  without contradiction or explanation,  FESC's
simple statement that Mr. and Ms. Shreve were married.  Appellant
cannot  now argue it was unaware Mr. and Ms. Shreve's         was
an issue.

     Second,  because Appellant had the burden of  persuasion  in
the  size determination, it was responsible for presenting to the
Area  Office all evidence demonstrating a clear fracture  between
FESC  and  itself.   13  C.F.R. Section  121.1009(c).   Appellant
cannot correct on appeal its failure to submit evidence available
at  the protest stage, on an issue the Area Office previously had
informed  Appellant  it was considering.   Size  Appeal  of  H.J.
Vetter Interiors, No. 4174 (1996).

      Concerning  DSA's  proffered new  evidence  of  the  Dun  &
Bradstreet  report and Appellant's reply affidavit, DSA  has  not
established  any  good  cause  for  its  late  submission.    The
Administrative Judge therefore excludes both submissions from the
record.

      Accordingly,  the  Administrative Judge  concludes  neither
Appellant  nor  DSA has established good cause,  and  DENIES  the
motions for submission of new evidence. [8]

                        C.   Affiliation

      Regarding  the merits of the instant appeal, Appellant  has
the  burden  of proving, by a preponderance of the evidence,  all
the elements of its appeal.  Specifically, it must prove the Area
Office  size determination is based on a clear error of  fact  or
law.  13 C.F.R. Section 134.314; Size Appeal of Rebmar, Inc., No.
4173 (1996).

      The  Area Office found Appellant affiliated with FESC as  a
newly   organized   concern,  based  on  the  totality   of   the
circumstances.  While the revised size regulations do not  retain
the  newly  organized  concern rule as an independent  basis  for
affiliation, it remains a factor in finding affiliation on  other
grounds.   Size Appeal of Lyons Security Service, Inc., No.  4264
at  6  (1997); 60 Fed. Reg. 57982, 57985 (1995).  Under the newly
organized   concern  rule,  firms  are  affiliated  when   former
officers,  principal stockholders or key employees  of  one  firm
organize  another firm in the same or a related line of business;
and  one  of  the  firms furnishes the other  with  subcontracts,
financial assistance, or other facilities.

     To  rebut  a  finding of affiliation in these situations,  a
challenged firm must demonstrate a clear line of fracture between
itself and the large firm, even absent evidence the new firm  was
formed  to  circumvent  the regulations.  Size  Appeal  of  Field
Support  Services, Inc., No. 4176 at 8 (1996).   Here,  Appellant
clearly meets the first test, because it was formed by the parent
firm,  FESC  (as  Appellant emphasizes).  Key  employees  of  the
parent left FESC, and now manage Appellant and control the voting
stock  as trustees of the ESOP.  The Administrative Judge rejects
Appellant's  attempt  to distinguish these  facts  from  the  OHA
precedent, because the parent firm's establishment of a  spin-off
indicates a greater, rather than a lesser connection.

     Second, despite Appellant's protestations, it has failed  to
meet  its burden of establishing FESC and it are not in the  same
or  related lines of business.  It is apparent that, prior to the
spin-off,  FESC manufactured high technology equipment,  and  its
Technical  Services  Division provided complementary  information
technology  services.  While these lines of business may  not  be
exactly  the same, they clearly are related.  Appellant was  spun
off  from  FESC's Technical Services Division and  continues  its
work,  including contracts originally awarded to FESC.   The  two
firms  represent  a  continuum of products and  services  and  an
interdependency in the same or related industries, suggestive  of
affiliation.  Size Appeal of Agrigold Juice Products, No. 4136 at
14 (1996).

       Third,   FESC  has  provided  Appellant  with  assistance.
Appellant's  shareholders purchased the  corporate  assets,  with
credit extended by FESC's shareholders (Mr. and Ms. Shreve), in a
transaction which took place just a few weeks prior to its  self-
certification, the date when Appellant's size is determined.   13
C.F.R.  Section 121.404.  Mr. Shreve now is sole  holder  of  the
Promissory  Note,  and  his wife, Ms.  Shreve,  is  the  majority
shareholder  of  FESC.   Since they are  married,  they  have  an
identity of interest, and the Administrative Judge treats them as
one  party. [9] 13 C.F.R. Section 121.103(a)(3).  This  extension
of credit to purchase the firm is a form of financial assistance.
FESC has provided further assistance by assigning those Technical
Services   Division   contracts  it  could  to   Appellant,   and
subcontracting to it those it could not assign.

     Finally,  Appellant  cannot  demonstrate  a  clear  fracture
between  itself  and  FESC.  The Promissory Note  guarantees  Mr.
Shreve  a  percentage  of Appellant's revenues  (which  obviously
increases  if  Appellant  does  well)  and  further  revenues  if
Appellant's  shareholders sell the firm for a profit.   Appellant
itself characterizes Mr. Shreve's position as that of a nonvoting
stockholder.  Appeal at 10.  While the Promissory Note  alone  is
not  evidence of control, it does establish that Mr. Shreve,  and
by  extension, his wife, FESC's majority shareholder, continue to
have  a  financial interest in Appellant.  The absence  of  clear
fracture  is  further shown by Appellant's lease of office  space
Mr.  Shreve owns, even though this transaction may not constitute
financial assistance.  The subcontracts continue in effect.
     
     In fact, Appellant proffers nothing, other than the spin-off
itself,  to  demonstrate that a clear fracture  has  taken  place
between it and FESC.  Further, Appellant does not rebut the  Area
Office's  determination that                            ,  except
for the instant procurement.  This assertion is not sufficient to
meet  the burden of establishing clear error on the part  of  the
Area Office. [10]
     
     Therefore, the Administrative Judge concludes Appellant  has
not  met  its  burden of demonstrating clear error  in  the  Area
Office's  conclusion  it  is affiliated  with  FESC  as  a  newly
organized  concern,  under  the totality  of  the  circumstances.
Because   Appellant   does  not  challenge  the   Area   Office's
determination  that  the  two  firms'  combined  average   annual
receipts  exceed the applicable size standard, the Administrative
Judge  affirms the Area office's finding the two firms are  other
than small.

                         III. CONCLUSION
                                
      For the above reasons, the Administrative Judge AFFIRMS the
Area Office size determination and DENIES the instant appeal.

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

                                   ______________________________
                                   CHRISTOPHER HOLLEMAN
                                   Administrative Judge
                                   
_________________________

       [1]  On  June 30, 1998, SBA published new regulations,  63
Fed.  Reg.  35,726, 35,766 (1998) (to be codified  at  13  C.F.R.
parts  121,  124 and 134).  The new regulations do not  apply  to
this appeal because it was filed prior to June 30, 1998.

       [2] Offerors self-certify as eligible small businesses  as
of the date of their initial offer.  13 C.F.R. Section 121.404.
       [3] On April 16, 1998, the Army filed a copy of the General
Accounting Office (GAO) decision dismissing DSA's protest of  the
award to Appellant.  Data Systems Analysts, Inc., No. B-279099; B-
279099.2  (April 13, 1998) (unpublished) holding a small business
protester  is not in line for award, and thus lacks  standing  to
protest,  where  there are two intervening offers between  itself
and the protested firm, and the procurement was not set aside for
small business.
       [4]  The  percentage is     for     after  the  sale,  and
declines to    in    , with     due after      .
       [5]   SBA's   pleading  addressed  only  the   issue   of
jurisdiction.
       [6] Although a formal set aside may be a prerequisite in a
GAO protest, the regulation frees SBA from that requirement.
       [7] As Appellant asserts, the appeal is not moot because it
remains  ineligible for future procurements under the  designated
SIC  code  unless and until SBA recertifies it  as  small.   Size
Appeal  of  Gallagher  Transfer & Storage  Co.,  Inc.,  No.  4295
(1998).
       [8]  Therefore, the Administrative Judge need not consider
DSA's  Motion to submit evidence rebutting Appellant's  proffered
evidence.
       [9]  The Administrative Judge notes that, even if  he  had
admitted  Appellant's  proffered  evidence  of         ,  it   is
doubtful  Appellant  could have met its  burden  of  establishing
error in the Area Office determination.  The Administrative Judge
notes  in  particular DSA's evidence, and Mr. Shreve's admissions
that                              ;          he          mentions
;    the   Shreves                                       ,   they
;  and have               .  Finally, Mr. Shreve's statement that
clearly demonstrates continuing mutual financial interests.   SBA
is   primarily  concerned  with  common  financial  interests  in
determining affiliation, not with marital status per se.
       [10]  Appellant's  contention  that  its  organization  is
characteristic of all spin-offs is irrelevant.

                                             Posted: August, 1998