J & R Logging, No. 4426 (March 21, 2001)
Docket No. SIZ-2001-02-09-03


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


                                ) 
SIZE APPEAL OF:                 ) 
                                ) 
J & R Logging                   )   Docket No. SIZ-2001-02-09-03
                                ) 
     Appellant                  )   Decided:  March 21, 2001
                                )
Cap Road Hazard SSTS            )
USDA Forest Service             )
Tahoe National Forest           )
Nevada City, CA                 )
                                )

                                
                            APPEARANCE
                                
                   John Jacino, for Appellant
                                
                                
                              DIGEST
                                
Where  over  98  percent of the challenged firm's  receipts  are
attributed  to  one  alleged affiliate, the challenged  firm  is
economically  dependent  on  that  alleged  affiliate,  and  the
alleged affiliate has the power to control the challenged firm.
                                
                                
                             DECISION
                                
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 (2000).

                              Issue

     Whether an alleged affiliate has the power to control the
challenged firm where over 98 percent of the challenged firm's
receipts are attributed to that alleged affiliate.


                          I.  BACKGROUND

     On  December  7,  2000,  the United  States  Department  of
Agriculture,  Forest Service, Tahoe National Forest,  in  Nevada
City, California, advertised the Cap Road Hazard Special Salvage
Timber  Sale  (SSTS).   The Contracting Officer  (CO)  set  this
sealed  bid  sale  aside  under  the  SSTS  program  for   small
businesses.  On December 21, 2000, the Forest Service opened the
bids  and  identified J & R Logging (Appellant) as the  apparent
high bidder.

      On  January  4, 2001, the CO contacted the Small  Business
Administration's  (SBA)  Oregon  District  Office   to   protest
Appellant's  size  status.  [1]  The  CO  alleged  Appellant  is
affiliated  with  Wetsel-Oviatt Lumber  Company  (Wetsel).   The
Oregon District Office referred the protest to the SBA's Area VI
Office  of  Government Contracting, in San Francisco, California
(Area Office), for a formal size determination.

      The  Area  Office file contains Appellant's completed  SBA
Form  355, its financial statements, Dun and Bradstreet  reports
on   Appellant   and   Wetsel,  and  other  information.    This
information  shows  Appellant  is a  general  partnership  owned
equally  by  Robert D'Agostini and John Jacino.   Appellant  was
established  in 1979, and is primarily engaged in  the  logging/
forestry  products  industry.  Its average number  of  employees
during the 12 months prior to its bid on this sale is below  the
25-employee    SSTS   size   standard.    13   C.F.R.    Section
121.508(a)(2).  The Dun and Bradstreet report shows that  Wetsel
is  in the sawmill/planing mill industry, and that its number of
employees exceeds the SSTS size standard.

      Appellant's  financial statements for the year  2000  show
that  over  98% of its receipts are attributed either to  Wetsel
Logging  or to Wetsel Trucking.  Appellant does not contest  the
Area Office's conclusion that these are both branches of Wetsel.
Appellant  stated  to the Area Office that its  sales  are  from
contract  logging, and while it bids on logging jobs from  other
firms it does not seem to get them.

      On  January  25,  2001, the Area Office  issued  its  size
determination.   The  Area  Office  noted  its   findings   that
Appellant  has  historically received the vast majority  of  its
receipts  from its contracts with Wetsel, and that over  98%  of
Appellant's 2000 receipts were from Wetsel contracts.  Thus, the
Area    Office   concluded,   because   of   these   contractual
relationships,   Appellant  is  affiliated  with   Wetsel   and,
therefore,  Appellant is other than small for the SSTS  program.
The size determination cited this Office's case precedent, which
drew  the  same conclusion in similar cases based on contractual
relationships between firms. [2]

      Appellant  received the size determination on January  29,
2001, and filed an appeal with this Office on February 9, 2001.

      In  its  appeal, Appellant asserts that nearly  all  small
logging  companies in California sell their  logs  to,  or  work
exclusively for, one sawmill, generally the one nearest to where
they  operate, because it is economically unfeasible  for  small
loggers  to travel a long distance between the logging site  and
the  mill.  Therefore, because Wetsel's sawmill is located  near
Appellant's operation, Wetsel is the only realistic customer for
most of the timber Appellant harvests.

      Appellant  also asserts it was found to be small  for  the
purpose of an SSTS sale three years ago, after initially  having
been  found  other  than small, and then  having  explained  the
economic unfeasibility of logging over long distances.


                         II.  DISCUSSION

      Appellant  filed  the instant appeal  within  15  days  of
receiving the size determination.  Thus, it is timely  for  this
sale.   See 13 C.F.R. Section 134.304(a)(1); Size Appeal of  MBI
Corporation, SBA No. SIZ-4375, at 5 n.8 (1999).

     Appellant has the burden of proving, by a preponderance  of
the  evidence, that the Area Office based its size determination
on  a  clear  error of fact or law.  13 C.F.R. Section  134.314;
Size Appeal of Rebmar, Inc., SBA No. SIZ-4173, at 4 (1996).   In
this appeal, Appellant must establish that the Area Office erred
in  concluding Appellant's contractual relationships with Wetsel
are suggestive of economic dependence on Wetsel.
     
     The size standard for the SSTS program is 25 employees.  13
C.F.R.  Section 121.508(a)(2). For a firm to qualify  as  small,
its employees, combined with its affiliates' employees, must  be
below  the size standard.  13 C.F.R. Section 121.103(a)(4).   It
is  undisputed  that Appellant, by itself,  is  below  the  size
standard,   and   that  Wetsel  is  above  the  size   standard.
Therefore, the sole issue in this appeal is whether Appellant is
affiliated with Wetsel.
     
     Firms  are  affiliated when one firm controls  or  has  the
power  to  control the other.  13 C.F.R. Section  121.103(a)(1).
In  determining whether affiliation exists, SBA may treat as one
party  two  firms that have identical or substantially identical
business   or  economic  interests,  such  as  firms  that   are
economically    dependent   through   contractual    or    other
relationships.  13 C.F.R. Section 121.103(a)(3).
     
     This  Office interpreted the meaning of economic dependence
in  the  context of contractual relationships in Size Appeal  of
Metropolitan  Area Contractors, Inc., SBA No.  SIZ-4229  (1996).
There,   approximately  99  percent  of  the  challenged  firm's
receipts  were  derived from one subcontract  with  its  alleged
affiliate, an undisputedly large firm, but there were  no  other
ties  such  as  common  management, between  those  firms.   The
challenged  firm was economically dependent on  the  large  firm
solely in light of the overwhelming percentage of the challenged
firm's  receipts  that  were  derived  from  its  large  alleged
affiliate.   Metropolitan,  SBA No.  SIZ-4229,  at  5-6.   As  a
result,  the large firm had the power to control the  challenged
firm.    Therefore,  this  Office  affirmed  the  Area  Office's
determination that the two firms were affiliated.
     
     Here,   over   98  percent  of  Appellant's  receipts   are
attributed to logging contracts with one firm, Wetsel.  Thus, as
in  Metropolitan, one firm determines nearly all of  Appellant's
receipts.   Based solely on these facts, and without considering
the additional ties created by Mr. Jacino's roles in both firms,
the  Administrative  Judge  finds  this  Office's  precedent  in
Metropolitan   clearly  applies  here.   Appellant,   like   the
challenged  firm in Metropolitan, is economically  dependent  on
Wetsel,  because  Wetsel determines nearly  all  of  Appellant's
receipts.  Therefore, Wetsel has the power to control Appellant,
and the two firms are affiliated under the SBA size regulations.
See 13 C.F.R. Section 121.103(a)(1), 121.103(a)(3). [3]
     
     Appellant  also  argues  that  it  should  not   be   found
affiliated  with Wetsel because it is not economically  feasible
for  Appellant  to  sell  its logs to any  other  sawmill.   The
Administrative Judge must reject this argument because  it  does
not  further  the  position Appellant  must  establish  in  this
appeal:  that Appellant is not economically dependent on Wetsel.
To  the  contrary, this argument establishes that (1) the market
for  Appellant's logs is limited, and (2) Wetsel  controls  that
market.  It follows that Appellant is economically dependent  on
Wetsel  as  the only realistic customer for its  logs.   To  the
extent  Appellant offers this argument because it is seeking  to
identify a general exception to the affiliation rules for  small
loggers  and their sawmills, the Administrative Judge  finds  no
authority for any such exception. [4]
     
     Finally,  the Administrative Judge must reject  Appellant's
argument that it is small because it was found small three years
ago.   Appellant  does not indicate whether it had  undergone  a
formal size determination by an SBA Area Office at the time, but
even if it had, an Area Office size determination is not binding
on  this Office.  Size Appeal of Lajas Industries, Inc., SBA No.
SIZ-4263,  at  9  (1997).  Further, since  Appellant's  size  is
determined  as  of the date of its self-certification  with  its
offer,  a  three-year  old  size  determination  would  not   be
relevant.  13 C.F.R. Section 121.504.
     
     
     Based  on this analysis, the Administrative Judge concludes
Appellant  has  failed  to prove that  it  is  not  economically
dependent on Wetsel.  The Area Office did fail to note that  SBA
eliminated  contractual relationships as an  independent  ground
for  affiliation in 1996.  60 Fed. Reg. 57982, 57985  (Nov.  24,
1995)  (preamble  to proposed 13 C.F.R. Section  121.103(a)(2)).
Therefore,  the Area Office should have analyzed  the  issue  of
affiliation  under  the  totality  of  the  circumstances,   and
considered not only contractual relationships between the firms,
but  also  Mr. Jacino's role in both firms.  See Size Appeal  of
Lyons Security Service, Inc., SBA No. SIZ-4264, at 6-7 (1997).
     
     However, this was not a clear or material error on the part
of   the   Area  Office,  necessitating  a  remand  for  further
consideration,  because the fact that nearly all of  Appellant's
receipts  are  attributed  to a single large  firm  conclusively
establishes  its  economic  dependence  on  it.   This  economic
dependence  in  turn  establishes Appellant's  affiliation  with
Wetsel  even before considering the additional ties  created  by
Mr. Jacino.  Accordingly, the Administrative Judge concludes  he
cannot  find  any clear error in the Area Office's determination
Appellant is affiliated with Wetsel.
     
     Appellant   does   not   challenge   the   Area    Office's
determination that the two firms' combined employees exceed  the
SSTS size standard.  Given the finding of affiliation above, the
Administrative Judge finds no clear error in the  Area  Office's
conclusion that Appellant is other than small.
     
     There  is no clear error of fact or law, and Appellant  has
failed to meet its burden of proof in the instant appeal.


                         III.  CONCLUSION

     For the above reasons, the Administrative Judge AFFIRMS the
Area Office's 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]    A  CO's  protest  is  always  timely.   13  C.F.R.
Section 121.1004(b).
       [2]    The Area Office noted that John Jacino is the Vice
President/General  Manager of Wetsel,  and  a  41-year  employee
there,  but that he owns no interest in Wetsel.  The Area Office
did   not   discuss  this  information  further,  and  drew   no
conclusions from it.
       [3]   Appellant's statement, to the Area Office, that  it
bids  to sell logs to other sawmills, but is never able  to  win
those  contracts,  furthers  the conclusion  that  Appellant  is
economically dependent on Wetsel.
       [4]    The  Administrative Judge notes that this Office's
cases  involving timber sales apply the size regulations without
reference  to  the particular economics of timber  sales.   See,
e.g., Size Appeal of Ochoco Lumber Co., SBA No. SIZ-3812 (1993).
The  issue  Appellant raises is a policy question more  properly
addressed   to   the   SBA's  Office  of  Size   Standards   for
consideration of possible regulatory change.

                                            Posted: October, 2001