Hy-Power, Inc. NV, No. 3880 (January 26, 1994)
Docket No. SIZ-93-12-16-138


                    UNITED STATES OF AMERICA

                  SMALL BUSINESS ADMINISTRATION

                 OFFICE OF HEARINGS AND APPEALS

                        WASHINGTON, D.C.
                                
SIZE APPEAL OF:               )
                              )
Hy-Power, Inc. NV             )
                              )
     Appellant                )  Docket No. SIZ-93-12-16-138
                              )
Small Business Loan           )
  Application                 )
04-SD-94-011                  )

                             DIGEST

The Office of Hearings and Appeals has jurisdiction pursuant to
13 CFR 121.1701(a) and 121.1601(b)(1)(i) to hear an appeal from a
Regional Office's formal size determination in connection with an
application for a guaranteed business loan.

Where the principal business activity of an applicant for an SBA
Section 7(a) guaranteed business loan involves the installation
of airport runway lighting systems requiring excavation and
installation of underground manhole and conduit systems, the
applicant's business is properly classified under Standard
Industrial Classification (SIC) code 1623 (Water, Sewer,
Pipeline, and Communications and Power Line Construction), with a
$17 million average annual receipts size standard, rather than
under SIC code 1731 (Electrical Work), having a $7 million size
standard.

                            DECISION

                        January 26, 1994

BLAZSIK, Administrative Judge, Presiding:

Jurisdiction

This appeal is decided under the Small Business Act of 1958, 15
U.S.C. 632 E seq., and the regulations codified at 13 CFR Part
121.

Issue

Whether the Regional Office correctly classified an applicant's
primary business activity under Standard Industrial Classifica
tion (SIC) code 1731, rather than SIC code 1623, for purposes of
obtaining an SBA guaranteed business loan.

Facts

On July 26, 1993, Hy-Power, Inc. NV (Hy-Power or Appellant)
submitted an application to the Miami District Office of the
Small Business Administration (SBA) for a guaranteed business
loan pursuant to Section 7(a) of the Small Business Act, 15
U.S.C. 636(a) and 13 CFR Part 120. The District Office evaluated
Hy-Power's submissions and concluded that Hy-Power's primary
business activity was electrical construction and thus classified
the firm under Standard Industrial Classification (SIC) code 1731
(Electrical Work), having a $7 million average annual receipts
size standard. Based upon financial statements submitted by Hy-
Power showing that the firm has been in existence less than three
fiscal years (a total of 107 weeks), the District Office, using
the computation formula specified in 13 CFR 121.402(c) and (d),
concluded that Hy-Power did not meet the $7 million size standard
and, accordingly, denied its application on September 3, 1993.

On September 16, 1993, Hy-Power filed a timely request for a
formal size determination with the SBA's Atlanta Regional Office
in accordance with 13 CFR 121.1601(b)(1)(i).

Hy-Power submitted its SBA Form 355, corporate charter and
bylaws, last annual statement to its stockholders, and complete
financial statements for the three years it has been in
existence. According to its SBA Form 355, Hy-Power has no
affiliates. In a statement to the Regional Office, Hy-Power
represented that it is a licensed general and electrical
contractor and that its primary business activities are
appropriately encompassed by SIC code 1623 (Water, Sewer,
Pipeline, and Communications and Power Line Construction), with a
$17 million average annual receipts size standard, rather than
SIC code 1731. Hy-Power also asserted that only 18 percent of its
revenues derive from electrical work and the remainder from
underground excavation and construction.

According to Hy-Power's Business Plan submitted to the Regional
Office, prior to the date of Hy-Power's incorporation, there was
a predecessor corporate entity with the same name which had
operated for numerous years. Because of disagreements between the
stockholders regarding that company's future, the old company was
dissolved and the successor corporate entity (Hy-Power) created.
The latter took over all of the former's existing contracts,
assets, and personnel. The Business Plan states that the company
engages in "sophisticated and highly technical electrical
construction work and concentrates in airfield lighting, FAA
Navaid, and military airfield facilities."
Hy-Power also listed some of its most significant contracts which
have been completed as of fiscal year 1992, Hy-Power's last
complete fiscal year, noting that during 1992, its sole business
activity was the installation of airfield runway lighting
systems. The following table shows a representative sample:

Project Description           Year Started        Year Completed

Airport Runway                  1/92                   9/92

Install Airport
     Runway Lighting            7/90                   12/90
     
Install Airport
     Runway Lighting            8/90                   3/91

on November 18, 1993, the Regional Office issued its
determination. Regarding the question of the propriety of Hy
Power's classification under SIC code 1731, the Regional Office
noted:

     Hy-Power's business plan classifies itself as an electrical
     construction company and concentrates in airfield lighting
     and is also pre-qualified and approved by the Florida
     Department of Transportation to perform high mast area
     lighting, conventional street lighting, fiber optic and
     underground utility ductbank systems. Contracts specified in
     the business plan indicate the type of work is installation
     of airport runway lighting. The list of current principal
     material suppliers indicates the following types of
     materials: lighting equipment, conduit, manholes, wire,
     airfield signs, general electrical hardware, concrete,
     backfill, small tools, and equipment rental.

The Regional Office in its determination also observed that

     [i]nformation provided by Hy-Power indicates that its
     primary business operation is electrical work. Other work
     may be performed by Hy-Power but the contracts tsubmitted],
     material supplier lists, and the business plan indicate Hy-
     Power's primary industry is electrical [construction]. Hy-
     Power did not provide any proof or documentation to reflect
     differently.
     
Based upon the above factual findings, the Regional Office
concluded that the Miami District Office had properly classified
Hy-Power's industry under SIC code 1731. The Regional Office also
reviewed the District Office's computation of Hy-Power's average
annual receipts and concurred in the District Office's
methodology. Accordingly, the Regional Office determined that Hy-
Power is an other-than-small business under the $7 million size
standard and ineligible for an SBA guaranteed business loan.

Hy-Power received the determination on November 19, 1993, and by
letter dated and hand-delivered on December 16, 1993, filed a
timely appeal from the determination. See 13 CFR 121.1705(a)(1).
Hy-Power's sole contention on appeal is that the Regional Office
incorrectly classified it under SIC code 1731 and that the
appropriate classification for Hy-Power's business activity is
SIC code 1623. 1/

Hy-Power asserts that, since its incorporation in April 1991, its
sole activity has been the construction and installation of
airfield runway lighting systems. It asserts that while it is pre-
qualified and approved by the Florida Department of
Transportation to perform high mast area and conventional street
lighting, it has been engaged solely in the installation of
airfield runway lighting systems. To support these assertionst Hy-
Power encloses an affidavit of Bernard Paul-Hus, President of the
company, who describes the work that Hy-Power performs in the
installation of airfield runway lighting systems as follows:

     Based on the Engineer's design, the Contractor, or his
     grading subcontractor cuts or fills the existing work area
     to the required subgrade. As the subgrade completes, Hy-
     Power installs the Manhole and Conduit systems. This work
     involves layout based on survey and using heavy equipment
     for the required trenching that the manholes and conduit
     systems will be placed in. Operators run the trenching
     equipment and pipelayers, skilled and unskilled laborers
     work under the Superintendent. Once the trenching is done
     and the conduit system is placed, the manholes and conduit
     systems are encased with concrete or other suitable backfill
     material.
     
     The Prime contractor...will then place suitable material and
     finish the material to grade. At this point, using auger
     trucks...and trenchers, Hy-Power will drill holes at the
     proposed light locations...and connect these holes with
     trenches. Base cans are set in place using specialized
     alignment jugs of sufficient weight to hold the bases in
     place during backfill.... The bases are then connected by
     placing a conduit system in the connecting trenches and
     inserted into the bases. Once this is accomplished, the crew
     will backfill all trenches and holes with concrete.... Once
     the concrete has set, the alignment jigs are removed and the
     area cleaned with skidsteer loaders and air compressors in
     preparation for the paving....

Mr. Paul-Hus also states that

     [c]onstruction of the underground conduit system constitutes
     the majority of the work performed by HyPower in installing
     airfield runway lighting systems. Only after the underground
     conduit system [has] been installed by Hy-Power is any
     electrical work performed by Hy-Power.
     
Mr. Paul-Hus argues that, since its principal activity is the
construction of underground conduit systems and the electrical
work is secondary to the underground work, Hy-Power is more
appropriately classified under SIC code 1623.

In further support, Hy-Power cites our decision in SIC Appeal of
Hallmark Electrical Contractorsg Inc., No. 2566 (1986), where we
held that a solicitation for the replacement of airfield lighting
cables, which included excavation, installation of underground
cable, plastic ducts, pull boxes, and manholes was correctly
classified under SIC code 1623. Hy-Power argues that a similar
result is warranted here.

Discussion

Our jurisdiction to consider this appeal derives from 13 CFR
121.1701, which states in pertinent part:

     The jurisdiction of the Office of Hearings and Appeals under
     this part shall be limited, as specified in paragraphs (a)
     and (b)....
     
     (a)  Formal size determinations made by SBA Regional Offices,
     pursuant to Sections 121.1601 through 121.1608....

The regulation at 13 CFR 121.1601 provides as follows:

     (b)  Requests for size determinations. Entities may request a
     formal size determination for a concern with respect to
     designated SBA programs as identified below. In making a formal
     size determination, the procedures of Sections 121.1602, 121.1605,
     and 121.1606 shall apply.

          (1)  With respect to SBA's Financial Assistance Programs,
               the following entities may request a formal size
               determination:
          
          (i)  The applicant for assistance;

Thus, this appeal is properly before us for a decision on the
merits.

In determining the primary industry in which a firm applying for
financial assistance is engaged, the Regional Office is mandated
by 13 CFR 121.802(b) to give "primary consideration" to the

     distribution of receipts, employees and costs of doing
     business among differing industries in which a concern is
     operating for the most recently completed fiscal vear of the
     concern. Other factors (e.g., patents, contract awards,
     assets) may be considered. [Emphasis supplied.]

The SIC Manual 2/ description of SIC code 1731 selected by the
Regional Office states as follows:

Electrical Work

     Special trade contractors primarily engaged in electrical
     work at the site. The construction of transmission lines is
     classified in Industry 1623, and electrical work carried on
     in repair shops is classified in Service, Industry Group
     762. Establishments primarily engaged in monitoring of
     burglar and fire alarms with incidental installation are
     classified in Services, Industry 7382.

Some examples shown under this description include electrical
repair at the site of construction, electrical work contractors,
and highway lighting and electrical signal construction.

SIC code 1623 is classified in the SIC Manual as part of Major
Group 16 (Heavy Construction Other Than Building Construction
Contractors). The preamble paragraph to Major Group 16 states in
pertinent part:

     This major group includes general contractors primarily
     engaged in heavy construction other than building, such as
     highways and streets, bridges, sewers, railroads, irrigation
     projects, flood control projects and marine construction,
     and special trade contractors primarily engaged in
     activities of a type that are clearly specialized to such
     heavy construction and are not normally performed on
     buildings and building-related projects. Specialized
     activities that are covered here include grading for
     highways and airport runways; guardrail construction;
     installation of highway signs; trenching; underwater rock
     removal; and asphalt and concrete construction of roads,
     highways, streets and public sidewalks. Establishments
     primarily engaged in specialized activities that may be
     performed on buildings or on other heavy construction
     projects are classified in Major Group 17. These include
     contractors primarily engaged in...electrical work
     (including work on bridges, power lines, and power
     plants)....
     
The SIC Manual defines the type of work classified under SIC code
1623 as follows:

     Water, Sewer, Pipeline, and Communications and Power Line
     Construction
     
     General and special trade contractors primarily engaged in
     the construction of water and sewer mains, pipelines, and
     communications and power lines.

Examples shown under this description include conduit
construction - contractors; cable laying construction-
Contractors; power line construction - general contractors;
manhole construction - general contractors; and telegraph line
construction - general contractors.

We conclude that Appellant's primary business operation should
have been classified under SIC code 1623. The record demonstrates
that, in accordance with the requirement of 13 CFR 121.802(b),
supra, Appellant's sole business activity for 1992, its most
recently completed fiscal year, was the installation of airfield
runway lighting systems. 3/ The record also demonstrates that, in
performing this work, Appellant is engaged in construction-
intensive excavation and installation, involving primarily
conduit and cable laying construction. The examples shown in the
SIC Manual comprising SIC code 1623, are illustrative of the type
of work performed by Appellant (cable laying, conduit
construction, manhole construction, and installing electrical
power and transmission lines). Moreover, our application of SIC
code 1623, is consistent with the preambular paragraph of Major
Group 16, since it provides that heavy construction projects such
as Appellant's, are classified under Major Group 16. The preamble
states that this group includes

     general contractors primarily engaged in heavy construction
     other than building,...and special trade contractors
     primarily engaged in activities of a type that are clearly
     specialized to such heavy construction and are not normally
     performed on buildings and building-related projects.

It also states that

     [e]stablishments primarily engaged in specialized activities
     that may be performed on building or on other heavy
     construction projects are classified in Major Group 17.

Finally, a review of the facts in Hallmark reveals that the
solicitation at issue there was also for the installation of
airport runway lighting. The fact that the solicitation at issue
in Hallmark aptly describes the activity in which Appellant is
primarily engaged is of precedential value and further
substantiates the assignment of SIC code 1623 to Appellant's
primary industry. 4/

Conclusion

The Regional Office determination is REVERSED, and the appeal is
GRANTED. Hy-Power, Inc. NV's primary business activity is best
described under SIC code 1623, with a $17 million size standard.
In consequence, it is a small business for purposes of receiving
an SBA guaranteed loan.

This constitutes the final decision of the Small Business
Administration. See 13 CFR 121.1730(a), (b), and (c).


                         __________________________________
                         Glorla E. B1aszik (Presiding)
                         Administrative Judge
                         
                         __________________________________
                         Jane E. Phillips (Concurring)
                         Administrative Judge
                         
                         __________________________________
                         Elwin H. White (Concurring)
                         Administrative Judge

_______________

     1/   Hy-Power requests an oral hearing. Because there is no
genuine dispute as to any material fact of decisional
significance which cannot be resolved except by confrontation of
witnesses, the request is denied. See 13 CFR 121.1714(a).
     2/   Standard Industrial Classification Manual, Office of
Management and Budget, 1987 edition.
     3/   Pursuant to 13 CFR 121.803(a), the size of an applicant
for SBA financial assistance is determined as of the date of its
application for such financial assistance. As noted before,
Appellant filed its application with the SBA on July 26, 1993.
Thus, its most recently completed fiscal year prior to the
submission of its application is fiscal year 1992.
     4/   It is unnecessary for us to determine whether Appellant
is a successor in interest to its predecessor firm since there is
nothing in this record to indicate that Appellant would exceed
the $17 million average annual receipts size standard.