GeoSyntec Consultants, No. 4277 (November 7, 1997).
Docket No. SIZ-97-9-22-41

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


_______________________________
                               )
SIZE APPEAL OF:                )
                               )
GeoSyntec Consultants          )   Docket No. SIZ-97-9-22-41
                               )
     Appellant                 )   Decided:  November 7, 1997
                               )
Re:  Versar, Inc.              )
                               )
Solicitation No.               )
F41624-97-R-8003               )
Department of the Air Force    )
_______________________________)



                           APPEARANCES

                 Thomas N. Sargent for Appellant
                                
             Eric M. Dattell, Esq. for Versar, Inc.
                                
                                
                             DIGEST

The "present effect" rule, 13 C.F.R. Section 121.103(d), does not
apply  where  the  record fails to show that,  on  the  date  the
challenged firm self certified, no agreement in principle existed
whereby  the  challenged firm would acquire  another  firm,  thus
rendering it other than small.

                            DECISION

BLAZSIK, 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).

                              Issue

      Whether the "present effect" rule applies where the  record
fails  to  show  that,  on  the date  the  challenged  firm  self
certified,  no  agreement in principle existed for  a  challenged
firm to acquire its alleged affiliate.

                              Facts

       On  March  28,  1997,  the  Contracting  Officer  for  the
Department of the Air Force, Brooks Air Force Base, Texas, issued
this  negotiated procurement for "Worldwide Full Service Remedial
Action"  services,  and classified it under  Standard  Industrial
Classification  code  8744 (Environmental Remediation  Services),
with  a 500-employee size standard.  The procurement was a  small
business  set aside, and initial proposals were due on April  28,
1997.  Versar, Inc. (Versar), the challenged firm, self certified
on  April 28, 1997.  The Contracting Officer notified offerors on
August 18, 1997, that Versar had received the contract.

      On August 20, 1997, GeoSyntec Consultants (Appellant) filed
a   timely   protest   against   Versar.    13   C.F.R.   Section
121.1004(a)(1).   On  August 22 and 25, 1997, respectively,  Peer
Consultants  and  Environmental Quality  Management,  Inc.,  also
filed   timely  protests  against  Versar.   All  three  protests
asserted  that, based on Versar's recent acquisition  of  Science
Management  Corporation (SMC), announced in a May 5,  1997  press
release, Versar was an other-than-small business.

      On  August 21, 1997, the Contracting Officer forwarded  the
protests  to the Small Business Administration's King of  Prussia
Office  of  Government Contracting, Area II (Area Office)  for  a
size determination.

                  The Area Office Determination
                                
      The  Area  Office  file  contains Versar's  SBA  Form  355,
Articles  of  Incorporation,  bylaws,  and  affidavits  regarding
Versar's acquisition of SMC.

      The  documents  show Versar has seven subsidiaries:  GEOMET
Technologies,  Inc.;  Versar of Ohio, Inc.; Versar  Laboratories,
Inc.;  Versar  Risk  Management, Inc.;  Fluxagamm,  Inc.;  Versar
Services,  Inc.;  and  Sarnia Corporation.  The total  number  of
employees for Versar and all of its subsidiaries does not  exceed
500 employees.

      The  Area  Office's September 5th determination contains  a
detailed chronology of the events, from January 28, 1993  to  May
2, 1997, leading to the acquisition.

       In  the  affidavits  submitted  by  Versar  regarding  the
acquisition  negotiations,  Mr. James  A.  Skidmore,  Jr.,  SMC's
Chairman, President, and CEO, stated that, on April 28, 1997, the
SMC  management  group met to discuss Versar's  April  25th
offer  to  acquire  SMC.  Mr. Skidmore stated they  rejected  the
offer  on  April  28th,   but decided to negotiate  further.   He
stated that, on May 1, 1997, the negotiators reached an agreement
in principle, but certain conditions remained to be satisfied.

      Mr.  James  C. Dobbs, Versar's Vice President  and  General
Counsel,  who  was  in  charge of the  negotiations,  stated  the
negotiations continued through May 2, 1997.

      Mr.  Wayne Shortridge, a partner of a law firm representing
Versar, stated  Versar and SMC negotiated from April 29th through
May  1,  1997.   He  stated the parties reached an  agreement  in
principle  on May 1st, but modified the agreement   on  May  2nd,
when  they  reached a final agreement and executed the documents.
Mr.  Shortridge stated there was "no agreement, in  principle  or
otherwise,  conditional or unconditional,  between  Versar...[and
SMC] for the acquisition of an interest in SMC," on April 28th.

     Mr. Pedro J. Vita, Senior Vice President of NationsBank (the
bank financing the acquisition), stated NationsBank withdrew  its
financing  offer  on  April 30th.  He stated  Versar  reached  an
agreement with the Administrative Creditors [1] on May  1,  1997,
whereby  the  final  acquisition  agreement  was  conditioned  on
NationsBank's  financing the cash portion of the  transaction  by
May 2nd.   Mr. Vita stated this condition was satisfied on May 2,
1997.

      Based upon the above factual findings, the applicable  case
precedent,  and  the  applicable regulation,  13  C.F.R.  Section
121.103(d),  the  Area  Office found no  agreement  in  principle
existed on April 28, 1997. [2] Accordingly, the Area Office found
Versar and SMC were not affiliated as of that date, and concluded
Versar is a small business under the applicable size standard.

      Appellant received the size determination on September  15,
1997, and filed an appeal postmarked September 17, 1997.

                       Arguments on Appeal

      Appellant  asserts, on April 25, 1997,  Versar  offered  to
acquire  SMC, an acquisition that would render Versar  ineligible
for this set-aside.  Although SMC rejected the offer on April 28,
1997,  the deal was consummated a few days later on May 2,  1997.
Appellant  concedes Versar did not enter into any agreement  with
SMC  on  April  28,  1997, and it does not  controvert  the  Area
Office's chronology of the events.  It asserts, however, that  at
the  time  of its April 28th self-certification, Versar  did  not
intend  to  remain  a small business, and that   Versar's  intent
should control.

     On October 8, 1997, Versar responded, requesting OHA to deny
the appeal because the Area Office did not err.  Versar relies on
what  it  characterizes as well-settled OHA precedent,  that  SBA
will  give  "present  effect" only  to  an  actual  agreement  or
agreement in principle to merge (or acquire a company),  made  on
or  before  the date of self-certification.  Versar asserts  that
its "intent" is irrelevant.   The only relevant consideration  is
whether  Versar  was,  in fact, a small  business  when  it  self
certified.

      Versar  asserts  OHA should deny the  appeal.   It  asserts
Appellant  has conceded Versar had not entered into an  agreement
with  SMC  on  April 28th.  Versar also notes Appellant  has
conceded  the  accuracy of the Area Office's  chronology  of  the
events, which clearly shows no agreement between Versar and  SMC,
either in fact or in principle, on April 28th.

      Appellant  filed another submission that  OHA  received  on
October 9, 1997.

                           Discussion

      Since  the appeal was filed and served within 15 days  from
the date the size determination was served, the Administrative Judge
concludes the appeal  is  timely.   13 C.F.R. Section 134.304(a)(1).
However, since  the  record closed on October 8, 1997, the  Administrative
Judge will not consider Appellant's October 9th submission. [3]

      The Administrative Judge adopts without discussion the Area
Office's chronology of the events and its factual findings.   She
also  concludes  the  Area  Office's  determination  contains  no
reversible error. [4]

      The applicable regulations provides that the size status of
a concern (including its affiliates) is determined as of the date
the concern submits a written self-certification that it is small
to  the  procuring agency as part of its initial offer. 13 C.F.R.
Section  121.404.  [5] Here, it is undisputed  that  Versar  self
certified on April 28, 1997.

     Affiliates acquired after the date of self certification are
not  counted  for size determination purposes.   Size  Appeal  of
Alpha-Omega Environmental Co., No. 3658 (1992).  Further, a  firm
is  not  considered affiliated with another firm merely by virtue
of negotiations toward one possibly acquiring the other.
     
     Rather,  a  firm  becomes affiliated with  another  when  it
reaches  an  agreement in principle to acquire the other  by  the
date of self certification, even if the merger or acquisition has
yet  to  be  executed.  Size Appeal of  Ecological  Planning  and
Toxicology,  Inc.,  Id. (denying an appeal  where  there  was  no
agreement  in  principle to merge until after the date  of  self-
certification).   Hence,  SBA will  give  present  effect  to  an
agreement to merge or acquire another firm "whether the agreement
is  unconditional, conditional, or finalized but unexecuted."  13
C.F.R. Section 121.103(d).
     
       Conversely, SBA does not give present effect to agreements
to  negotiate  toward a possible future merger or acquisition  at
some future date, because they are not considered "agreements  in
principle".   Similarly,  an agreement to  continue  negotiations
does not constitute an agreement in principle for purposes of the
"present  effect"  rule.   Size  Appeal  of  Technology   Systems
Association, Inc., Id at 9. [6]
     
     As   mentioned  above,  the  undisputed  record,   including
affidavits,  establish  the  chronology  of  events  leading   to
Versar's and SMC's merger.  The Administrative Judge finds  that,
on  April 28th, the only agreement between Versar and SMC was  to
continue  to negotiate.  Thus, the Administrative Judge concludes
that,  on that date, Versar was a small business and eligible  to
bid on this procurement.

     Finally,   the  Administrative  Judge  rejects   Appellant's
assertion that Versar "intended" to acquire SMC as of April 28th,
and   this  intention  should   control  for  size  determination
purposes.   First,  Appellant's  argument  is  contrary  to   the
regulatory  language.   Second,  the  regulations  and  case  law
require an agreement between the parties, either in principle  or
executed,  before  a  small business is  deemed  affiliated  with
another.  Any other interpretation violates due process and would
lead to chaos.
     
                           Conclusion
     
     For  the  above reasons, the Administrative Judge  concludes
Versar   was  a  small  business  at  the  time  of   its   self-
certification.  She AFFIRMS the Area Office's determination,  and
DENIES the appeal.
     
     This  is the Small Business Administration's final decision.
13 C.F.R. Section 134.316(b).
     
     
     
                                   ___________________________
                                   GLORIA E. BLAZSIK
                                   Administrative Judge


_________________________

      [1] The record identifies the Administrative Creditors as a
group of creditors who had a first priority lien on SMC's assets.
      [2] The Area Office cited Size Appeal of Technology Systems
Associates,  Inc., No. 3963 (1994) and Size Appeal of  Ecological
Planning  and Toxicology, Inc., No. 3919 (1994).  In both  cases,
OHA  essentially  held  that, where  parties  agree  to  continue
negotiations  toward a merger or a sale of stock at  some  future
date,  such agreements are not agreements in principle  and  will
not be given present effect.
     [3]  The Administrative Judge's September 23, 1997  Notice
and  Order,  states  that all responses to the  appeal  "must  be
RECEIVED  by this Office on or before fifteen (15) calendar  days
from  the date of this Notice," and, except for good cause shown,
the  record will close on that date.  Here, the record closed  on
October 8, 1997, and Appellant failed to assert any "good  cause"
why  the Administrative Judge should accept it.  Accordingly, the
Administrative Judge will not consider it.
     [4] While the Administrative Judge ordinarily might dismiss
this  appeal  (13  C.F.R. Section 134.303), she  accepts  it  and
decides  it  on  the  merits, because it is a question  of  first
impression under the revised regulations.
     [5]  The regulations contain two exceptions not applicable
here.
     [6]  The Administrative Judge notes both cases cited  were
decided  under the regulations previously in effect.   13  C.F.R.
Section  121 and  134 (1995), which are virtually the same  under
the  revised  regulations, 13 C.F.R. Section 121  (1996).   Thus,
these cases remain valid precedent.

                                           Posted: November, 1997