Opinion ID: 476321
Heading Depth: 2
Heading Rank: 4

Heading: The Small Business Set Aside Program

Text: 28 Under the Small Business Act, 15 U.S.C. Sec. 631 (1982 & Supp. III 1986), certain government contracts are set aside for small-business concerns. The Act defines a small-business concern as one which is independently owned and operated and which is not dominant in its field of operation. Id. Sec. 632. The SBA promulgated size standards which define when a concern is small. 13 C.F.R. Secs. 121.1-121.13 (1986). The size standards for service industries focus on annual receipts; a concern with annual receipts greater than the figure established by the Code of Federal Regulations will not be deemed small. The regulations provide that for size purposes, average annual receipts for the past three years of the company and its affiliates are considered. Other regulations set forth rules for determining size when companies are affiliated. The regulations include a definition of annual receipts. Annual receipts are defined as gross income from any source as entered on the regular books of account of the concern and as reportable to the IRS for federal income tax purposes. Id. Sec. 121.1(c)(1). 29 At trial, the government introduced summary charts displaying the ownership interests of Barnette, Allied and Leo Barnette between 1976 and 1981. These charts also showed the interrelationship of these companies. Based on various ledgers and journals introduced into evidence, the government demonstrated that Allied and its affiliates had become large for SBA size purposes for most types of contracts. The annual gross receipts charged to Allied included the receipts from the German laundry contract. The evidence showed that these receipts were properly chargeable to Allied whether or not the sale of JETS Waescherei GmbH was a sham because Barnette owned and controlled both J.E.T.S. and Old Dominion. 30 Notwithstanding the size of the Allied conglomerate, Allied, through Barnette and Gibbs, continued to submit bids on contracts set aside for small business concerns. From 1978 through 1981, Allied falsely certified on each bid document that it was small, and thus eligible to bid on contracts set aside for small businesses. 31 In February, 1979 J.E.T.S.' size was challenged. Gibbs, on behalf of J.E.T.S., responded to the protest by filing a Small Business Size Determination, Form 355 with the SBA. In answering whether Barnette was an owner, principal, director, employee or principal stockholder in any companies other than Allied, Gibbs made no reference to Barnette's ownership interest in Old Dominion, Hamilton or even JETS Waescherei GmbH. The form contained other omissions 9 32 In July, 1979 another protest was filed against Allied. Barnette, on behalf of Allied, submitted a Form 355 in which he did not mention any of the foreign corporations he owned. He also failed to disclose his interest in World Management Services. 33 In August, 1980 yet another protest was filed against Allied. Gibbs, on behalf of Allied and J.E.T.S., submitted a Form 355 and attached a cover letter. The evidence showed that Gibbs made several false statements on both the Form and in the letter. In the cover letter, for example, Gibbs stated that [W]e [J.E.T.S.] presume [JETS Waescherei GmbH] is a company but we have no connection with it. Five days earlier, Gibbs had signed an affidavit, filed with the United States District Court for the District of Columbia, in support of J.E.T.S.' motion for a temporary restraining order preventing the Army from awarding the German laundry contract to Apex, in which he stated that he was a managing director of JETS Waescherei GmbH. 34 The evidence showed that Gibbs was clearly aware of J.E.T.S.' size problems. In 1980 he told an employee not to refer to the German laundry contract in another bid because if J.E.T.S. listed the laundry contract in the experience section, it would have to be included in the gross income also [sic]. 35 Through 1979, Barnette and Gibbs had been successful in concealing Allied's foreign interests from the SBA and its competitors. By that time, however, Allied had grown large enough domestically to disqualify it from bidding on most set aside contracts. Therefore, as a supplemental plan, Barnette, Gibbs and later Leo Barnette, with the assistance of JVCC, began creating front companies to bid on small business set aside contracts. 36 Established in 1978, JVCC was licensed by the SBA under the MESBIC program. See 13 C.F.R. Secs. 124.1-1 to 124.3-1 (1986). Under the program, JVCC was permitted to invest and/or lend money to small business concerns which were at least fifty-one percent owned by socially and economically disadvantaged individuals. Barnette and Gibbs ran JVCC. 37 The government established that JVCC made several improper loans to front companies controlled by Barnette and Gibbs. Extensive evidence was introduced about Welborn Support Services, Alpha Services, Yate Management Services and Elaine Roberts. 38 Welborn Support Services, for example, was established in 1979 with a MESBIC loan from JVCC. Its president, Lynda Welborn testified that Barnette owned 80 percent of the company and that Barnette and Gibbs made all of the business decisions. By June, 1979 Lynda Welborn resigned stating I was totally tired of being ... a puppet on a string and directed in every move that I made. The government demonstrated that other front companies were similarly controlled by Barnette and Gibbs, improperly created to bid on small business set-aside contracts.