B-173504, NOV 26, 1971

B-173504, NOV 26, 1971

BID PROTEST - SMALL BUSINESS ADMINISTRATION - SIZE APPEALS BOARD - SUBSTANTIAL EVIDENCE RULE DECISION THAT THE COMP. GEN. FINDS NO BASIS TO QUESTION THE DETERMINATION OF THE SMALL BUSINESS ADMINISTRATION SIZE APPEALS BOARD THAT DYNAMIC INTERNATIONAL, INC. IS A SMALL BUSINESS CONCERN FOR THE PURPOSE OF CONTRACT AWARD UNDER AN IFB ISSUED BY FORT LEE, VA., FOR REFUSE COLLECTION. NOTWITHSTANDING PROTESTANT'S CONTENTION THAT THE SBA DETERMINATION WAS NOT SUPPORTED BY SUBSTANTIAL EVIDENCE, A GAO REVIEW OF ALL DYNAMIC CONTRACTS WITH THE GOVERNMENT, AS WELL AS AN AUDIT OF ITS BOOKS AND RECORDS FOR 1968, 1969 AND 1970, DISCLOSES SUBSTANTIAL AGREEMENT WITH THE DATA FURNISHED TO SBA. THEREFORE, THE PROTEST IS DENIED.

TO FRIED, FRANK, HARRIS, SHRIVER & KAMPELMAN:

FURTHER REFERENCE IS MADE TO YOUR PROTEST ON BEHALF OF PLANT ENGINEERING, INCORPORATED, CONCERNING ITS APPEAL TO THE SMALL BUSINESS ADMINISTRATION (SBA) SIZE APPEALS BOARD, OF THE DETERMINATION OF THE SBA'S CHARLOTTE, NORTH CAROLINA OFFICE THAT DYNAMIC INTERNATIONAL, INCORPORATED (DYNAMIC), IS A SMALL BUSINESS CONCERN FOR THE PURPOSE OF CONTRACT AWARD FOR REFUSE COLLECTION AND REMOVAL SERVICES AT FORT LEE, VIRGINIA, UNDER INVITATION FOR BIDS NO. DABB27-71-B-0070.

THE SBA SIZE APPEALS BOARD DECISION DATED JUNE 30, 1971, IS IN PERTINENT PART, AS FOLLOWS:

"D. PLANT ENGINEERING, INC., FURNISHED THE BOARD A LIST OF 27 GOVERNMENT CONTRACTS ALLEGED TO HAVE BEEN AWARDED TO DYNAMIC INTERNATIONAL, INC., WHICH PURPORTS TO SHOW THAT DURING CALENDAR YEARS 1969 AND 1970 THE PROTESTED BIDDER RECEIVED INCOME IN EXCESS OF $4 MILLION. AMOUNTS ALLEGED TO HAVE BEEN RECEIVED FROM THE 27 CONTRACTS LISTED WERE BASED UPON CONTRACT AWARDS AND NOT ACTUAL CASH RECEIPTS. MOREOVER, SOME OF THE ALLEGED AWARDS INVOLVED CONTRACTS WHICH, ACCORDING TO DYNAMIC INTERNATIONAL, INC., PERFORMANCE HAS YET TO COMMENCE, OR COMMENCED IN 1970 AND CARRIED OVER INTO 1971, AND SOME IN WHICH THE AMOUNTS REPORTEDLY RECEIVED WERE INCORRECT. BOOKS OF ACCOUNTS OF DYNAMIC INTERNATIONAL, INC., ARE KEPT ON A CASH RECEIPTS, CALENDAR-YEAR BASIS. THE NET EFFECT OF THE ALLEGATIONS, RESPONSES THERETO, INCLUDING DENIALS AND EXPLANATIONS, IS THAT THE ACTUAL RECEIPTS COULD NOT BE ACCURATELY DETERMINED.

"E. THE BOARD REQUESTED AND RECEIVED COPIES OF INTERNAL REVENUE SERVICE FORM 1120, U.S. CORPORATE INCOME TAX RETURN, FILED BY DYNAMIC INTERNATIONAL, INC., WITH THE INTERNAL REVENUE SERVICE FOR TAXABLE YEARS 1968, 1969 AND 1970. INFORMATION CONTAINED IN THE TAX RETURNS CORROBORATED THAT FURNISHED ON SBA FORM 355, DATED JUNE 5, 1971, AND THOSE FURNISHED IN PRIOR YEARS. TOTAL AVERAGE RECEIPTS FOR THE THREE YEARS IN QUESTION WERE LESS THAN $1 MILLION.

"F. SECTION 121.3-2(B) OF THE SMALL BUSINESS SIZE STANDARDS REGULATION DEFINES AVERAGE ANNUAL RECEIPTS AS FOLLOWS:

'"ANNUAL RECEIPTS" MEANS THE GROSS INCOME (LESS RETURNS AND ALLOWANCES, SALES OF FIXED ASSETS AND INTERAFFILIATE TRANSACTIONS) OF A CONCERN (AND ITS AFFILIATES) FROM SALES OF PRODUCTS AND SERVICES, INTEREST, RENTS, FEES, COMMISSIONS, AND/OR FROM WHATEVER OTHER SOURCE DERIVED, AS ENTERED ON ITS REGULAR BOOKS OF ACCOUNT FOR ITS MOST RECENTLY COMPLETED FISCAL YEAR (WHETHER ON A CASH, ACCRUAL, COMPLETED CONTRACTS, PERCENTAGE OF COMPLETION, OR OTHER ACCEPTABLE ACCOUNTING BASIS) AND REPORTED OR TO BE REPORTED TO THE U.S. TREASURY DEPARTMENT, INTERNAL REVENUE SERVICE, FOR FEDERAL INCOME TAX PURPOSES *** '

"G. IN VIEW OF THE DISCREPANCIES IN THE INFORMATION FURNISHED BY THE APPELLANT AND THE DIFFICULTIES OF OBTAINING PROOF OF TIME AND AMOUNT OF PAYMENTS UNDER EACH OF THE LISTED CONTRACTS, THE BOARD ELECTS TO ACCEPT THE TAX RETURNS FILED WITH THE INTERNAL REVENUE SERVICE AS THE MOST RELIABLE EVIDENCE BEFORE IT. SINCE THESE RETURNS FAIL TO SHOW AVERAGE ANNUAL RECEIPTS IN EXCESS OF THE SIZE LIMITATION, AND SINCE DYNAMIC INTERNATIONAL, INC., IS NOT AN AFFILIATE OF ANY OTHER CONCERN, THE BOARD FINDS THAT IT IS A SMALL BUSINESS CONCERN FOR THE PROCUREMENT IN QUESTION."

THE SBA IN LETTER DATED JULY 20, 1971, FORWARDING TO THIS OFFICE A COPY OF THE ABOVE DECISION, STATED:

"THE SIZE APPEALS BOARD OF THE SMALL BUSINESS ADMINISTRATION HAS COMPLETED ITS REVIEW AND HAS AFFIRMED THE DETERMINATION OF THE CHARLOTTE DISTRICT OFFICE OF THE SMALL BUSINESS ADMINISTRATION THAT DYNAMIC INTERNATIONAL, INC., IS AN ELIGIBLE SMALL BUSINESS CONCERN FOR THIS PROCUREMENT. A COPY OF THE BOARD'S DECISION IS ENCLOSED. SUBSEQUENT TO THE BOARD'S HEARING IN THE MATTER, BUT PRIOR TO DECISION, THE BOARD CAUSED AN INVESTIGATION TO BE MADE INTO ALLEGATIONS OF THE PROTESTANT QUESTIONING THE AMOUNTS RECEIVED FROM 27 LISTED CONTRACTS AND THE INFORMATION CONTAINED IN COPIES OF DYNAMIC'S TAX RETURNS SUBMITTED TO SBA. A SAMPLING OF ACTUAL CASH PAYMENTS MADE UNDER SIX (6) OF THESE CONTRACTS WAS VERIFIED AGAINST THE RECORDS OF THE DISBURSING OFFICER OF THE INSTALLATIONS CONCERNED. NO SIGNIFICANT DISCREPANCIES WERE SHOWN IN THE AMOUNTS REPORTED BY THESE INSTALLATIONS AND THE FIGURES FURNISHED BY DYNAMIC TO SBA. NEITHER WAS THERE ANY VARIATION IN THE TAX RETURNS SUBMITTED TO SBA AND THOSE FILED WITH THE INTERNAL REVENUE SERVICE FOR THE YEARS IN QUESTION."

YOU CONTEND THAT SBA'S ACCEPTANCE OF DYNAMIC'S TAX RETURNS FILED WITH THE INTERNAL REVENUE SERVICE AS THE BASIS FOR ITS DECISION THAT DYNAMIC'S AVERAGE ANNUAL RECEIPTS FOR ITS PRECEDING THREE FISCAL YEARS WERE LESS THAN $1 MILLION, IS ARBITRARY, CAPRICIOUS AND NOT SUPPORTED BY SUBSTANTIAL EVIDENCE. YOU URGE THAT THE LIST OF GOVERNMENT CONTRACTS, WHICH YOU FURNISHED SBA, RAISED A DOUBT CONCERNING THE ACCURACY OF DATA FURNISHED BY DYNAMIC AND ITS TAX RETURNS AND THAT, UNDER SUCH CIRCUMSTANCES, IT WAS INCUMBENT UPON SBA TO ASCERTAIN AND VERIFY DYNAMIC'S RECEIPTS UNDER ALL OF THE LISTED GOVERNMENT CONTRACTS. YOU STATE THAT IN THE ABSENCE OF ANY EVIDENCE INDICATING THAT DYNAMIC'S TAX RETURNS WERE INACCURATE, THE SBA'S DECISION COULD BE CONSIDERED PROPER, BUT SINCE YOU HAD FURNISHED SBA CONSIDERABLE EVIDENCE THAT THE TAX RETURNS MAY NOT HAVE ACCURATELY REFLECTED DYNAMIC'S RECEIPTS DURING THE YEARS IN QUESTION, THE TAX RETURNS CANNOT BE CONSIDERED TO BE "SUBSTANTIAL EVIDENCE."

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

IN VIEW OF THE FOREGOING, WE FIND NO BASIS TO QUESTION THE DETERMINATION OF THE SBA SIZE APPEALS BOARD THAT DYNAMIC IS A SMALL BUSINESS CONCERN. ACCORDINGLY, YOUR PROTEST IS DENIED.