Portacool LLC recently contested a size determination that deemed them ineligible for the designation of a small business. The appeal was based on the argument that the adverse inference drawn by the Area Office was improper. In this case, the Defense Logistics Agency (DLA) issued a request for quotations (RFQ) for evaporative coolers, which was specifically set aside for small businesses. The RFQ was assigned a NAICS code with a size standard of 1,250 employees.
Overview of the Size Protest: Portacool LLC and Portable Air Group LLC
Both Portacool LLC and Portable Air Group LLC submitted timely quotations for the RFQ. However, Portable Air Group LLC filed a protest challenging Portacool LLC's size, alleging that they had been acquired by a large business. As a result, the Area Office requested information from Portacool LLC, warning that failure to provide the information would result in a determination that they are not a small business.
Portacool LLC submitted various documents, including a certificate of amendment, LLC agreement, and SBA form 355. The LLC agreement revealed that a large business had acquired a significant portion of Portacool LLC's membership interest. Additionally, the bylaws of the large business stated that the property and business of the corporation are managed by the board of directors.
However, Portacool LLC did not disclose further information about its ownership structure on the SBA form 355. Specifically, they did not answer a question regarding the owners, partners, directors, members, and principal stockholders of its acknowledged affiliate. Consequently, the Area Office requested additional information from Portacool LLC, such as a response to the protest allegations, a revised SBA form 355, and an explanation of its relationship with all alleged affiliates. The Area Office also asked for copies of teaming agreements, organizational documents, and an explanation of compliance with the manufacturer rule.
The Area Office's Size Determination and Basis for Decision
Portacool LLC requested and received an extension to respond to the Area Office's inquiries. In their response, Portacool LLC acknowledged that the only allegation against them was that they were too big to qualify as a small business. They provided some information about their ownership structure and argued that the protest was based on outdated information.
During subsequent communications with the Area Office, Portacool LLC continued to assert that the protest was not valid due to outdated information. They submitted an updated SBA Form 355 and clarified that questions about teaming agreements were not applicable. Furthermore, Portacool LLC provided information about its relationship with potential affiliates and stated that no subcontractors would be involved in the procurement.
However, the Area Office requested additional information from Portacool LLC, specifically seeking a statement regarding any other companies owned by the individual who owns Portacool LLC. In response, Portacool LLC consulted with the individual in question to obtain the requested information and forwarded the correspondence with another company to the Area Office.
Ultimately, the Area Office issued a size determination, concluding that Portacool LLC does not qualify as a small business. The determination was based on Portacool LLC's inadequate response to information requests and the adverse inference drawn by the Area Office. The Area Office found that Portacool LLC had not disclosed the owners of a company it claimed to be 100% owned by. Additionally, Portacool LLC failed to appropriately respond to protest allegations and provide complete information on the SBA Form 355. The Area Office also identified several potential affiliates that Portacool LLC did not address.
Portacool LLC's Appeal
In response, Portacool LLC appealed the size determination, arguing that it was erroneous and should be reversed. They claimed that the Area Office's requests for information were unduly burdensome and not relevant to determining their size. Portacool LLC presented two grounds for their argument: the alleged affiliates only had four employees at the time of the bid, and none of the entities had the power to control Portacool LLC.
Portacool LLC further contended that the Area Office exceeded the scope of affiliation rules by requesting information about other companies owned by an individual. They also argued that they do not share common management with other business entities since their primary operations are not in the United States.
However, the standard of review for the appeal requires the appellant, Portacool LLC in this case, to prove that the size determination is based on a clear error of fact or law. The administrative judge will only reverse the size determination if there is a definite and firm conviction that the Area Office erred.
Portacool LLC's argument that they are solely controlled by their own Board of Managers is contradicted by their own SBA Form 355. It is evident that Portacool LLC is affiliated with another company, thereby disqualifying them as a small business.
Additionally, Portacool LLC's argument that it cannot be affiliated with foreign entities is refuted by the SBA regulations. These regulations account for situations where affiliation may arise irrespective of the location of entities involved in the business relationship.
Ultimately, the appeal was denied, and the size determination was affirmed, reaffirming that Portacool LLC does not qualify as a small business.
Read more about Size Protests in our eBook on the topic.
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