Different NAICS Codes and Industries Does Not Prevent Finding of Affiliation

In a recent decision the Small Business Administration’s Office of Hearings and Appeals (“OHA”) affirmed a determination that a company was other than small based on the company’s failure to provide adequate information in response to a size protest.

In Perry Johnson & Assoc., Inc., SBA No. SIZ-5943 (2018) OHA confirmed that a failure to respond to an SBA protest may result in an adverse size determination regardless of the company’s ignorance of size regulations. A disappointed bidder filed a size protest against Perry Johnson & Assoc., Inc. (“Perry Johnson”), following the award of a small business set aside contract to Perry Johnson. The disappointed bidder cited information on Perry Johnson’s website that described $43 million in revenues and several “affiliate” companies.

The SBA contacted Perry Johnson and requested the company provide its tax returns and documents relating to the affiliated entities. Rather than provide all of the requested documents, Perry Johnson repeatedly omitted information it did not believe was relevant to the size protest.  The company took the incorrect position that companies are not affiliated if they work in different industries and did not address the issues surrounding common ownership or management, or identity of interest. After warning Perry Johnson that a failure to adequately respond could result in an adverse inference against the company, the SBA issued a size determination that Perry Johnson is a large business for the procurement. The size determination was largely based on the adverse inference rule, which allows the SBA to assume that a protested concern is other than small when it fails to submit sufficient information to determine its size.

Perry Johnson appealed and argued the information requested was irrelevant and publically available. OHA denied the appeal, stating that Perry Johnson fundamentally misunderstood the size regulations. OHA reconfirmed that affiliation arises from control, i.e. the ability for one company to control another through common ownership, common management, or identity of interest. Prior to rendering its decision, the SBA Area Office had explained these concepts to Perry Johnson and questioned whether the company’s failure to respond was deliberate.

Since Perry Johnson failed to provide the requested information, OHA held the Area Office correctly applied the adverse inference rule, but also found Perry Johnson was affiliated with the other entities.