OHA decision affirming a size determination is reversed. OHA had determined that a concern’s proportionate share of receipts from a populated joint venture had to be included in a size calculation. But the court found that OHA had misconstrued the SBA’s regulations governing a joint venture. In 2016, the SBA rules had been amended to exclude a populated joint venture—i.e., a venture with its own employees—from the SBA’s definition of a joint venture. Therefore, the rule requiring that joint venture receipts be included in a size calculation does not apply to populated joint ventures. OHA had thus erred in finding that the awardee of small business contract had to include its share of a populated joint venture in its annual receipts.
The Department of Energy issued a solicitation seeking infrastructure support services for a gaseous diffusion plant. The solicitation was set aside for small businesses with a size standard of $41.5 million in annual receipts. After evaluating proposals, the agency awarded the contract to Swift & Staley, Inc.
An unsuccessful offeror, Akima Intra-Data, LLC (AID), filed a size protest. AID contended that under SBA’s regulations, a concern that is partner in a joint venture must include its proportionate share of joint venture receipts in its annual receipts. Swift had an ownership interest in a joint venture called Portsmouth Mission Alliance (PMA). AID argued that if receipts from Swift’s ownership interest in PMA were added to Swift’s average annual receipts, then the company exceeded the $41.5 million size standard.
Swift argued that prior to 2016, the SBA regulation governing joint venture affiliation—13 C.F.R. § 121.103(h)—defined a joint venture as either populated (meaning the ventures had its own employees) or unpopulated (the venture has no employees itself). But in 2016, the SBA amended paragraph (h) to state that joint ventures “may not be populated.” PMA was a populated joint venture. Thus, Swift argued, because a populated joint venture no longer qualifies as a joint venture under the SBA’s rules, the rules did not require Swift to include a proportionate share of a populated joint venture in its annual receipts.
The SBA Area Office sustained the size protest, reasoning that while Swift’s ownership of a populated joint venture did not create an affiliation, Swift still had to include a proportionate share of receipts from PMA in its annual receipts. Swift appealed to the SBA’s Office of Hearing and Appeals. OHA affirmed the size determination, concluding that a partner to a joint venture must include its proportionate share of joint venture receipts in its annual receipts regardless of whether the joint venture is populated. Swift filed suit with the Court of Federal Claims, alleging the OHA’s decision was arbitrary and capricious.
The court sided with Swift, finding that the plain language of 13 C.F.R. § 121.103(h) contradicted OHA’s reasoning. When Swift calculated its size, it was required to analyze whether any of its business relationships resulted in affiliation and to account for the receipts of it affiliates. Paragraph (h) only requires concerns to include joint venture receipts in the size calculation to the extent the joint venture conforms to the paragraph’s definition. Paragraph (h) states that “for purposes of this provision . . . a joint venture . . . may not be populated.” Here, Swift’s only relationship was its ownership of PMA, a populated joint venture. Thus, PMA did not qualify as a joint venture under Paragraph (h). Accordingly, Swift’s receipts from PMA did not need to be included in the size calculation.
OHA had reasoned that the purpose of the 2016 amendment to paragraph (h) was simply to make populated joint ventures no longer eligible for small business contracts. The revision, according to OHA, did not alter the requirement that the receipts from a populated joint venture must be included in a size calculation.
But the court found that OHA had misconstrued the revision. Subparagraph (3) of paragraph (h) governs the eligibility of joint ventures for small business contracts. The 2016 revision, however, was not made to subparagraph (3); rather it was made to the parent paragraph of paragraph (h). Thus, any use of the term “joint venture” in paragraph (h) and its subparagraphs must refer to a joint venture that meets the requirements of the definition in the parent paragraph.
Subparagraph (5) states that joint venture receipts must be included in a size calculation. Because subparagraph (5) is governed by the definition of a joint venture in parent paragraph (h), subparagraph (5) does not apply to populated joint ventures. And so, the share of receipts of a populated joint venture are not included in a concern’s size calculation.
The court remanded the matter to OHA for further proceedings. Swift argued that it was entitled to injunctive relief. But the court found that injunctive relief would be moot. The government had not terminated the award to Swift but only suspended the notice to proceed. The government had stated on the record that it did not intend to terminate the award until the size protest was resolved.
Swift & Staley is represented by Richard Paul Rector of DLA Piper US LLP. Intervenor Akima Intra Data is represented by Stephen Philip Ramaley of Miles & Stockbridge PC.
