Protester Claimed Small Business’s Relationship “Smelled of Affiliation,” But OHA Smells Only the Jasmine-Soaked Summer Breeze; Size Appeal of Crew Training International, Inc., Re: Saguaro Business Solutions, LLC, SBA No. SIZ-6128

Appeal of a size protest is denied.The protester alleged that while the awardee was an SBA-approved mentor-protege, the two partners were still affiliated under the newly-organized concern rule. But the newly-organized concern rule only applies when an officer of a large business organizes a small business. Here, while the person that had organized the protege had once worked for the mentor, she had not been an officer or controlled the mentor. The protester also alleged that the mentor and protege were affiliated under the totality of circumstances because the relationship “smelled of affiliation.” OHA’s olfactory nerves, however, were not stimulated.

Background

The Air Force awarded a small business set-aside contract for aircrew training to Saguaro Business Solutions LLC. Saguaro was a joint venture between an SBA approved mentor, Sonoran Technology, and a protege, Metro Accounting Services. 

An unsuccessful offeror, Crew Training International, filed a size protest, alleging that although they were a mentor-protege, Metro and Sonoran were affiliated under the SBA’s newly-organized concern rule. Basically, Crew argued that Metro was just a newly-organized spinoff of Metro, created by a former metro officer. Moreover, Crew contended the relationship between Metro and Sonoran just seemed unusually close and “smelled like affiliation.”

The SBA Area Office denied the protest, finding no affiliation under the newly organized concern rule. Metro had been created by Sonoroan’s former CFO. But her position as CFO was symbolic. She lacked control of the company and thus did not qualify as an officer for purposes of the newly-organized concern rule.

Crew appealed to SBA’s Office of Hearings and Appeals.

Legal Analysis

• No Violation of Newly-Organized Concern Rule –  Under the newly-organized concern rule, OHA may find affiliation when the officer of a large company organizes a new, small company in the same related industry. Importantly, the organizer of the small company must have been an officer or principal of the large company. In this case, while Metro was organized by a former employee of Metro, that person had never been an officer of Metro. She had been the CFO of Metro but her position was largely symbolic and she lacked control over the company. Because the former CFO was not actually an officer, the elements of the newly-organized concern rule.
• Saguaro’s Mentor-Protege Agreement Had Not Lapsed – Crew argued that Saguaro should not be considered a mentor-protege because its mentor-protege agreement had lapsed when Saguaro submitted its officer. But SBA’s regulations provide for automatic renewal of a mentor-protege agreement unless SBA formally rescind it.
• OHA Didn’t Smell Affiliation – Crew contended that Metro and Sonoran were affiliated under the totality of circumstances because the record contains “smells of affiliation. OHA found this argument unsupported. While Crew pointed to various connections between Metro and Sonoran, it had not demonstrated that such connections were improper for an SBA-approved mentor-protege.

Crew is represented by J. Bradley Reaves, Beth V. McMahon, and Paul Hawkins of ReavesColey PLLC. Saguaro is represented by Michelle F. Kantor of McDonald Hopkins LLC.