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P & B SERVS. v. CARDENAS

November 9, 1981

P & B SERVICES, INC., Plaintiff,
v.
Michael CARDENAS, n* Administrator, Small Business Administration, Defendant



The opinion of the court was delivered by: GREEN

MEMORANDUM OPINION

The issue in this case is whether P&B Services, Inc. was a small business for the purposes of a set-aside contract for base maintenance at a naval submarine support base. Jurisdiction exists under 28 U.S.C. s 2201 (Supp.III 1979), 28 U.S.C. § 2202 (1976), 5 U.S.C. §§ 702 and 704 (1976) and 28 U.S.C. § 1331 as amended by Pub.L. 96-486 (Dec. 1, 1980).

 P&B Services, Inc. (P&B) is a Washington corporation engaged in the business of providing services on a contract basis to the federal government and others. These services include janitorial and custodial services, commissary and food services, mail and messenger services and refuse collection services. P&B was certified as capable of providing base maintenance *fn1" services by the Small Business Administration in a letter from the District Director of the Seattle, Washington Regional Office of the Small Business Administration dated June 16, 1978.

 In the spring of 1979, P&B submitted a bid for a base maintenance contract at a naval submarine support base in Kings Bay, Georgia. This contract was a set-aside contract for small businesses. Although P&B's bid was the lowest offer submitted, the contracting officer first requested a determination from the Small Business Administration of P&B's size before awarding the contract. The Seattle, Washington Regional Office of the Small Business Administration determined that P&B was indeed a small business eligible for the award of the Kings Bay contract. The contracting officer then issued a notice of successful offeror to P&B.

 Three unsuccessful bidders, Gemini Services, Inc. (Gemini), Dyneteria, Inc. (Dyneteria) and Jets, Inc. (Jets), protested the award of the contract to P&B, claiming that P&B was not a small business for purposes of this particular contract. *fn2" The basis of their claim was that P&B's proposed bid included an agreement with Pan American World Airways, Inc. (Pan Am) that it would perform part of the services at Kings Bay. Pan Am, needless to say, is not a small business.

 The agreement between P&B and Pan Am specified that the latter would perform all required services for certain portions of the Kings Bay base. The serviceable area was divided into a total of 15 parts or annexes. Pan Am was to perform all services for five of these annexes and further provide consultant services as mutually agreed upon between P&B and Pan Am. Pan Am was to be paid a fixed price for its part of the contract, subject to modification under a complex formula.

 The three protesters argued that this arrangement between P&B and Pan Am constituted a joint venture. If the agreement formed a joint venture, P&B was not eligible for the Kings Bay contract since a small business may not join with a non-small business in a joint venture and still receive a small business set-aside contract. *fn3" P&B, on the other hand, argued that its only relationship with Pan Am was through a subcontract for a specific portion of its main contract. Since subcontracting by a small business in a set-aside contract for services is permissible under certain circumstances, even if the subcontractor is not another small business, *fn4" P&B urged that its bid for the Kings Bay contract was proper.

 The Seattle, Washington Regional Office of the Small Business Administration determined, for the second time, *fn5" that P&B Services, Inc. was eligible for the Kings Bay set-aside contract since (1) P&B's average annual receipts for the past three years had not exceeded $ 7,500,000 *fn6" and (2) P&B and Pan Am were in a contractor/subcontractor relationship and were not engaged in a joint venture. Two of the three protesters, Dyneteria and Jets, appealed this determination to the Size Appeals Board of the Small Business Administration (the Board). *fn7" The Navy nonetheless formally awarded the contract to P&B since it was urgent that work on the base begin. *fn8"

 The Size Appeals Board received a series of written communications from the protesters setting forth their allegations and from P&B responding to their attack. *fn9" On May 11, 1979, the Board denied P&B's request for an oral hearing and announced its decision that P&B and Pan Am were engaged in a joint venture, and that therefore, for the purposes of the contested contract, P&B was other than a small business. *fn10" P&B requested the Board to reconsider its decision, *fn11" but the Board refused to do so. *fn12" P&B then instituted this action for declaratory and injunctive relief to review and overturn the Size Appeals Board's decision.

 Plaintiff P&B alleges that the Size Appeals Board's decision suffers from two major shortcomings. First, the plaintiff argues that the finding of a joint venture between P&B and Pan Am was not proper since the Board did not find any "joint profit" between the two. Plaintiff points to the federal regulation promulgated under the Small Business Act, 15 U.S.C. § 637(b)(6) (1976), which defines joint venture for size determination purposes:

 
Definition of a joint venture for size determination purposes. A joint venture, for size determination purposes, is an association of persons or concerns with interest in any degree or proportion by way of contract, express or implied, consorting to engage in and carry out a single business venture, such as a Government contract, for joint profit for which purpose they combine their efforts, property, money, skill, or knowledge, but without creating a corporation or partnership in the legal or technical sense of the term.

 13 C.F.R. § 121.3-2(a)(vii)(A) (1979). Plaintiff reads this regulation to mean that "joint profit" is a necessary element of a joint venture. Since the Board did not find any "joint profit" in the arrangement between P&B and Pan Am, plaintiff contends that its finding of a joint venture was contrary to the Board's own regulation governing its fact-finding process.

 
If deemed necessary the Board may request additional specific information from the parties or other persons. In the case of refusal or failure to promptly furnish such information, the Board may assume that disclosure would be contrary to ...

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