Gell Service Industries, Inc., No. 3456 (April 23, 1991) Docket No. SIC-91-3-28-49 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. 20416 SIC APPEAL OF: ) ) Gell Service Industries, Inc. ) ) Appellant ) ) Docket No. SIC-91-3-28-49 Solicitation No. ) F41636-91-B-0010 ) Department of the Air Force ) 3700th Contracting Squadron ) Lackland AFB, Texas ) DIGEST A solicitation for the rental, including installation and maintenance, of washers and dryers for use on an Air Force base was properly classified under SIC code 7359, "Equipment Rental and Leasing, N.E.C.," rather than under the manufacturing SIC code 3633, "Household Laundry Equipment." The applicability of the Walsh-Healey Act is not pertinent in the appeal of a SIC code designation. SIC code designations are made in accordance with the factors prescribed in 13 CFR 121.902. DECISION April 23, 1991 COLE, Administrative Judge, Presiding: Jurisdiction This appeal is decided under the Small Business Act of 1958, 15 U.S.C. sec. 631 et seq., and the regulations codified at 13 CFR Part 121. Issue Whether the Contracting Officer's designation of Standard Industrial Classification (SIC) code 7359, "Equipment Rental and Leasing, N.E.C.," for this solicitation was in error. Facts On March 11, 1991, the Department of the Air Force, 3700th Contracting Squadron, Lackland Air Force Base, Texas, issued the captioned solicitation for the rental, including installation and maintenance, of washers and dryers at Lackland Air Force Base. The procurement is a 100 percent set-aside for small businesses, and was classified by the Contracting Officer under Standard Industrial Classification (SIC) code 7359, "Equipment Rental and Leasing, N.E.C.," having a size standard of $3.5 million or less in average annual receipts. 1/ The bid opening date was April 10, 1991. Gell Service Industries, Inc. (Gell or Appellant) filed a timely appeal with the Office of Hearings and Appeals (OHA) on March 28, 1991, contesting the appropriateness of the designated SIC code, and urging that we change it to 3633, "Household Laundry Equipment." In support of its position, the Appellant contends: This is a contract for the rental of washers and dryers. Although some maintenance and installation is required, the contract is not principally for services, but it is for the furnishing of the equipment on a rental basis.... Relying upon the Comptroller General's opinion in Tenavision, Inc., B-231453, August 4, 1988, 88-2 CPD para. 114, a case involving a solicitation for rental of washers and dryers, which also provided for their maintenance and installation, the Appellant argues: ...[S]ince the Department of Labor's position and interpretation is controlling and the Department of Labor has already issued an opinion that the rental of washers and dryers is subject to Walsh-Healey Act, and not the Service Contract Act, then that determination would apply to the instant solicitation, regardless of how the rental of equipment has been solicited in the past. Other installations are already following the GAO decision in Tenavision, for example, the Contracting Division at Fort Sam Houston, Texas in solicitation DAKF49-89-B-0014 was for the solicitation of the furnishing, installation, and maintaining the heavy duty washers and dryers and was subject to the WalshHealey Act and used SIC Code 3633 [sic]. Likewise, the instant solicitation should be to [sic] the WalshHealey Act, and not the Service Contract Act. In that the Walsh-Healey Act is the governing statute, the instant solicitation is not to be construed as a service contract. Therefore, the proper code should be SIC Code 3633, which reflects a size standard of 1,000 employees. This code specifically pertains to laundry equipment such as washing machines and dryers. While this code does refer to manufacture of such equipment, it also includes rental and leasing. SIC Code 7359 should be used only when the contract is a services contract for the rental or leasing of the equipment cannot be otherwise classified in a more accurate category [sic]. SIC Code 3633 here fits the services perfectly and should, therefore, be the appropriate classification. This Office received the Contracting Officer's response to the Notice of Appeal on April 11, 1991. The Contracting Officer asserts that the [s]ubject solicitation is for the lease and maintenance of washers and dryers.... Since the maintenance portion of this procurement is considered incidental to the overall requirement of furnishing washers and dryers the principle [sic] nature was deemed to be the leasing of the equipment. As such it is felt that it was properly placed in SIC 7359, Equipment Rental and Leasing. Noting the Appellant's reliance upon Tenavision. Inc., supra, the Contracting Officer further advises that: It is agreed that the procurement is subject to WalshHealy [sic] and as such the solicitation was amended to remove the Service Contract Act. Inadvertently WalshHealy [sic] was not inserted in its place. This vituation is being corrected, by amendment to the solicitation to include Walsh-Healy [sic]- [2/] It is, however, not agreed that SIC 3633 is applicable to this procurement. Our interpretation of 3633 is one of an establishment who is primarily engaged in manufacturing. The introductory paragraph does not mention rental or leasing. We assert that it is unreasonable to expect an establishment Primarily engaged in manufacturing washers and dryers would be [sic] interested in or willing to lease and maintain the equipment specified in our solicitation. We assert that the proper SIC for this procurement is 7359 and should remain so. Discussion In accordance with the provisions of 13 CFR 121.902, the Contracting Officer is responsible for designating the appropriate SIC code for a procurement, as follows: (b) The proper SIC code designation for the goods or services being procured is that which best describes the principal purpose of the procurement, giving primary consideration to the industry descriptions in the SIC Manual, the product or service description in the solicitation and attachments thereto, the relative value and importance of each of the components in the procurement (if in fact there is more than one component which makes up the end item being procured) and the function of the goods or services being purchased. Consideration may also be given to previous Government procurement classifications of the same or similar products or services, additional information on the industries and on the product or services procured, and to evaluations on which industry classification would best serve the purposes of the Small Business Act. Generally, a procurement will be classified according to the component which accounts for the greatest percentage of the contract value. A contracting officer must have a good reason to classify a procurement in a way that is inconsistent with this general rule. Here, the Contracting Officer has selected SIC code 7359, "Equipment Rental and Leasing, Not Elsewhere Classified," which is described in the Standard Industrial Classification Manual ("SIC Manual"), 3/ in pertinent part, as follows: Establishments primarily engaged in renting or leasing (except finance leasing) equipment, not elsewhere classified Establishments producing machinery and equipment (including computers and other data processing equipment) which lease or sell their products are classified in Division D, Manufacturing. Manufacturers' sales branches or offices leasing or selling the machinery and equipment of their manufacturing plant are classified in Division F, Wholesale Trade.... Among the services listed under the foregoing classification is "Appliance rental and leasing." The Appellant advocates the SIC code 3633, "Household Laundry-- Equipment," described in the SIC Manual as covering [e]stablishments primarily engaged in manufacturing laundry equipment, such as washing machines, dryers, and ironers, for household use, including coin-operated. Establishments primarily engaged in manufacturing commercial laundry equipment are classified in Industry 3582.... The equipment listed as manufactured under this SIC code includes household washing machines and dryers, including coin-operated. In keeping with the governing regulation, cited above, we agree with the Contracting Officer that the primary purpose of the procurement is the leasing of the equipment. This conclusion is consistent with case precedent established by the Size Appeals Board ("Board") in Size Appeal of Associate Administrator for Procurement Assistance, No. 1431 (April 1, 1981). 4/ That case involved the Navy's solicitation for the "Rental and Maintenance of Washers and Dryers," and the designation of SIC code 3633, "Household Laundry Equipment," by the contracting officer. The SBA's Associate Administrator for Procurement Assistance challenged the selected SIC code, contending that SIC code 7394, covering "Establishments primarily engaged in renting or leasing (except finance leasing) machinery, tools and other equipment," was more appropriate. 5/ The Board agreed that SIC code 7394 more properly described the procurement, noting that "appliance rental, coin operated machine rental, and equipment rental and leasing" were all included under SIC code 7394, and that the companies involved in such services engaged in the rental of the equipment, not its manufacture. The instant case is sufficiently similar to require our application of the foregoing precedent. The Appellant's arguments respecting the applicability of the Walsh-Healey Act are of no pertinence to our decision here. Such determinations are clearly outside of our jurisdiction. SIC code designations are made in accordance with the factors prescribed in 13 CFR 121.902, not as a consequence of the applicability or nonapplicability of the Walsh-Healey Act. Therefore, based upon relevant regulatory criteria, and the clear precedent of this Office, we find the Contracting Officer's designation of SIC code 7359 in the instant case to be correct. Conclusion For the reasons stated above, the SIC code designation 7359, Equipment Rental and Leasing, N.E.C., is AFFIRMED; the appeal is DENIED. This is a final decision of the Small Business Administration. See 13 CFR 121.1720(a), (b), and (c). ___________________________________ Michael S. Cole (Presiding) Administrative Judge ___________________________________ Jane E. Phillips ncurring) Administrative Judge ____________________________________ Elwin H. White (Concurring) Administrative Judge ______________ 1/ Solicitations issued on or after January 1, 1990 are regulated by 13 CFR Part 121 published in 54 Federal Register 52634, et seq., on December 21, 1989, effective January 1, 1990, and any amendments in effect on or before the solicitation date. 2/ But, see the recent case of WestByrd. Inc., 69 Comp.Gen. 238 (1990), 90-1 CPD P 159, which clarifies the GAO's position in Tenavision, supra, and expressly reaffirms its holding in its decision A-97514, 19 Comp.Gen. 486 (1939), that "the Walsh-Healey Act does not apply to contracts for rental of personal property because the provision of such-aLready manufactured property for a fixed period of time does not constitute 'furnishing' the property within the meaning of the Act and has no bearing on the goals of the Act...." 3/ Standard Industrial Classification Manual, 1987 Edition, Office of Management and Budget. 4/ The Size Appeals Board is the predecessor to OHA, and the Board's decisions have been adopted by the Office of Hearings and Appeals as valid precedent for its decisions, pursuant to the principle of stare decisis. See Size Appeal of Genie Services Inc., No. 1858 (December 23, 1983). 5/ SIC code 7394 is no longer in use and has been supplanted by SIC code 7359.