Challenger Engineering Inc., No. 3728 (January 13, 1993). Docket No. SIC-92-12-7-143 UNITED STATES OF AMERICA SMALL BUSINESS ADMINISTRATION OFFICE OF HEARINGS AND APPEALS WASHINGTON, D.C. SIC APPEAL OF: ) ) Challenger Engineering Inc. ) ) Appellant ) Docket No. SIC-92-12-7-143 ) Solicitation No. ) F19628-92-R-0030 ) Department of the Air Force ) Hanscom AFB, Massachusetts ) DIGEST A concern that is small under the size standard challenged but that advocates a lower size standard has standing to file such an appeal. Engineering and computer services for the testing and evaluation of prototypes and other research artifacts do not constitute research and development as that term is defined in SIC code 8731, "Commercial and Biological Research," and footnote 18 to 13 CFR 121.60 and should be classified under SIC code 8711, "Engineering Services." DECISION January 13, 1993 PHILLIPS, Administrative Judge, Presiding: Jurisdiction This appeal is decided under the Small Business Act of 1958, 15 U.S.C. 631 et seq., and the regulations codified at 13 CFR Part 121. Issues Whether the Appellant has standing to file this Standard Industrial Classification (SIC) code appeal. Whether the solicitation should be classified under SIC code 8731 or SIC code 8711. Facts On November 5, 1992, the Air Force Material Command at Hanscom Air Force Base issued the captioned solicitation for "Electronic Systems Center [ESC] Centrally Managed Joint Test Force Systems Engineering and Technical Assistance" services as a small business set aside and classified it under SIC code 8731, "Commercial Physical and Biological Research" and the accompanying 500-employee size standard for "Other Commercial Physical and Biological Research," i.e., research associated with neither aircraft nor space vehicles and guided missiles. The original date of December 7, 1992 for receiving proposals was subsequently extended on December 3 to December 21, 1992. The solicitation covers work previously performed under several contracts and requires the contractor to provide technical assistance in support of ESC's Joint Test Force (JTF), which is responsible for major system acquisition testing, consisting of system level performance verification, integrated testing, full system performance evaluation and follow-on testing and evaluation of defense systems under development. The functions to be performed by the contractor in aid of this effort include test engineering support requiring specialty engineering in radar, communications, navigation, operation and control, the man- machine interface and test data instrumentation, reduction and analysis; operation, configuration and maintenance of JTF's ADP facilities; and the testing and evaluation of logistics support to ensure that weapon system readiness objectives are met. The solicitation requires the contractor to "prepare draft test plans; operate systems consoles during test missions; analyze results; and prepare draft technical reports." The labor categories specified for contract performance include four test engineers knowledgeable, as their specific tasks require, in such areas as radar engineering, satellite systems, local area networks, reliability and maintainability, safety, test and evaluation support, electromagnetic compatibility, quality assurance, systems acquisition, manufacturing and reproduction, fiber optics, data communications, and design engineering. In addition, the solicitation requires the services of computer scientist and systems analysts, computer operators, programmers, and technical writers, as well as technicians, logisticians, and specialists in configuration management and program acquisition and management. On December 1, 1992, Challenger Engineering Inc. (Challenger) filed a timely challenge to the SIC code assigned by the Contracting Officer, alleging that the "'garden variety' engineering support and management services" identified in the solicitation require that it be classified under the $13.5 million average annual receipts size standard for the "Military and Aerospace Equipment and Military Weapons" subcategory of SIC code 8711, "Engineering Services." I/ Challenger supports its position with several citations to the solicitation, arguing as follows: In the solicitation document...section H-7.b (page 22) states: "The services required under the JTF SETA [Joint Task Force System Engineering and Technical Assistance] contract constitute professional and management services within the definition provided by DoD FAR supplement 237.203. The JTF program will obtain professional technical support and advice which are essential to the ESC [Electronic Systems Center] mission, but not otherwise available to ESC." Appellant contends it is ESC's intent to utilize "garden variety" engineering support and management services. The services described by the above excerpt make no mention of specialized or peculiar research and development expertise as required by SIC Code 8731. This point is further amplified by the selection criteria stated in para 5.1.3 "Sample Problem," Section M-Evaluation Criteria (page 64). "The offeror's proposed solutions to the sample problem will be evaluated as an indicator of the quality of the offeror's technical and management skills. The evaluation will include three key functional areas: 1) Test Engineering, 2) Technical Support Services, to include Computer Scientist/Systems Analysts, Computer Operators and Programmers and 3) Logistics Test...." ESC shall base it [sic] source selection criteria on the answer to a sample problem involving generic computer operators, system analysts and test engineers. Note excerpts from Statement of Work (SOW), dated 28 AUG 92: "Para 5.3. Test Engineering Support. The contractor shall provide test engineering support to plan, conduct and report on the development test and engineering support to plan, conduct and report on the development test and evaluation (DT&E). This includes... radar, communications, navigation, operation and control... software development...." "Para 5.4. Computer Operations Tasks. The contractor shall operate, configure, and maintain the JTF ADP facilities in support of data reduction and analysis of flight test data. The contractor shall...operate the JTF Management Information System...staff and maintain tape library...install commercial off the shelf software...provide operation support." "Para 8.4. Specific Labor Categories:" "Test Engineer 1 'radar engineering...local area networks...systems acquisition...data communications'" "Computer Scientist 'knowledge of manuals'" "Programmer 'computer programming...'" Other labor categories include: administrative support and technicians. On December 17, 1992, Horizons Technology Inc. (HTI), an offeror on the project presently performing tasks to be incorporated into the present solicitation was granted intervenor status and filed a response to the appeal on December 22, 1992. HTI contends that Challenger lacks standing to appeal because it has failed to establish that it has been adversely affected since it has not alleged that the designation challenged would bar it from participating in the solicitation process. With respect to the merits of Challenger's appeal, HTI asserts that [f]or more than five years, HTI has been performing JTF test and evaluation functions relating to performance of a highly- sophisticated experimental radar system -- in Joint Surveillance Target and Attack Radar System or Joint STARS - - being designed and developed by the Air Force. Joint STARS is a Major Defense Acquisition Program whose purpose is to enhance current capabilities to track ground movement of troops and military equipment. The Joint STARS program uses experimental aircraft outfitted with prototypes of the new radar system. The Joint STARS JTF directs and manages testing associated with development of that system, including the prototype testing now underway, and through analysis and evaluation of test results, participates in the development of the eventual system design. Testing of Joint STARS will proceed through a number of separate, but coordinated phases which the Air Force refers to as Development Test and Evaluation ("DT&E"). HTI asserts that the Statement of Work for the present solicitation "closely mirrors the JTF Joint STARS Work" it presently performs and argues that, since the testing to be performed is an adjunct to research and development, SIC code 8731 is the appropriate designation: The JTF procurement is clearly in support of a project -- Joint STARS -- currently under development. The nature of the work to be performed by the successful offeror, as evidenced by past Joint STARS JTF experience, is developmental. The SOW requires the contractor to prepare test plans and test cards, operate system consoles during test missions, analyze test results and prepare technical reports. The successful offeror will be intimately involved in the testing inherent in the design phase of projects like Joint STARS, analyzing and evaluating the results of such testing and providing advice for the design of the end items which emerge from military research and development efforts supported by the JTF.... ...The JTF's mission is to aid in the development of major defense systems, by making sure that such systems work as intended before full scale production begins. It is axiomatic that one of the key components of development is continuing testing so that the product being developed will serve its intended purpose. The JTF's chief function is the conduct of test [sic], and the analysis and evaluation of test data to ensure that a system like Joint STARS will meet military needs.... ...The services to be acquired under the JTF procurement clearly relate to aircraft and aircraft systems which are covered by SIC codes 3721 and 3728. However, since those developmental services will not be provided by the actual manufacturers, the Contracting Officer was guided by the SIC Manual directly to SIC code 8731. The description under SIC code 3721 provides that "research and development on aircraft by establishments not owned by aircraft manufacturers are classified in Services, Industry 8731." Similarly SIC code 3728 provides that "[e]stablishments not owned by manufacturers of aircraft parts but primarily engaged in research and development on aircraft parts on a contract or fee basis are classified in Services, Industry 8731." In a footnote to this argument, HTI acknowledges footnote 18 to 13 CFR 121.601, but merely notes that "[t]he Small Business Size Regulations add briefly to the description in the SIC Manual by identifying activities which are not to be considered research and development. Footnote 18 at 13 C.F.R. 5121.601." Discussion HTI's procedural challenge to Challenger's appeal is without merit. While it is true that an appellant must have been "adversely affected" by the SIC code designation in order to have standing to file such an appeal, the concept of an adverse impact has not been so restrictively defined as HTI suggests. A firm that is small under the SIC code and size standard designated may be affected adversely because this larger size standard requires that it compete with firms significantly larger than itself. The adverse impact is of a competitive rather than a categorical nature, but adverse nonetheless. See SIC Appeal of Field Support Services. Inc., No. 3680 (1992) and cases cited therein. In Field Support Services we held that [a] concern that qualifies under the Standard Industrial Classification code and size standard assigned to a solicitation by a Contracting Officer, but who advocates a lower size standard in order to restrict further the competitive advantage conferred by set-aside status, does have standing to file a Standard Industrial Classification code appeal. Section 121.902(b) sets forth SBA's guidelines for establishing which SIC code and size standard best identify the work to be performed under a solicitation: 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.... SIC code 8731, selected by the Contracting Officer, is defined as follows in the SIC Manual: 2/ Commercial Physical and Biological Research Establishments primarily engaged in commercial physical and biological research and development on a contract or fee basis. Noncommercial research establishments funded by endowments, grants, or contributions are classified in Industry 8733. Separate establishments of aircraft, guided missile, or spacecraft manufacturers primarily engaged in research and development on these products are classified in Manufacturing, Major Group 37. Examples of such services listed in the SIC Manual include the following: Agricultural Research, commercial Biological research, commercial Chemical laboratories, commercial research: except testing Engineering laboratories, commercial research: except testing Food research, commercial Industrial laboratories, commercial research: except testing Physical research, commercial Research and development, physical and biological: commercial The parameters of SIC code 8731 are further defined in footnote 18 to 13 CFR 121.601, which provides, in pertinent part, as follows: Research and Development, as defined in the SIC Manual, means laboratory or other physical research and development on a contractor fee basis. Research and development for purposes of size determinations does not include the following: economic, education, engineering, operations, systems, or other nonphysical research; or computer programming, data processing, commercial and/or medical laboratory testing. SIC code 8711, advocated by Challenger, is defined as follows in the SIC Manual: Engineering Services Establishments primarily engaged in providing professional engineering services. Establishments primarily providing and supervising their own engineering staff on temporary contract to other firms are included in this industry. Establishments providing engineering personnel, but not general supervision, are classified in Industry 7363. Establishments primarily engaged in providing architectural engineering services are classified in Industry 8712, and those providing photogrammetric engineering services are classified in Industry 8713. The SIC Manual lists the following as examples of such services: Designing: ship, boat, and machine Engineering services: industrial, civil, electrical, mechanical, petroleum, marine and design Machine tool designers Marine engineering services Petroleum engineering services HTI argues that "one of the key components of [research and] development is continuing testing," that "through analysis and evaluation of [prototype] test results, [JTF] participates in the development of eventual system design," and that this solicitation to aid JTF in testing research artifacts should thus be classified as research under SIC code 8731. While this argument has a certain semantic cogency, it ignores a distinction made in both the SIC Manual and SBA's regulations between research engineering and test engineering. The pertinent example under SIC code 8731 of a service constituting "Commercial Physical and Biological Research" is "Engineering Laboratories, commercial research: except testing." This distinction between engineering laboratories and test engineering firms complements the exclusion in footnote 18 of such engineering services from SIC code 8731. 3/ Thus where, as here, the engineering services to be performed are for the testing of prototypes and other research artifacts, rather than for their design and fabrication, the solicitation must be classified under the proper subcategory of SIC code 8711, '2Engineering Services." See Size Appeal of Dynamic Science. Inc., No. 3187 (1989). 4/ Turning to those subcategories, we find that these engineering services are best categorized as relating to "Military and Aerospace Equipment and Military Weapons" for which SBA has established a $13.5 million average annual receipts size standard. Conclusion The solicitation should be classified under the $13.5 million average annual receipts size standard for "Engineering Services" relating to "Military and Aerospace Equipment and Military Weapons." The Contracting Officer's designation is thus REVERSED. This constitutes the final decision of the Small Business Administration. See 13 CFR 121.1720. _______________________________ Jane E. Phillips (Presiding) Administrative Judge _______________________________ Gloria E. Blazsik (Concurring) Administrative Judge ________________________________ G. Stephen Wright (Concurring Administrative Judge _______________ 1/ Challenger's allegations concerning irregularities in the procurement process are beyond our jurisdiction and will not be discussed. 2/ Standard Industrial Classification Manual, 1987 ed. 3/ Where the engineering services have involved the "design and fabrication of experimental models" we have affirmed their classification under "Commercial and Biological Research." SIC Appeal of Dynamic Engineering. Inc., No. 2756 (1987). 4/ Affirming this distinction, and in the interests of clarity, we are compelled to overturn as aberrant our holding in SIC Appeal of DYnCorp, No. 3274 (1990).