DSE, Inc. v. United States

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 11, 1999 Decided March 12, 1999

No. 98-5265

DSE, Inc., d/b/a Dayron,

Appellant/Cross-Appellee

v.

United States of America, et al.,

Appellees

Consolidated with

No. 98-5368

Appeals from the United States District Court

for the District of Columbia

(No. 98cv00620)

Kenneth A. Martin argued the cause and filed the briefs
for appellant/cross-appellee.

Brian J. Sonfield, Assistant United States Attorney, ar-
gued the cause for the federal appellees. With him on the
brief were Wilma A. Lewis, United States Attorney, Mark E.
Nagle and R. Craig Lawrence, Assistant United States Attor-
neys, Glenn P. Harris, Trial Attorney, United States Small
Business Administration, and Ralph Avery, Litigation Attor-
ney, United States Department of the Army.

Michael R. Charness and John G. Horan were on the
briefs for appellee/cross-appellant. Donald J. Kissinger, Jr.
entered an appearance.

Before: Wald, Henderson and Garland, Circuit Judges.

Opinion for the Court filed by Circuit Judge Wald.

Wald, Circuit Judge: Dae Shin Enterprises, Inc. ("DSE")
brought a disappointed bidder action in the district court
against the United States of America, seeking to enjoin
performance of a procurement contract between the United
States Army (the "Army") and the successful bidder, AMTEC
Corporation ("AMTEC"). In support of its claim for injunc-
tive relief, DSE alleged that a formal size determination of
the Small Business Administration (the "SBA"), which found
AMTEC to be "small" under its applicable regulations, was
arbitrary and capricious in violation of the Administrative
Procedure Act. See 5 U.S.C. s 706(2)(A). The district court
granted a temporary restraining order and, after a series of
evidentiary hearings, held that the SBA's actions were arbi-
trary and capricious. Accordingly, the district court granted
a preliminary injunction and remanded the matter back to the
SBA. In deliberating upon the appropriate injunction bond,
the court took note of DSE's limited financial resources, the
potential burden on the Army under its contract with
AMTEC to provide compensation for any delay, and
AMTEC's failure to provide sufficient documentation to the
SBA. After balancing the prospective hardships, the court
directed DSE to post a minimal bond and declared that
AMTEC, who had intervened in the litigation and was
deemed the party at fault, should not be entitled to compen-

sation from the Army for any delay in the beginning of
performance under the contract.

On remand, the SBA again found AMTEC to be a small
business entity. Thereafter, the district court issued an
order which dissolved the preliminary injunction and upheld
the SBA's size determination. All other aspects of its previ-
ous order, including its assessment of the bond amount, were
left in place. DSE appeals from this decision, alleging that,
in several different respects, the SBA failed to follow its own
regulations and adjudicatory precedent. This unexplained
departure, it claims, was arbitrary and capricious, requiring
us to set aside the SBA's size determination and to suspend
performance of the contract. AMTEC filed a cross-appeal,
contending that the district court lacked the authority to issue
its no compensation order as the Tucker Act, see 28 U.S.C.
ss 1346, 1491, grants exclusive jurisdiction to adjudicate mon-
etary claims founded upon a federal procurement contract to
the United States Court of Federal Claims. Because the
SBA's size determination constituted a reasonable application
of the agency's regulations and accords with its previous
decisions, we agree with the district court that the SBA's
action was not arbitrary and capricious and that dissolution of
the preliminary injunction properly followed. As for the no
compensation declaration, the record reveals that the court
entered it in conjunction with setting the appropriate securi-
ty, as required by Rule 65(c) of the Federal Rules of Civil
Procedure, to accompany the preliminary injunction. We
affirm the district court's interlocutory order dissolving the
preliminary injunction, of which the bond formed an inextrica-
ble part, but decline to opine as to the effect this finding may
have in some speculative action on the contract brought in the
Court of Federal Claims.

I. Background

On September 16, 1997, the Army issued a solicitation for
bids to produce a detonation fuse styled as the M550 Escape-
ment Assemblies, an essential component of its M-918 40
millimeter Projectile. The Army designated Solicitation No.
DAAA09-97-R-0264 a total small business set-aside, and
assigned it Standard Industrial Classification ("SIC") Code
3483. Under SBA regulations, a bidding company can qualify

as "small" for purposes of SIC Code 3483 if it has fewer than
1500 employees. See 13 C.F.R. s 121.201. The Army an-
nounced its intention to award the contract to AMTEC on
January 21, 1998. Two days later DSE, a disappointed
bidder next in line for the award and the incumbent producer,
filed a protest with the contracting officer. Therein, it al-
leged that AMTEC did not qualify as a small business entity
under SIC Code 3483, and that AMTEC's November 12, 1997
self-certification as small was erroneous. The Army contract-
ing officer forwarded this challenge to the SBA's Office of
Government Contracting Area Office (the "Area Office") for a
formal size determination.

The Area Office reached a decision on February 9, 1998
(the "First Size Determination"). Based on the information
provided by AMTEC in response to the SBA's formal re-
quest, the Area Office determined that AMTEC and its
affiliates had fewer than 1500 employees at the time of
AMTEC's self-certification. The SBA notified the Army of
its decision, and the contracting officer awarded the contract
to AMTEC. After filing an unsuccessful protest with the
General Accounting Office, DSE brought suit in the U.S.
District Court for the District of Columbia against the United
States seeking a temporary restraining order against perfor-
mance of the contract, a preliminary and a permanent injunc-
tion, a determination that AMTEC was a large business
entity, and award of the production contract. In this action,
DSE maintained that the SBA's First Size Determination was
arbitrary and capricious for failing to count the personnel of
various alleged affiliates in assessing the total number of
AMTEC employees. On March 12, 1998, the Army ordered
AMTEC to stop performance on the contract pending the
outcome of the litigation. AMTEC then moved to intervene
pursuant to Rule 24 of the Federal Rules of Civil Procedure,
and the district court granted its motion.

When the Area Office became apprised that AMTEC may
have had additional and undisclosed affiliates, it initiated
another size protest. On April 16, 1998, the SBA concluded
that AMTEC still qualified as a small business entity (the
"Second Size Determination"). On April 23, 1998, after hear-

ing oral argument, the district court granted a temporary
restraining order and directed DSE to post a $5,000 bond.
See 4/22/98 Transcript ("Tr.") at 94-103. Further evidentiary
hearings followed, including extensive discussions as to the
propriety of requiring DSE to post an additional bond. The
court repeatedly expressed its view that DSE had performed
a public service by coming forward, and that it would be
unfair to saddle it with any additional monetary burden. In
response, the government contended that any blame lay on
AMTEC's shoulders, and that the Army needed protection
against any future claims for the delay. See 4/30/98 Tr. at
95-111. On May 6, 1998, the court issued a preliminary
injunction against performance on the contract, and ordered
that "no compensation is due to AMTEC Corporation for any
delay in the beginning of performance in the procurement
contract because of the Court's finding that the delay in this
matter is the fault of AMTEC's inadequate disclosures...."
DSE, Inc. v. United States, No. 98-0620 (D.D.C. May 6, 1998)
(order granting preliminary injunction) (the "No Compensa-
tion Order").

In the memorandum opinion that accompanied the prelimi-
nary injunction, the district court found the SBA's Second
Size Determination arbitrary and capricious and contrary to
law, remanding the matter back to the SBA. The court
based this conclusion on two separate grounds. First, it
reasoned that the SBA "did not have all the necessary
information before it when it made the determination." DSE,
Inc. v. United States, No. 98-0620, at 11 (D.D.C. May 6,
1998). Although the SBA relies heavily upon an applicant's
voluntary disclosures when assessing size, AMTEC's Presi-
dent had testified that he was largely unfamiliar with both the
SBA regulations governing affiliation and the extensive com-
mercial holdings of those who owned AMTEC. The SBA
itself had already concluded that the disclosures made in
conjunction with the First Size Determination were inade-
quate. When AMTEC failed to divulge pertinent information
concerning two asset acquisitions that it completed during the
interlude between its self-certification and receipt of the

contract award, the court suspected that those underlying the
Second Size Determination were equally insufficient.

While the SBA had been unaware of AMTEC's acquisitions
at the time of its Second Size Determination, the agency
insisted in its testimony before the court that they were
irrelevant. While SBA regulations give present effect to
"agreements in principle" which exist as of the date of self-
certification, SBA officials asserted that they lacked the au-
thority to investigate events occurring after that date. Re-
jecting this contention, the district court concluded that agen-
cy regulations not only permitted but required it to examine
these transactions. Finding that the SBA erred in failing to
investigate whether AMTEC had agreements in principle to
acquire these companies as of the relevant date, the court
remanded the matter to the agency for it to undertake that
investigation.

On June 4, 1998, the SBA again found AMTEC to have
been a small business as of the date of its self-certification
(the "Third Size Determination"). After carefully reviewing
the additional documentation submitted by AMTEC, the SBA
concluded that there were no "unexecuted but final agree-
ments" or "agreements in principle" in existence on Novem-
ber 12, 1997. With respect to each of the subsequent acquisi-
tions, the SBA found that they had merely been in the
negotiation stage as of that day; a number of unsettled
material terms and conditions separated the parties, and the
evidence was insufficient to establish that AMTEC had ac-
quired any negative control over the targeted companies.
Acknowledging the district court's determination that it had
discretion to consider events occurring after a firm's self-
certification, the SBA declined, on the facts before it, to
exercise that discretion.1 After a subsequent evidentiary

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1 The SBA justified this conclusion by noting that: (i) it had not
uncovered any evidence that AMTEC had acted fraudulently in its
self-certification, nor that AMTEC had attempted to circumvent
SBA regulations by postponing the acquisitions until after its self-
certification; and (ii) the Army had conveyed its view that any
further delays in awarding the contract would undermine national

hearing, the district court issued a June 18, 1998 Order which
upheld the Third Size Determination, dissolved the prelimi-
nary injunction, and left all other aspects of its May 6, 1998
Order in place. DSE, Inc. v. United States, No. 98-0620, at 4
(June 16, 1998) (order dissolving preliminary injunction)
("DSE II"). DSE appeals from this Order, and AMTEC has
lodged a cross-appeal.

II. Discussion

A.Preliminary Issues

As an initial matter, AMTEC challenges this court's juris-
diction to hear DSE's claim on the grounds that DSE failed to
exhaust administrative remedies available at the agency level.
Pointing to SBA regulations, AMTEC observes that DSE had
another level of administrative review available to it when it
"abandoned" the administrative regime in favor of a judicial
remedy--namely an appeal of the Area Office's size determi-
nation to the SBA Office of Hearings and Appeals ("OHA").
Because the necessity of exhaustion rests largely upon the
statutory and regulatory framework that structures an agen-
cy's administrative procedure, we briefly delineate the gov-
erning regime before turning to the question of jurisdiction
that it determines.

1.The Regulatory Framework

The Small Business Act (the "Act") grants the SBA broad
authority to craft general criteria for establishing which
entities qualify as small business concerns, as well as to make
particularized size assessments. See, e.g., 15 U.S.C.
s 632(a)(2)(A) ("the Administrator may specify detailed defi-
nitions or standards by which a business concern may be
determined to be a small business concern"); 15 U.S.C.
s 637(b)(6) ("It shall also be the duty of the Administration
and it is empowered, whenever it determines such action is
necessary--(6) to determine within any industry the concerns,

__________
security by jeopardizing the readiness of American military person-
nel. See Size Determination of AMTEC Corporation, No. 4-1998-
20(r), at 2 (June 4, 1998) (the "Third Size Determination").

firms ..., or other business enterprises which are to be
designated 'small-business concerns' for the purpose of effec-
tuating the provisions of this chapter."). The Act further
directs that other federal agencies "shall accept as conclusive
the Administration's determination as to which enterprises
are to be designated 'small-business concerns'...." 15 U.S.C.
s 637(b)(6). The implementing regulations promulgated by
the SBA establish applicable size standards on the basis of
Standard Industrial Classification codes, each of which de-
scribes a particular economic sector and then specifies the
maximum number of employees or annual receipts that a
concern (and its affiliates) within that sector can have and still
be considered small. See 13 C.F.R. s 121.201. In the gov-
ernment procurement context, the codes correspond to the
principal purpose of the product or service being sought. See
13 C.F.R. ss 121.107, 121.201.

The SBA regulations grant initiating authority to agency
contracting officers, directing them to select the appropriate
SIC code by considering which description of activity best
describes the subject matter of the procurement. See 13
C.F.R. s 121.402(b). When submitting an initial offer or bid
for a small business set-aside, a concern must include written
self-certification that it qualifies as small under the specified
SIC code as of the date of the submission. See 13 C.F.R.
ss 121.404-.405. "A contracting officer may accept a con-
cern's self-certification as true for the particular procurement
involved in the absence of a written protest by other offerors
or other credible information which causes the contracting
officer or SBA to question the size of the concern." 13
C.F.R. s 121.405(b).

Any disappointed offeror can make a size protest in connec-
tion with a particular procurement under the Small Business
Set-Aside Program. See 13 C.F.R. s 121.1001(a)(1)(i). To
avail itself of SBA review, the disappointed bidder must file a
grievance with the contracting officer, setting out "sufficiently
specific" allegations "to provide reasonable notice as to the
grounds upon which the protested concern's size is ques-
tioned," 13 C.F.R. s 121.1007(b), within five days of receiving
notice of the identity of the prospective awardee. See 13

C.F.R. ss 121.1003, .1004(a)(2). The contracting officer
"must forward the protest to the SBA Government Contract-
ing Area Officer serving the area in which the headquarters
of the protested concern is located...." 13 C.F.R. s 121.1003.
Upon receiving a specific size protest, the SBA will contact
the prospective awardee, providing a copy of the protest as
well as the requisite SBA documents which must be filled out
and returned within three working days. See 13 C.F.R.
s 121.1008. If the awardee fails to make a timely response,
the SBA may employ a negative inference that the missing
information would reveal the firm to be other than small. See
13 C.F.R. s 121.1008(d). Where the awardee provides a
timely response, the SBA Regional Office "will make a formal
size determination within 10 working days, if possible" of
receiving the original protest. 13 C.F.R. s 121.1009(a).

There is no appeal as of right from a formal size determina-
tion. See 13 C.F.R. s 121.1101. An individual adversely
affected by an Area Office's decision, however, may file a
petition seeking an appeal. See 13 C.F.R. s 134.302. In the
context of a pending procurement, that individual must seek
an appeal with the OHA within fifteen days from the formal
size determination's release, see 13 C.F.R. s 134.304(a)(1),
following which the prospective awardee has ten days to file
an opposition to the appeal petition. See 13 C.F.R.
s 134.309(b). "It is within the discretion of the [OHA Judge]
whether to accept an appeal from a size determination." 13
C.F.R. s 134.303. See also 13 C.F.R. s 121.1101 ("OHA ...
may, in its sole discretion, review a formal size determination
made by a SBA Government Contracting Area Office....").
If the OHA accepts an appeal, its decision, upon issuance,
constitutes the final decision of the SBA. That determination
"becomes effective immediately and remains in full force and
effect unless and until reversed by OHA." 13 C.F.R.
s 121.1009(g)(1).

2.Exhaustion

Under the Administrative Procedure Act (the "APA"), a
party can seek judicial review from a final agency action
without pursuing an intra-agency appeal unless required to do

so by statute or by regulation. See generally Darby v.
Cisneros, 509 U.S. 137 (1993); see also Sendra Corp. v.
Magaw, 111 F.3d 162, 166 (D.C. Cir. 1997) ("Parties therefore
do not have to seek rehearing before they commence an
action for judicial review, unless there is a statute requiring
them to do so...."). As Darby makes abundantly clear, "an
appeal to 'superior agency authority' is a prerequisite to
judicial review only when expressly required by statute or
when an agency rule requires appeal before review and the
administrative action is made inoperative pending that re-
view." Darby, 509 U.S. at 154. By explicit terms, section
10(c) of the APA "has limited the availability of the doctrine
of exhaustion of administrative remedies to that which the
statute or rule clearly mandates." Id. at 146. See 5 U.S.C.
s 704 ("agency action otherwise final is final for the purposes
of this section whether or not there has been presented or
determined ..., unless the agency otherwise requires by rule
and provides that the action meanwhile is inoperative, [ ] an
appeal to superior agency authority").

In an action brought under the APA, our inquiry is two-
fold. First, we examine the organic statute to determine
whether Congress intended that an aggrieved party follow a
particular administrative route before judicial relief would
become available. If that generative statute is silent, as is
the Small Business Act, we then ask whether an agency's
regulations require recourse to a superior agency authority.
Where an intra-agency appeal is discretionary, Darby teaches
that "[c]ourts are not free to impose an exhaustion require-
ment as a rule of judicial administration where the agency
action has already become 'final' under s 10(c)." 509 U.S. at
154.

AMTEC attempts to read SBA regulations as creating a
mandatory appellate procedure, arguing that an aggrieved
party cannot obtain a "final" agency decision without pursu-
ing an appeal to the OHA.2 The SBA regulations, however,

__________
2 Counsel for the SBA took a contrary position at oral argument,
expressing the agency's belief that an OHA appeal is not a precon-
dition to seeking judicial relief. In the SBA's opinion, DSE had

cannot bear that construction. A decision from the OHA is
final upon issuance, whether it declines to exercise the OHA's
power of review or instead replaces an Area Office's size
determination with a formal ruling. See 13 C.F.R.
s 134.316(b) ("The decision [of the OHA] is the final decision
of the SBA and becomes effective upon issuance."). Never-
theless, an Area Office decision can become final without
receiving the OHA's imprimatur: "Unless OHA accepts a
petition for review of a formal size determination, the size
determination made by a SBA Government Contracting Area
Office ... is the final decision of SBA." 13 C.F.R.
s 121.1101. Moreover, as Darby makes relevant, the filing of
an appeal petition with the OHA does not render a size
determination inoperative. Rather, a decision by the Area
Office "becomes effective immediately and remains in full
force and effect unless and until reversed by OHA." 13
C.F.R. s 121.1009(g)(1) (emphasis added). Since that deci-
sion is not rendered inoperative by a pending appeal to a
"superior agency authority," a disappointed bidder need only
make an initial size protest. Then, having exhausted the
administrative remedies made necessary by SBA regulations,
it can proceed in the federal courts seeking relief under the
APA. Because DSE did just that, its claim is properly before
us.

B.The Small Business Administration's Third Size Deter-
mination

DSE challenges the legality of the SBA's Third Size Deter-
mination on four separate grounds, broadly alleging that the
agency failed to adhere to its own precedent in assessing the
number of AMTEC employees. DSE further contends that
the district court erred in finding the Third Size Determina-
tion not arbitrary and capricious. We review the disputed
agency action de novo, and "proceed as if the [agency's]
decision had been appealed to this court directly." Dr
Pepper/Seven-Up Cos. v. FTC, 991 F.2d 859, 862 (D.C. Cir.
1993). Although the district court's decision on DSE's APA

__________
exhausted the necessary administrative remedies before bringing
this suit.

claim is not entitled to any particular deference, the agency's
interpretation and application of its own regulations does
merit our deference. In assessing the SBA's compliance with
the prevailing APA standards, see 5 U.S.C. s 706(2)(A), our
mantra is by now familiar. We ask whether the SBA's
actions have been arbitrary or capricious, examining whether
it has acted consistently with its previous applications of the
governing regulations and whether the application of its
general regulative doctrines to the specifics of this case has
been reasonable. See Troy Corp. v. Browner, 120 F.3d 277,
281 (D.C. Cir. 1997); Choctaw Mfg. Co. v. United States, 761
F.2d 609, 616 (11th Cir. 1985) (in disappointed bidder action,
legality of agency action assessed by asking whether arbi-
trary and capricious). Finding the SBA's Third Size Deter-
mination to constitute a reasonable application of the agency's
regulations that accords with its previous decisions, we reject
each of DSE's contentions in turn.

1.Acquisitions After the Self-Certification

DSE first contends that the SBA Area Office's size deter-
mination was arbitrary and capricious in its refusal to give
"present effect" to three acquisitions consummated in the
two-month period following AMTEC's self-certification as
small. In particular, DSE alleges that the SBA departed
from both its own regulations and past precedent when it
decided against including the employees of Allied Molded
Products, Inc. ("Allied Molded"), Actown-Electrocoil, Inc.
("Actown"), and AEIC, Inc. ("AEIC") in assessing AMTEC's
size. In DSE's view, the chronology of events surrounding
these transactions reveal that AMTEC had reached what the
SBA terms an "agreement in principle" to conclude each of
the relevant acquisitions as of November 12, 1997. Mindful
of our duty to take into account the agency's expertise in
making such assessments, we cannot agree.

The SBA uses the date of self-certification as the general
baseline against which to measure a firm's size. See 13
C.F.R. s 121.404 ("Generally, SBA determines the size status
of a concern (including its affiliates) as of the date the concern
submits a written self-certification that it is small to the

procuring agency as part of its initial offer including price.").
In addition to two enumerated exceptions to this background
principle, neither of which applies here, SBA regulations also
provide for giving "present effect" to certain transactions,
treating them as if they had occurred prior to the date of self-
certification. The relevant provision appears as a part of the
elaborate standards the SBA uses in determining whether or
not associate entities qualify as affiliates for purposes of
assessing size. 13 C.F.R. s 121.103 provides that:

(a) General Principles of Affiliation. (1) Concerns
are affiliates of each other when one concern controls or
has the power to control the other, or a third party or
parties controls or has the power to control both.

(2) SBA considers factors such as ownership, manage-
ment, previous relationships with or ties to another con-
cern, and contractual relationships, in determining
whether affiliation exists....

(d) Affiliation arising under stock options, convertible
debentures, and agreements to merge. Since stock op-
tions, convertible debentures, and agreements to merge
(including agreements in principle) affect the power to
control a concern, SBA treats them as though the rights
granted have been exercised.... SBA gives present
effect to an agreement to merge or sell stock whether
such agreement is unconditional, conditional, or finalized
but unexecuted. Agreements to open or continue negoti-
ations towards the possibility of a merger or a sale of
stock at some later date are not considered 'agreements
in principle' and, thus, are not given present effect.

In its Third Size Determination, the SBA found AMTEC to
have been affiliated with a series of other companies that, like
itself, were owned by North American Fund II, L.P. ("Fund
II"), a venture capital fund. The network of interlocking
companies either owned by Fund II or controlled by those
who control it is elaborate and rather complex. For purposes
of deciding this case, however, we need only point out that as
a result of common ownership and control, the SBA deemed
all companies owned or managed by Fund II and North

American Fund III, L.P. ("Fund III") to be affiliates of
AMTEC. See Third Size Determination at 4-5. The parties
do not contest this finding; instead, their controversy centers
around the acquisition of Actown and AEIC by Fund III, and
of Allied Molded by AMTEC. Because the question of
affiliation is time- and fact-specific, we briefly discuss the
chronology of events surrounding each transaction.

Fund III and each of Actown and AEIC executed a Letter
of Intent on October 23, 1997, in which the parties set forth
their intention to enter into an acquisition agreement by the
end of that year. The companies had begun negotiations
months earlier, after a business search firm contacted Fund
III with information regarding Actown and AEIC. After
Fund III signed a confidentiality agreement that granted it
access to Actown's business information, the companies con-
tinued to negotiate a general structure for the deal and a
proposed purchase price. The Letter of Intent reflected the
agreements that had been reached by October 23rd but, as
the SBA Area Office found, did "not constitute a binding
agreement or an agreement in principle to merge or acquire
stock." Id. at 9. The SBA reached this conclusion based on
the fact that "one key material term, the purchase price of
$20 million, is merely 'contemplated' rather than agreed to,
and is contingent on a number of variables including Fund
III's determination as to [Actown's and AEIC's] financial
prospects, existence of dividend payments, results of environ-
mental studies, and adverse changes in the businesses." Id.
The Letter of Intent also failed to resolve the liabilities that
Fund III would incur upon closing, the impact of the acquisi-
tion upon Actown's employees, the negotiation of employment
agreements, the method of financing, and the amount of
equity and subordinated debt that Fund III would commit.
The acquisition was expressly made contingent upon reaching
a mutually acceptable agreement on these terms. Finally, as
the SBA emphasized, the parties could walk away from the
negotiations and terminate the Letter of Intent at any point
during the process of due diligence without incurring any
liability. Id. Negotiations continued during November, De-

cember and January, and the transaction was not consummat-
ed until January 13, 1998.

Turning to the acquisition of Allied Molded, the parties
began negotiations in October of 1997 and signed a Letter of
Intent during the week that followed AMTEC's self-
certification. This letter did contain a proposed price, but it
was contingent upon various stated assumptions that AMTEC
would have to verify. In addition to due diligence and
environmental impact studies, the letter also noted that a
number of significant issues remained outstanding--e.g., non-
competition agreements, representations and warranties, con-
ditions and indemnifications--and were to be the subject of
further negotiations. Finally, the letter granted AMTEC the
right to walk away at any point in time without incurring
liability. In its Third Size Determination, the SBA concluded
that "this letter is sufficiently nonbinding and tentative as to
the material terms that it does not constitute an agreement to
merge or acquire stock which SBA would give present effect
under the regulation." Similarly, it held that the letter did
not signify an "agreement in principle" as final agreement
was "contingent on the acquiring [company's] due diligence
and other variables ...," and was not enforceable. Id. at 10.
The parties reached final agreement in December, executing
a Purchase and Sale contract on December 30, 1997.

With respect to each acquisition, DSE alleges that the
SBA's Third Size Determination was arbitrary and capricious
in its conclusion that there were neither agreements nor
agreements in principle in place as of AMTEC's November
12th "small" self-certification. Drawing upon a series of
previous SBA decisions, DSE alleges that agency practice can
be distilled into a two-pronged rule: the SBA gives present
effect to an acquisition agreement unless (i) a final agreement
rests on conditions that are unusual, incapable of fulfillment,
speculative or conjectural; or (ii) the probability that the
transaction would ever be consummated is extremely low.
We do not believe, however, that the SBA's cases can plausi-
bly be read to state such a "rule." DSE's attempted exegesis
rests upon a selective misreading of SBA precedent.

Upon examination, none of the cases cited by DSE resem-
ble the case at bar. In nearly all, the presence of a binding
agreement or an agreement in principle was fully evident.
The only question was whether the SBA would give present
effect to that pre-existing agreement when the transaction it
described would not be consummated until some point in the
future. See, e.g., Size Appeal of Consol. Indus., Inc., No.
4235 (SBA OHA 1997) (giving present effect to option agree-
ment under which large entity could purchase all of Consoli-
dated's stock at a set price); Syro Steel, No. 3800 (SBA OHA
1993) (where Articles of Incorporation, Agreement of Merger,
Agreement and Plan of Merger had all been executed, and
S-4 registration statement filed with the SEC seeking regula-
tory approval of merger, held that binding agreement had
been reached at time of self-certification); Dependable Couri-
er Servs., No. 2110 (SBA OHA 1985) (giving present effect to
a takeover when the companies had executed a Stock Pur-
chase Agreement granting negative control over the target to
the acquiring company and leaving formal completion subject
only to minor contingencies); Mark Wienert, SBA No. 865
(1976) (as Board of Directors had each ratified Principles of
Agreement, leaving only minor and routine conditions prece-
dent to closing, present effect deemed appropriate). Here,
by contrast, we are asked to review the propriety of the
SBA's determination that no "agreement in principle" existed
as to either acquisition by the date of self-certification. Con-
ceptually, this question precedes any inquiry into whether
such an agreement, if found, should be given present effect.

Given the fluidity of contemplated and evolving corporate
transactions, which relegates any post hoc examination to a
search for indicia of an agreement, we consider SBA exper-
tise to be at its apex when determining whether an agree-
ment in principle exists. We will not readily substitute our
judgment for that of the agency, see Motor Vehicle Mfrs.
Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43
(1983), but will defer to its experience provided that the
agency has offered a reasoned explanation for its decision,
and that the result is in accord with material facts contained
in the administrative record. The SBA's Third Size Determi-

nation easily satisfies this standard. With respect to the
acquisitions of Allied Molded, Actown, and AEIC, the SBA
explained that the companies had not reached an "agreement
in principle" because the respective letters of intent failed to
resolve important terms of conditions of the proposed trans-
actions. Since this conclusion is consistent with SBA regula-
tions, see 13 C.F.R. s 121.103(d) ("Agreements to open or
continue negotiations toward the possibility of a merger or a
sale of stock at some later date are not considered 'agree-
ments in principle' and, thus, are not given present effect."),
as well as prior SBA precedent, see Size Appeal of Geosyntec
Consultants, No. 4277 (SBA OHA 1997) (refusing to give
present effect to binding agreement reached four days after
self-certification where target company had rejected a previ-
ous comprehensive bid but parties continued negotiating to-
ward an accord), we will not disturb it.

2.DSE's Additional Claims

DSE's remaining challenges to the SBA's Third Size Deter-
mination are easily disposed of. First, DSE alleges that the
SBA acted unlawfully in utilizing a full-time equivalency
formula3 to count the number of temporary workers used by
AMTEC and its affiliates. The government conceded at oral
argument that the SBA has always rejected the use of
equivalency figures as inconsistent with its regulations requir-
ing that a count include "all individuals employed on a full-
time, part-time, temporary, or other basis," 13 C.F.R.
s 121.106(a), and that "[p]art-time and temporary employees
are counted the same as full-time employees." 13 C.F.R.
s 121.106(b)(2). See, e.g., Atlantic Plastic & Chemical Co.,
No. 1290 (SBA SAB 1979), aff'd on recons., No. 1299 (1979)
(rejecting attempt to measure part-time employees by use of
full-time equivalency formula)4; Golden West Refining Co.,

__________
3 "AMTEC and Deloitte & Touche calculated the number of
[temporary workers] by reviewing the hours for which AMTEC had
been billed by its temporary help services, and dividing by 40 (the
number of hours in a work week)." Third Size Determination at 11.

4 When Atlantic Plastic was decided, the governing regulation,
then 13 C.F.R. s 121.3-2(t), provided that: "Number of employees

No. 2132 (SBA OHA 1985) ("A review of the OHA's and Size
Appeals Board's [ ] decisions concerning 'number of employ-
ees' shows that: the concern cannot count employees on an
equivalency basis but must count as employees all full-time,
part-time and temporary employees...."). It is a settled
tenet of administrative law that an agency cannot depart from
a long-standing policy without providing sufficient explanation
of its rationale for altering course. See Simmons v. ICC, 829
F.2d 150, 156 (D.C. Cir. 1987); Telecommunications Re-
search & Action Ctr. v. FCC, 800 F.2d 1181, 1184 (D.C. Cir.
1986). However, it is equally well settled that the principle of
harmless error applies to judicial review of agency action.
See 5 U.S.C. s 706 ("In making the foregoing determinations
[of whether agency action is arbitrary and capricious] ... due
account shall be taken of the rule of prejudicial error.");
Doolin Sec. Sav. Bank, FSB v. Office of Thrift Supervision,
139 F.3d 203, 212 (D.C. Cir. 1998).

Under the APA, we will not set aside agency action unless
"the party asserting error [can] demonstrate prejudice from
the error," Air Canada v. Department of Transp., 148 F.3d
1142, 1156 (D.C. Cir. 1998), a burden that DSE has conspicu-
ously failed to meet. In the Third Size Determination, the
SBA determined that AMTEC and its affiliates had a total of
1413.19 employees for the twelve months preceding AMTEC's
self-certification as small. See Third Size Determination at
12. Of these, only 44.54 were classified as temporary employ-
ees. See id. In the evidentiary hearings before the district
court, AMTEC introduced additional testimony from its De-
loitte & Touche accountant that counted temporary employ-
ees based on the actual number of individuals used--the same
"head count" method used to measure the number of full-time
and part-time employees. According to the accountant's tes-
timony, AMTEC and its affiliates had 1428.30 employees

__________
means the average employment ... based on the number of per-
sons employed on a full-time, part-time, temporary or other basis
during each of the pay periods of the preceding 12 months." The
regulation currently provides, in almost identical terms, that: "Em-
ployees counted in determining size include all individuals employed
on a full-time, part-time, temporary, or other basis."

during the relevant time period. See 6/15/98 Tr. at 10-13;
DSE II at 3. In other words, an actual head count assigned
fifteen additional employees to AMTEC, but left it well short
of the 1500 allowed for this procurement under SIC Code
3483. Although this information was never presented to the
SBA, DSE did have the opportunity to cross-examine
AMTEC's witness, and to introduce any evidence to the
contrary. DSE failed to provide us with any reason to
believe that it could ever show this revised count to be
erroneous. Accordingly, we find the agency's error to have
been harmless.5 Cf. State of North Carolina v. FERC, 112
F.3d 1175, 1191 (D.C. Cir. 1997) (although FERC utilized
erroneous data, error was harmless as petitioner could not
show that revised data would alter the Commission's projec-
tion).

DSE next contends that the SBA was arbitrary and capri-
cious in its failure to investigate whether the general partners
of North American Company, Ltd.--a limited partnership--
had other commercial interests that should have been consid-
ered affiliates of AMTEC. The record belies this assertion.
As required by its regulations, see 13 C.F.R. s 121.103(a)(1),
(4), the SBA examined all of the holdings of North American
Company's managing general partner, the individual who
controlled its activities. See Third Size Determination at 4-8.
Quantrad Sensor, Inc., SBA No. 4255 (SBA OHA 1997), cited
by DSE for the proposition that the SBA should have gone on
to examine the holdings of the other partners as well, does
not provide to the contrary. In Quantrad, the OHA held that

__________
5 DSE further contends that we should not allow the testimony
before the district court to rehabilitate the Third Size Determina-
tion, as "[i]t is a widely accepted principle of administrative law that
the courts base their review of an agency's actions on the materials
that were before the agency at the time its decision was made."
IMS, P.C. v. Alvarez, 129 F.3d 618, 623 (D.C. Cir. 1997). While it is
true that the accountant's testimony had not been presented to the
SBA, we have not utilized his estimations in reviewing the agency's
size determination. The SBA clearly erred. It is equally clear,
however, that its error was harmless. It would be an empty
formality for us to remand the matter back to the SBA, a waste of
time and resources that we decline to order.

the SBA could request information from a general partner-
ship's general partners, not that it was under an obligation to
do so. In fact, in Size Appeal of Interactive Resources, Inc.,
No. 3168 (SBA OHA 1989), relied upon by the Area Office in
Quantrad, the OHA explicitly held that:

In a limited partnership, each partner's liability is limit-
ed, except that of the General Partner. A General
Partner in a limited partnership has all the rights and
powers of a General Partner in a General Partnership.
Thus, a General Partner in a limited partnership is also
presumptively in control of the limited partnership for
purposes of the affiliation regulation.

(Emphasis added). Having examined the holdings of North
American Company's general partner, the SBA was under no
obligation to make any further inquiries.

Finally, DSE alleges that the SBA should have determined
whether a joint venture between North American Company
and another business, Allied Capital Commercial Corporation,
received financial assistance from the SBA. We disagree.
While 13 C.F.R. s 121.103(f)(1) provides that "[p]arties to a
joint venture are affiliates if any one of them seeks SBA
financial assistance for use in connection with the joint ven-
ture," there was no evidence that any SBA funds had been
used in connection with the North American-Allied Capital
project. In testimony before the district court, which oc-
curred prior to the Third Size Determination and at which the
SBA was represented, the controlling partner of North Amer-
ican Company testified that the joint venture in question had
no relationship whatsoever with the SBA. Given the SBA's
general reliance upon the parties' voluntary disclosure of
relevant information, see 13 C.F.R. s 121.405(a)-(b), policed
by "severe criminal penalties for knowingly misrepresenting
the small business size status of a concern ... [or] for
knowingly making false statements or misrepresentations to
SBA," 13 C.F.R. s 121.108, we do not see how it had any
obligation to investigate further.

Accordingly, we conclude that the SBA's Third Size Deter-
mination was not arbitrary and capricious. We also affirm

the district court's interlocutory order dissolving the prelimi-
nary injunction against performance on AMTEC's contract
with the Army.6 See DSE II at 4. As our discussion well
illustrates, the court properly concluded that DSE had little
to no likelihood of prevailing on the merits of its claim.

C.The "No Compensation Order"

Jurisdiction to adjudicate monetary claims founded upon
any express or implied contract with the United States rests
primarily in the United States Court of Federal Claims. See
28 U.S.C. s 1491. Although the federal district courts have
concurrent jurisdiction when the amount in controversy is
$10,000 or less, the Court of Federal Claims has exclusive
jurisdiction over claims exceeding $10,000, see 28 U.S.C.
s 1346(a)(2); 28 U.S.C. s 1491; Auction Co. of America v.
FDIC, 132 F.3d 746, 749 (D.C. Cir. 1997), as well as over
claims "which are subject to sections 8(g)(1) and 10(a)(1) of
the Contract Disputes Act of 1978." 28 U.S.C. s 1346(a)(2).
Since the Contract Disputes Act applies, inter alia, to con-
tracts entered into by an executive agency for the procure-
ment of property, see 41 U.S.C. s 602(a), the Court of Feder-

__________
6 Although the district court did not enter a formal judgment for
the United States in conjunction with its June 16th Order, the court
clearly assumed that the Order fully resolved and terminated the
proceedings before it. See, e.g., 6/9/98 Tr. at 6 ("I got to finish this
thing here."); 6/15/98 Tr. at 28 ("this thing has got to come to a
conclusion."); DSE II at 3 ("In short, the Court has done every-
thing it can to ensure that the Plaintiff received a careful and
accurate decision from the SBA."). Because the plaintiff's Com-
plaint additionally sought a permanent injunction and other equita-
ble relief, this case will not be formally concluded until the court
enters judgment in favor of the United States in accordance with
Rule 58 of the Federal Rules of Civil Procedure. See Fed. R. Civ.
P. 58; United States v. Haynes, 158 F.3d 1327, 1329 (D.C. Cir.
1998) (separate document requirement of Rule 58 must be mechani-
cally applied). In light of our holding that the SBA's Third Size
Determination was not arbitrary and capricious, no further relief is
available to the plaintiff. Accordingly, we will remand the matter to
the district court to take whatever procedural steps are necessary
to render a formal and final disposition.

al Claims has exclusive jurisdiction over monetary disputes
arising out of such contracts. Had the district court's No
Compensation Order sought to render a final adjudication of
AMTEC's potential monetary claims against the government
under their contract, it seemingly would have exceeded this
jurisdictional proscription. Because we do not believe that
the district court's Order had this intention or effect, howev-
er, we need not determine whether it adjudicated what is "at
its essence a contract action." Commercial Drapery Contrac-
tors, Inc. v. United States, 133 F.3d 1, 4 (D.C. Cir. 1998)
(internal quotations omitted). Compare Megapulse, Inc. v.
Lewis, 672 F.2d 959, 969 (D.C. Cir. 1982) (where plaintiff
seeks injunctive relief against the Coast Guard under the
Trade Secrets Act to prevent dissemination of technological
information, mere fact that dispute is contract-related does
not convert it into an action based on the contract) with
Ingersoll-Rand Co. v. United States, 780 F.2d 74 (D.C. Cir.
1985) (plaintiff cannot avoid Contract Disputes Act by claim-
ing that Air Force's decision to terminate its contract was
arbitrary and capricious and in violation of Federal Acquisi-
tion Regulations).

The district court entered the No Compensation Order in
conjunction with its decision to grant a temporary restraining
order and then later a preliminary injunction. In light of the
circumstances surrounding its issuance, we view the No Com-
pensation Order as part and parcel of the preliminary injunc-
tion order itself. Under Rule 65(c) of the Federal Rules of
Civil Procedure, "[n]o restraining order or preliminary injunc-
tion shall issue except upon the giving of security by the
applicant, in such sum as the court deems proper, for the
payment of such costs and damages as may be incurred or
suffered by any party who is found to have been wrongfully
enjoined or restrained." Fed. R. Civ. P. 65(c). The language
"in such sum as the court deems proper" has been read to
vest broad discretion in the district court to determine the
appropriate amount of an injunction bond. See, e.g., Federal
Prescription Serv., Inc. v. American Pharm. Ass'n, 636 F.2d
755, 759 (D.C. Cir. 1980) (discussing the widely recognized
discretion that a district court granting temporary injunctive

relief has with respect to the security requirement of Rule
65(c)); Carillon Importers, Ltd. v. Frank Pesce Int'l Group
Ltd., 112 F.3d 1125, 1127 (11th Cir. 1997) (same). The
district court entered the No Compensation Order in its
exercise of the broad equitable authority granted by Rule
65(c).

An examination of the record reveals that the court had
extensive discussions with the parties as to both the propriety
of requiring DSE to post a bond and the appropriate amount.
Before issuing the temporary restraining order, and again
before issuing the preliminary injunction, the court expressed
its belief that DSE had rendered a public service in challeng-
ing AMTEC's size. See 4/30/98 Tr. at 97-111. Given DSE's
diminutive size and limited financial resources, the court
sought to fashion a way to limit DSE's potential exposure
while simultaneously requiring a bond sufficient to compen-
sate the government in case the award was later found to
have been wrongfully enjoined.7 It ultimately decided to
__________
7 The following exchange exemplifies the court's and the parties'
varying concerns:

U.S.: Then we need a bond, Your Honor.

Court: You need a bond from these people who are going to
get nothing out of this thing maybe?

U.S.: No, Your Honor. If the SBA determines that AMTEC is
again qualified to get the contract and the Army has been
stopped for this long period of time, with damages, AMTEC is
going to submit a claim for $3,000 a day. If we have been
stopped--
Court: And these people have to pay for it after they do a
public service?

U.S.: Your Honor, if it's improvidently issued because they
were small, anyway, if the SBA finds them to be small on the
remand, they're damaged....

Court: This is Alice in Wonderland....

U.S.: Well, if you merely want to remand the decision to the
SBA, the Army will proceed with the contract performance. If
you don't want contract performance to proceed, then we need

balance the equities by requiring DSE to post a $5,000 bond,
and then limiting the government's potential damages as a
result of delay in performance on the contract by declaring
that AMTEC, who it considered to be the party at fault, could
not recover for losses caused by the injunction.

Because the No Compensation Order formed a part of the
preliminary injunction order, and we have jurisdiction under
28 U.S.C. s 1292(a)(1)8 to review the court's interlocutory
order dissolving the injunction, we necessarily have jurisdic-
tion to hear AMTEC's cross-appeal. However, since we do
not believe that the court's declaration in any way constitutes
an adjudication of AMTEC's rights under its procurement
contract, the Tucker Act does not speak to the propriety of
the district court's June 16, 1998 interlocutory order. We
express no opinion as to the effect its declaration will have in
any future litigation between AMTEC and the government,
__________
to be protected from the damages of the delay, in the event
that the SBA finds that they're still small and they should have
been going forward in the meantime. The value of this time is
hurting the Army....

Court: But I don't think these people who are the whistle-
blowers, should have to put up a bond at this stage because I
don't think that they did the wrong thing by coming for-
ward....

Let me point something out to you. There's a problem here.
We see what the problem is and we don't have to use an atomic
bomb here. There was no fraud. Nobody was trying to
deceive. You heard it as I heard it. You heard that the
problem was [AMTEC's President] went ahead and he didn't
know what the heck he was doing, Lansing. He was in a field
that he shouldn't have been in.

U.S.: I understand, Your Honor. I'm just trying to protect an
innocent bystander.

4/30/98 Tr. at 101-06.

8 "[T]he courts of appeals shall have jurisdiction of appeals from:
(1) Interlocutory orders of the district courts of the United States
..., or of the judges thereof, granting, continuing, modifying,
refusing or dissolving injunctions...." 28 U.S.C. s 1292(a)(1).

leaving it to the Court of Federal Claims to adjudicate their
respective rights under the contract should a dispute subse-
quently arise. As AMTEC has offered no other basis for its
cross-appeal, we affirm the district court's order dissolving
the preliminary injunction.

III. Conclusion

For the foregoing reasons, we uphold the Small Business
Administration's Third Size Determination and affirm the
district court's Order dated June 16, 1998. We remand the
matter to the district court for the purpose of entering a
formal judgment for the United States.

So ordered.