UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


DSE INC

v.

UNITED STATES


98-5265a

D.C. Cir. 1999


*	*	*


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


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


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


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


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




__________

n 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


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, 




__________

n 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,


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.


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


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


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, 




__________

n 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 




__________

n 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


(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


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


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


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


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


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., 




__________

n 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,


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




__________

n 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 




__________

n 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


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-




__________

n 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


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


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


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  


__________

n 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,  


__________

n 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


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


So ordered.