It appears the scenario you are trying to do isn't supported right now with the utility as it wants access to all files we could possible modify in it's working folder.  Unfortunately, if we throw a warning, which would fix your case, it would cause issues later for people that we should have thrown the error for.  We'll see if we can improve this checking to narrow it down better in the future to handle your scenario.

I understand but you should treat this as a warning and allow the upgrade attempt. If your explaination is correct the upgrade will be successful. As it is now you cannot upgrade due to the verification failure.

The read-only check is a recursive check, which starts at the provided project directory (in your case the SelectionControl folder), and will check all files in all the child directories (including your TestControl directory). This is done because we don't know at the time of this check what files in which directories we may need to access, so we check all files in the project directory to make sure no one is read-only to avoid issue later in the upgrade process.

SelectionControl is the parent

TestControl is under the SelectionControl folder and contains a reference to the SelectionControl project.

I attempted to upgrade SelectionControl project in the SelectionControl folder and was not successful.

Here's what I'm getting:

11:58:04: Gathering volume and assembly information.
11:58:16: App.config appears to be read-only or not accessible for some reason.

This project is a DLL and contains no App.Config. However the TestControl project is and EXE and does contain App.Config. Why is the utility even looking into the TestControl folder??

Can you clarify what you mean in the folder structure and what you passed to the utility?  Was it a solution that had two projects one at SelectionControl folder level, and the other project was in the TestControl folder which is a child of SelectionControl.