5 Things You Should Know: SBA’s Definition of Manufacturer

SBA’s regulations say that in order to qualify as a small business under a set-aside or sole-source contract seeking manufactured products or supply items, an offeror ordinarily must either be the manufacturer of the end item or qualify under the nonmanufacturer rule.

This post will discuss five things your small business should know about qualifying as a manufacturer under the SBA’s rules; in a future post, I’ll walk through the nonmanufacturer rule.

Let’s get to it: here are 5 Things You Should Know about the SBA’s definition of manufacturer.

  1. When does the definition of manufacturer apply?

SBA’s rule applies whenever the government seeks manufactured products or supply items under a solicitation reserved for small businesses (including 8(a), HUBZone, SDVOSB, or WOSB companies). The solicitation should make this fairly clear. But if you have any doubts, take a look at the NAICS code: if it’s assigned a code beginning with “31,” “32,” or “33” (as in, NAICS code 311111 (dog and cat food manufacturing) or 339940 (office supplies (except paper) manufacturing)), the agency wants a manufactured product or a supply item. If it’s still not clear, ask the contracting officer for clarification before bidding.

  1. Are you the manufacturer?

SBA’s regulations say that the manufacturer is the company that performs the primary activities in transforming or assembling materials into the end item being procured. To qualify, the company must use its own facilities, and as a result of the company’s work, the end item must “possess characteristics which, as a result of mechanical, chemical, or human action, it did not possess before the original substances, parts, or components were assembled or transformed.” SBA also says that performing “minimal operations” doesn’t do the trick, and cautions that “[f]irms that add substances, parts or components to an existing end item to modify its performance will not be considered the end item manufacturer where those identical modifications can be performed by and are available from the manufacturer of the existing end item.”

That’s a definition only a lawyer could love, so keep the following factors in mind to help determine whether you’re the manufacturer:

* The proportion of total value in the end item added by your efforts (excluding overhead, testing, and quality control costs and profit);

* The importance of the elements you add to the end item’s overall function, even regardless of value; and

* Your technical capabilities; plant, facilities, and equipment; production or assembly line processes; packaging and boxing operations; labeling of products; and warranties.

In most cases, it should be fairly obvious whether your company is the manufacturer. But if there are doubts, it may be wise to review relevant decisions of the SBA’s Office of Hearings and Appeals, which decides appeals relating to the rule.

It’s also important to note that the SBA’s definition is not identical to those used in domestic preference statutes like the Trade Agreements Act and Buy American Act. Qualifying as a manufacturer under a domestic preference statute doesn’t automatically satisfy the SBA.

  1. Can there be more than one manufacturer?

Nope. Well, at least not for size purposes—under SBA’s rules, there can only be one manufacturer of the end item being procured. So, if you’re working with another company’s products, make sure that you’re the manufacturer.

  1. Does the manufacturer rule apply to multiple award contracts?

Yes, it does. But there’s no requirement that each and every item acquired under a multiple-award contract be manufactured by a small business.

If 50% or more of the estimated contract value is for items that are manufactured by small businesses, then the rule is satisfied. But if less that 50% of the items acquired (by value) are from small businesses, then SBA would have to issue a waiver for the contract to be set aside.

  1. Is your company eligible for the award even if it’s not the manufacturer?

Maybe. As I mentioned at the beginning of this post, a small business must either qualify as the item’s manufacturer or meet the nonmanufacturer rule’s requirements in order to be eligible for the award. We’ll discuss those requirements in a future post.

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So that’s the gist of SBA’s definition of manufacturer. Again, a separate post will discuss the nonmanufacturer rule, and it’s important to not mix the two.  If you’re a small business bidding on a solicitation for manufactured products or supply items, keep this rule in mind. And, as always, give me a call to discuss any questions.