5 Things You Should Know: The Nonmanufacturer Rule

To qualify as a small business under most set-aside or sole source contracts seeking manufactured products or supplies, SBA’s regulations require an offeror to be the item’s manufacturer or, alternatively, comply with the nonmanufacturer rule.

In a prior post, we discussed 5 Things You Should Know about being the item’s manufacturer; in this post, we’ll discuss qualifying under the nonmanufacturer rule.

1.Do I need to qualify under the nonmanufacturer rule?

That depends on the type of procurement you’re bidding on. Again, the nonmanufacturer rule comes into play for solicitations seeking manufactured items or supplies, and only if the offeror doesn’t qualify as the manufacturer itself.

Keep in mind, too, that acquisitions set-aside for small businesses under the simplified acquisition threshold are not subject to the nonmanufacturer rule. This exemption doesn’t apply, however, to any other socio-economic designation—for example, if it’s an SDVOSB set-aside under the simplified acquisition threshold, the offeror will have to either be the item’s manufacturer or qualify under the nonmanufacturer rule.

2. How do I qualify as the nonmanufacturer?

To qualify under the nonmanufacturer rule, an offeror generally must meet four requirements:

  • The offeror cannot exceed 500 employees;
  • The offeror must be primarily engaged in the retail or wholesale trade and normally sell the type of item supplied;
  • The offeror must take ownership or possession of the item being supplied with its own personnel, equipment, or facilities (in a manner consistent with industry practice); and
  • The item must be manufactured or produced by a small business in the United States (unless this requirement has been waived).

Though they might sound straightforward, each of these requirements presents its own separate analysis. For example, the SBA will consider sales of similar items—not the exact item procured—to determine compliance with the second factor. It might also be difficult to know whether the domestic production requirement has been waived. And in the case of a joint venture supplying a manufactured item, compliance might be even more confusing.  

All told, these four requirements make complying with the nonmanufacturer rule one of the most confusing aspects of working with the federal government as a small business manufacturer.

3. What if I assemble multiple manufactured items into a single kit?

Small businesses that assemble several different manufactured items as part of an acquisition must also comply with the nonmanufacturer rule. In the case of a kit assembler, an eligible offeror must be smaller than 500 employees; moreover, at least half the assembled kit (measured by total value) must be manufactured domestically by small businesses.  

4. Does the nonmanufacturer rule apply to multiple item procurements?

Yep. But again, compliance can be tricky:

  • For acquisitions under which less than half of the contract value is for items manufactured by small businesses, then the items will comply with the nonmanufacturer rule.
  • If more than half a contract (measured by total value) is for items manufactured by large businesses, the offeror will need a waiver from the SBA in order to qualify as a small business under the procurement.

5. Can a competitor protest my compliance?

Yes. An offeror can protest a small business’s compliance with the nonmanufacturer rule as part of a size protest (to the SBA) or a bid protest (to GAO or the Court of Federal Claims). A size protest might be a more viable option, as GAO will generally only sustain a protest challenging compliance with the nonmanufacturer rule (or any other limitation on subcontracting) if the proposal, on its face, shows noncompliance. The SBA, however, will dig into the issue to confirm compliance.

Challenging an awardee’s compliance with the nonmanufacturer rule is an important way to ensure the integrity of the acquisition process. Keep in mind, too, that if a competitor can protest your compliance in the event you win an award, so too can you protest that competitor’s compliance in the event your competitor wins.

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Complying with the SBA’s requirements for manufactured items can be very tricky—if not done properly, you might end up losing an award. If you have any questions, please give me a call.