The nonmanufacturer rule requires, among other things, that the prime contractor supply the end items of a small business manufacturer, or obtain a SBA waiver of that requirement. Compliance with the nonmanufacturer rule is determined as of the date of the final proposal–and a subsequent switch in manufacturers won’t be recognized by the SBA.
In a recent decision, the SBA Office of Hearings and Appeals held that the SBA had erred by evaluating a prospective prime contractor’s nonmanufacturer rule compliance because the small business end manufacturer in question had not provided a quotation to the prime until well after the prime’s proposal had been submitted.
OHA’s decision in Size Appeal of Sea Box, Inc., SBA No. SIZ-5699 (2015) involved an Army solicitation for twelve QuadCons (a type of metal container). The solicitation was issued as a small business set-aside under NAICS code 332312 (Fabricated Structural Metal Manufacturing). Bids were due on September 11, 2015.
After reviewing bids, the Army announced that Regent World, Inc. was the apparent successful offeror. An unsuccessful competitor, Sea Box Inc., then filed a timely SBA size protest. Sea Box alleged that RWI did not qualify for the contract because it would not manufacture the QuadCons itself and would not comply with the nonmanufacturer rule.
Between September 30, 2015 and October 27, 2015, the SBA Area Office and RWI engaged in correspondence regarding the protest. On October 16, RWI provided the SBA Area Office with a quote from Countywide Metals, a small business. RWI admitted that it would not manufacture the QuadCons itself. However, it argued that it complied with the nonmanufacturer rule.
On October 28, 2015, the SBA Area Office issued a size determination finding RWI to be an eligible small business under the nonmanufacturer rule. As part of its size determination, the SBA Area Office determined that Countywide was the manufacturer, and that it was an eligible small business.
Sea Box filed a size appeal with OHA. Sea Box argued that the SBA Area Office’s size determination was flawed in several respects.
OHA rejected Sea Box’s specific arguments. Nevertheless, in the course of reviewing the size appeal, OHA noticed–on its own–that the SBA Area Office had committed a clear error of law.
OHA wrote that “SBA regulations provide that, ‘[s]ize status for purposes of compliance with the nonmanufacturer rule . . . is determined as of the date of the final proposal revision for negotiated acquisitions and final bid for sealed bidding.'” Therefore, for purposes of nonmanufacturer rule compliance, “once a firm has submitted its final bid or final proposal revision, ‘any subsequent changes in approach . . . would be irrelevant to assessing [the challenged firm’s] size.'”
In this case, OHA continued, “RWI submitted its bid on September 11, 2015.” However, “Countywide was not [RWI’s] subcontractor as of this date.” In fact, “Countywide did not provide a quotation for the QuadCons until October 14, 2015, well after the contract had been awarded to [RWI].” OHA continued:
As a result, because Countywide was not RWI’s supplier as of the date [RWI] submitted its final bid, the Area Office erred in considering whether Countywide was the manufacturer of the QuadCons and whether RWI complies with the fourth requirement of the nonmanufacturer rule. Instead of considering Countywide, the Area Office should have based its decision on the subcontractor whose pricing RWI relied on in submitting its bid to the Area Office. If RWI could not provide that information, instead of permitting [RWI] to change its procurement strategy, the Area Office should have inferred that such information would demonstrate that RWI is not a small business.
OHA denied Sea Box’s appeal, but remanded the case to the SBA Area Office anyway for further consideration.
Companies faced with size protests sometimes ask me if they can “fix” a potential eligibility problem after the fact. But as the Sea Box case demonstrates, a potential violation of the nonmanufacturer rule cannot be cured after the submission of final proposals (or final bids). Where, as here, a prime contractor attempts to substitute a new manufacturer later in the process, the substituted firm cannot be used to establish compliance with the nonmanufacturer rule.