The SBA said recently that it intends to issue a class waiver of the Nonmanufacturer Rule for laptop and tablet computers, freeing up small businesses to resell these products in bulk to the federal government.
The SBA recently announced its intent in the Federal Register, giving the public the opportunity to comment early in the New Year.
It’s no secret that federal government contracting has the reputation of being a seemingly endless morass of regulations. In fact, the confusion frequently associated with federal contracting was on full display in a recent GAO protest that implicated the SBA’s nonmanufacturer rule, the Buy American Act, and the Trade Agreements Act. In a procurement that invited bids from both large and small businesses, a large business contractor argued that the application of certain small business contracting regulations would unfairly advantage the small business participants. GAO disagreed, and dismissed the protest because any advantage was the result of the regulations operating as intended. Sometimes it pays to be a small business.
The SBA recently proposed regulatory changes for a number of small business rules. While my colleagues have addressed some of the other big changes, I’ll focus on changes to the nonmanufacturer rule and limitations on subcontracting. The SBA noted that these changes are meant to eliminate confusion and streamline both processes. Keep reading to see if you agree.
The DoD recently issued proposed revisions to the DFARS 8(a) nonmanufacturer rule, found in 48 C.F.R. § 252.219-7010. The proposed revisions would update the admittedly “outdated text regarding the nonmanufacturer rule with updated text” that reflects SBA’s May 2016 final rule implementing the Fiscal Year 2013 National Defense Authorization Act.
While the changes are only for 8(a) concerns, the differences
between the existing DFARS and proposed change are significant nonetheless.
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.
When a small business sells products to the government under a contract designated with a manufacturing NAICS code, the small business either must be the “manufacturer” of the products, or separately qualify under the nonmanufacturer rule. The nonmanufacturer rule, in turn, requires the prime contractor to have no more than 500 employees, whereas manufacturers may fall under larger size standards–some as big as 1,500 employees.
But what about an unpopulated joint venture that doesn’t itself manufacture any products, relying on the individual venturers to manufacture the solicited goods? Does it also have to comply with the 500-employee size standard under the nonmanufacturer rule? Or can the joint venture be deemed the “manufacturer” of the products in question?
For small government contractors, the disconnect between the SBA’s updated limitations on subcontracting rule and the FAR’s outdated rules has been very confusing. For more than two years, the FAR and SBA regulation have used different formulas to determine compliance, and the SBA rule–but not the FAR–allows the use of “similarly situated entities” on small business set-asides and 8(a) contracts.
This has created major headaches for small businesses, who have had no definitive answer to what should be a simple question: “which rule do I follow?” Now, finally, there is some important progress to report in clearing up this discrepancy: yesterday, the FAR Council issued a proposed rule to update the FAR’s limitations on subcontracting provisions and conform them to the SBA’s rule.