Nonmanufacturer Rule Class Waivers: SBA OHA Explains How They Work

Under the nonmanufacturer rule, a class waiver applies to a procurement only if the NAICS code, Product Service Code and NAICS code descriptor match the item being procured.

Contrary to a common misconception, a nonmanufacturer rule class waiver is not authorized on the basis of the NAICS code alone.  In a recent size appeal decision, the SBA Office of Hearings and Appeals concisely explained how nonmanufacturer rule class waivers work.

OHA’s decision in Size Appeal of All Around Access, LLC, SBA No. SIZ-5656 (2015) involved an Air Force RFQ for utility vehicles.  The procurement was set aside for small businesses under NAICS code 336112 (Light Truck and Utility Vehicle Manufacturing) with a corresponding 1,000-employee size standard.  The solicitation stated that the acquisition was being conducted under the FAR’s provisions for commercial items.  No PSC was assigned to the RFQ.

After evaluating quotes, the Air Force awarded the contract to Dal Kawa Cycle Center, Inc.  An unsuccessful competitor, All Around Access, LLC, filed a SBA size protest.  All Around Access contended that DKCC would not manufacture the items being procured or comply with the nonmanufacturer rule.

With respect to the nonmanufacturer rule, DKCC alleged that DKCC would not provide the end item of a small business, or obtain a waiver of that requirement.  DKCC noted that, although a class waiver was in effect for NAICS code 336112, the class waiver is under PSC 2310.  In this case, however, the RFQ had no PSC, and was classified under a “miscellaneous” classification code.  DKCC also argued that the product descriptor for the class waiver did not match the procurement’s NAICS descriptor, Light Truck and Utility Vehicle Manufacturing.

The Air Force conceded that the solicitation had not been designated with PSC 2310.  The Air Force stated, however, that this was an error and that the procurement should have been assigned PSC 2310.  The Air Force produced internal documents suggesting that PSC 2310 had been intended for the procurement.

The SBA Area Office issued a size determination finding DKCC to be eligible for the procurement as a nonmanufacturer.  In its size determination, the SBA Area Office concluded that the nonmanufacturer rule class waiver applied, even though the RFQ had no PSC.  The SBA Area Office determined that the Air Force’s intent had been to assign PSC 2310, and that the concern regarding the NAICS code descriptor was a result of a SBA error in its class waiver list.

All Around Access filed a timely size appeal with OHA.  All Around Access argued that the SBA Area Office had erred by finding DKCC to be eligible under the nonmanufacturer rule.

OHA began its decision with a concise summary of how nonmanufacturer rule class waivers are supposed to work.  OHA wrote that “in order for a class waiver to apply, the NAICS code, PSC, and NAICS code descriptor must match the end item(s) being procured.”  OHA explained that “SBA defines ‘class of products’ as an individual subdivision within a NAICS code” and “uses Product Service Codes (PSCs) to further identify particular products within the NAICS code to which a waiver would apply.”  The SBA “may then identify a specific item within a PSC and NAICS code to which a class waiver would apply.”

In this unusual case, however, the RFQ did not contain a PSC and the SBA’s class waiver list did not correctly provide a descriptor.  OHA agreed with the Area Office that it was appropriate to consider the PSC that the agency intended to apply, and to make allowance for the problem with the class waiver list.  OHA denied the size appeal and upheld the SBA Area Office’s decision.

The nonmanufacturer rule can be confusing, and many misconceptions exist.  As OHA explained in the All Around Access case, a nonmanufacturer rule class waiver applies where the NAICS code, PSC and NAICS code descriptor match the procurement.

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