The Nonmanufacturer Rule: Even “Rich Chicks” Must Supply Small Business End Items

Under the nonmanufacturer rule, qualifying as a nonmanfucturer requires a small business to provide the end products of a small business–and even “Rich Chicks” must comply.

In a recent decision, the SBA Office of Hearings and Appeals held that a company named “Rich Chicks, LLC” had not complied with the nonmanufacturer rule because Rich Chicks’ proposal did not offer the end products of a small business.

SBA OHA’s decision in Size Appeal of Rich Chicks, LLC, SBA No. SIZ-5556 (2014) involved a Defense Logistics Agency solicitation for the acquisition of chicken wings and other food items.  The DLA set aside the chicken wings portion of the procurement for small business under NAICS code 311999 (All Other Miscellaneous Food Manufacturing).

Rich Chicks, LLC submitted a proposal and self-certified as a small business.  Rich Chicks’ proposal stated that manufacturing would be performed at the facilities of a particular manufacturer (which was not named in SBA OHA’s decision).

After evaluating competitive proposals, the DLA identified Rich Chicks, LLC as the apparent successful offeror.  A competitor subsequently filed a protest challenging Rich Chicks’ size and compliance with the nonmanufacturer rule.

The SBA Area Office informed Rich Chicks that because Rich Chicks was supplying the product of another manufacturer, Rich Chicks must submit a SBA Form 355 for that manufacturer.  (SBA Form 355 is a standard form used by the SBA in size cases).  In response, Rich Chicks stated that although it had planned to use the manufacturer at the time it submitted its proposal, Rich Chicks now planned to perform the manufacturing itself.  Rich Chicks stated that the manufacturer identified in the proposal would no longer be involved in the procurement.

The SBA Area Office advised Rich Chicks that it still must submit a SBA Form 355 for the manufacturer, and that if a Form 355 was not submitted, the SBA Area Office would presume that the manufacturer was a large business.  Rich Chicks did not submit the form by the SBA Area Office’s deadline.

The SBA Area Office noted that in order to qualify as a nonmanufacturer, a firm must supply the end items of a small business manufacturer, processor or producer made in the United States, or obtain a waiver from the SBA.  In this case, no waiver had been issued, and Rich Chicks had not supplied any evidence that its manufacturer was a small business.  The SBA Area Office issued a size determination finding that Rich Chicks was in violation of the nonmanufacturer rule.

Rich Chicks filed a size appeal with SBA OHA.  Rich Chicks argued, in part, that the SBA Area Office had erred by presuming that the manufacturer was a large business because the manufacturer was no longer involved in the procurement.

SBA OHA rejected Rich Chicks’ argument.  It wrote that under the size regulations, “compliance with the nonmanufacturer rule is determined as of the date the challenged firm submits its final proposal revisions.”  In this case, Rich Chicks’ final proposal stated that it would use the manufacturer’s facilities to perform the contract.

Rich Chicks’ decision to self-perform the manufacturing occurred after final proposals were submitted, and therefore did not allow Rich Chicks to withhold relevant information about its proposed manufacturer.  SBA OHA denied Rich Chicks’ size appeal.

The Rich Chicks decision is good for a few chuckles based on the company’s name alone.  But beyond that, the decision offers a very important reminder: absent a SBA waiver, a firm cannot qualify as a nonmanufacturer unless it offers the end products of a small business made in the United States.

In my experience, this portion of the nonmanufacturer rule is often overlooked by contractors and procuring officials alike, many of whom believe that a small business can qualify as a nonmanufacturer by providing the end products of a large business.  Not so.  Perhaps Rich Chicks will help erase some of the confusion.

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