SBA Adopts New Exemption From Nonmanufacturer Rule

The nonmanufacturer rule will not apply to small business set-aside contracts valued between $3,000 and $150,000, according to the SBA.

In its recent major rulemaking, the SBA exempts these small business set-aside contracts from the nonmanufacturer rule, meaning that small businesses will be able to supply the products of large manufacturers for these contracts without violating the limitations on subcontracting.

In its rulemaking, the SBA explains its new exemption as a way to increase small business awards:

SBA believes that not applying the nonmanufacturer rule to small business set-asides valued between $3,500 and $150,000 will spur small business competition by making it more likely that a contracting officer will set aside an acquisition for small business concerns because the agency will not have to request a waiver from SBA where there are no small business manufacturers available.

The SBA points out that it can take “several weeks” for the SBA to process a nonmanufacturer rule waiver request, and suggests that contracting officers are unlikely to pursue waivers for lower-dollar procurements, choosing instead to simply release such solicitations as unrestricted.  The new rule will expand current authority, which allows an exemption for simplified acquisitions below $25,000.

The SBA’s new rulemaking also includes several other important changes related to the nonmanufacturer rule:

  • The SBA clarifies that procurements for rental services should be classified as acquisitions for services, not acquisitions for supplies.  The SBA notes that “renting an item is not the same thing as buying a item.”  This clarification means that offerors for solicitations for rented products shouldn’t need to worry about the nonmanufacturer rule (although they will need to comply with the applicable limitation on subcontracting).
  • In some cases, a single procurement seeks multiple items, and only some of them are subject to nonmanfacturer rule waivers.  In such a case, the new rule provides, “more than 50% of the value of the products to be supplied by the nonmanufacturer that are not subject to a waiver must be the products of one or more domestic small business manufacturers or processors.”  The new regulations includes an example of how this concept should work in practice.
  • The SBA has adopted a requirement that a contracting officer notify potential offerors of any nonmanufacturer rule waivers (whether class waivers or contract-specific waivers) that will be applied to the procurement.  The SBA writes that “[w]ithout notification that a waiver is being applied by the contracting officer, potential offerors cannot reasonably anticipate what if any requirements they must meet in order to perform the procurement in accordance with SBA’s regulations.”  The notification “must be provided at the time a solicitation is issued.”
  • The SBA has expanded its authority to grant nonmanufacturer rule waivers.  Under current law, waivers must be granted before a solicitation is issued.  The new rule allows the SBA to grant waivers after a solicitation has been issued so long as “the contracting officer provides all potential offerors additional time to respond.”  In an even bigger change, the new rule allows the SBA to grant nonmanufacturer rule waivers after award, if the agency makes a modification for which a waiver is appropriate.
  • The SBA has clarified that the nonmanufacturer rule (including waivers) applies to certain types of software.  The SBA writes that “where the government buys certain types of unmodified software that is generally available to both the public and the government . . . the contracting officer should classify the requirement as a commodity or supply.”  However, “if the software being acquired requires any custom modifications in order to meet the needs of the government, it is not eligible for a waiver of the NMR because the contractor is performing a service, not providing a supply.”

The SBA’s changes to the nonmanufacturer rule take effect on June 30, 2016.