Editor’s note: For more information, check out our updated post on the nonmanufacturer rule.
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?
SBA’s regulations say that in order to qualify as a small business under a set-aside or sole-source contract seeking manufactured products or supply items, an offeror ordinarily must either be the manufacturer of the end item or qualify under the nonmanufacturer rule.
This post will discuss five things your small business should know about qualifying as a manufacturer under the SBA’s rules; in a future post, we’ll walk through the nonmanufacturer rule.
Let’s get to it: here are 5 Things You Should Know about the SBA’s definition of manufacturer.
When an agency acquires manufactured products or supplies, the agency need not set aside the solicitation for small businesses under the FAR’s “rule of two” unless the agency has a reasonable expectation of receiving offers from small businesses offering the products of two or more small manufacturers.
A recent GAO bid protest decision highlights a little-known provision of the FAR, which provides that the “rule of two” does not apply to acquisitions for manufactured products over $150,000 where two or more small business nonmanufacturers are likely to submit offers, but the small business nonmanufacturers will not offer the products of two or more small business manufacturers.
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.
Federal agencies must classify procurements for supplies under the appropriate manufacturing or supply NAICS code, not under a wholesale trade or retail trade NAICS code.
In a recent NAICS code appeal decision, the SBA Office of Hearings and Appeals confirmed that supply procurements should not be classified under wholesale or retail trade NAICS codes–and rejected a prospective offeror’s claim that the agency should have assigned a wholesale trade NAICS code to the solicitation.