A contractor was recently terminated from the SBA’s 8(a) Program for failing to comply with the subcontracting limits applicable to its 8(a) contracts.
The SBA Office of Hearings and Appeals upheld the termination, writing that the SBA had properly terminated the 8(a) contractor for “willfully violating SBA regulations.” SBA OHA rejected the contractor’s argument that it was exempt from the subcontracting limits under the so-called non-manufacturer rule.
The SBA’s waiver of the non-manufacturer rule in connection with an 8(a) sole source contract resulted in a “pass through” award to a large business, according to a report by the SBA Office of Inspector General. As a result, the 8(a) contractor in question received only $153,000 for “minimal” oversight, while the remainder of the $7.78 million 8(a) set-aside contract went to large companies.
The SBA OIG was quick to point out that the arrangement was legal, but questioned whether the pass-through provided appropriate developmental opportunities to the 8(a) contractor–as well as whether taxpayers are well-served by such large percentages of “small business” contracting dollars flowing to large companies.
The SBA’s non-manufacturer rule allows a drop shipper to qualify as a small business, so long as the drop shipper takes legal ownership of the items in question, according to the SBA Office of Hearings and Appeals. In an important decision interpreting recent amendments to the non-manufacturer rule, SBA OHA rejected the argument that a company must take physical possession of the items in question in order to qualify as a non-manufacturer–which would have essentially prohibited drop shipments.
Back in 1976, Boston (the band, not the city), released its self-titled debut album, featuring the hit “More Than a Feeling.” The tune is still a staple on classic rock stations everywhere. Before you curse me for getting the song stuck in your head, think of it as an easy way to remember a critical aspect of the “non-manufacturer” size rule. Simply put, it’s about more than employees.
When an agency issues a solicitation for supplies or products, it’s easy for small businesses to assume that non-manufacturer rule applies, meaning that a business qualifies as “small” so long as it has less than 500 employees. But, as the SBA’s Office of Hearings and Appeals has confirmed, a company can only submit a valid offer if your company meets all five “prongs” of the non-manufacturer rule. Having less than 500 employees only gets you part of the way there.