The Ins and Outs of the Non- Manufacturer Rule · The Ins and Outs of the Non-Manufacturer Rule ......

Steven Koprince785-200-8919

skoprince@koprince.com

www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince

The Ins and Outs of the Non-Manufacturer Rule

National Veterans Small Business Engagement

November 18, 2015

Pittsburgh, PA

Presentation Overview

• Non-Manufacturer Rule Overview

• Application of the Non-Manufacturer Rule

• SBA Non-Manufacturer Rule Waivers

• Kit Assemblers & Simplified Acquisitions

Non-Manufacturer Rule Overview

• Many Government contracts (both VA and non-VA) are issued as set-asides

• Set-asides may be for small businesses or for certain subcategories of small businesses, including SDVOSBs and VOSBs

• All set-aside contracts contain certain “performance of work” requirements– Example: SDVOSB set-aside for construction requires SDVOSBs to

perform at least 15% of the cost of the contract (less materials)

• When a set-aside contract is designated with a manufacturing (product/supply) NAICS code, the prime contractor is only eligible for award if:

– The prime contractor will perform at least 50% of the cost of manufacturing itself; or

– The prime contractor qualifies as a non-manufacturer

• Being a “non-manufacturer” means much more than not manufacturing the goods being ordered

• Four factors must be satisfied in order to qualify as a non-manufacturer

– See 13 C.F.R. 121.406

• First, the prime contractor cannot exceed 500 employees.– Employee count is determined using the formula set forth in 13

C.F.R. 121.106

– Most small business brokers have little difficulty meeting this requirement.

• Second, the prime contractor must be “primarily engaged in the retail or wholesale trade and normally sell the type of item being supplied.”

– Best practice: ensure that there is evidence of regularly selling item being acquired (See Size Appeal of Ira Green Inc., SBA No. SIZ-5287 (2011))

• Third, the prime contractor must “[take] ownership or possession of the item(s) with its personnel, equipment, or facilities in a manner consistent with industry practice.” – Legal possession without physical possession (e.g., drop shipping)

is acceptable. See Size Appeal of Wear Mark Inc., SBA No. SIZ-5402 (2012).

• Fourth, the prime contractor must “supply the end item of a small business manufacturer, processor or producer made in the United States, or [obtain] a waiver of such requirement.”

• Bottom line: in the absence of an SBA waiver, a small business cannot supply the manufactured product of a large business on a set-aside contract designated with a manufacturing NAICS code.

Application of the Non-Manufacturer Rule

• SBA: the non-manufacturer rule “applies only to procurements that have been assigned a manufacturing or supply NAICS code.”

• SBA: if a contract is classified as a services or construction contract, but has a supply component, the prime contractor need not comply with the non-manufacturer rule for that component.

• Rotech Healthcare Inc. v. United States, No. 14-502C (2014): Court holds that non-manufacturer rule applies to all NAICS codes

• 2016 NDAA: would overturn Rotech Healthcare case and apply non-manufacturer rule only to manufacturing/supply contracts

• Compliance with the non-manufacturer rule is determined “as of the date of the final proposal revision for negotiated procurements and final bid for sealed bidding.”

• A prime contractor cannot retroactively become compliant after submission of final proposals. SeeSize Appeal of Rich Chicks, LLC, SBA No. SIZ-5556 (2014).

Non-Manufacturer Rule Waivers

• SBA can waive fourth non-manufacturer rule requirement (supply the end product of a domestic small business) so long as other three factors are met

• SBA waivers may be issued as “individual” or “class”

• The SBA may issue an individual waiver where “the contracting officer has determined that no small business manufacturer or processor reasonably can be expected to offer” a conforming product

• The Contracting Officer asks for the waiver; only the SBA can grant the waiver

• A contractor cannot ask for an individual waiver

• The SBA may issue a class waiver where it “determines that no small business manufacturer of the product or class or products is available to participate in the Federal procurement market”

• Anyone can request a class waiver—but they take time to be evaluated

• Current list of class waivers available at: https://www.sba.gov/content/non-manufacturer-waivers

• Once granted, a class waiver has no specific time limitation

• However, the SBA will periodically review the existing class waivers to determine whether small businesses have become available to participate in the Federal market

Kit Assemblers & Simplified Acquisitions

• Where government seeks a kit of supplies or goods manufactured by different companies and assembled for a special purpose, a unique rule applies

• A “kitter” qualifies as a non-manufacturer so long as:

– It is under 500 employees

– 50 percent of the total value of the components of the kit is manufactured by small businesses in the United States

• Unlike a typical non-manufacturer, a kitter need only show that 50% of the value of its products come from small businesses

• Additionally, if the solicitation specifies an item for the kit not produced by U.S. small businesses, the item is excluded from the 50% calculation

• The simplified acquisition exception:– If a procurement is processed under the simplified acquisition

procedures of FAR 13.101 and the anticipated cost is $25,000 or less, “the offeror does not have to supply the end product of a small business concern”

– However, “the product acquired must be manufactured or produced in the United States”

– All other non-manufacturer rule requirements must be met

• SBA proposal:

– Expand simplified acquisition exception to all small business set-aside contracts up to $150,000

– SBA believes that this will make it “more likely that contracting officer will set aside” contracts for small businesses because waivers need not be requested

– Final rule likely early 2016

For More Information

Steven J. Koprince

Managing Partner

(785) 200-8919

Visit www.smallgovcon.com to sign up for our free monthly electronic newsletter

The Ins and Outs of the Non- Manufacturer Rule · The Ins and Outs of the Non-Manufacturer Rule ......

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