The Ins and Outs of the Non- Manufacturer Rule

Transcription

1 The Ins and Outs of the Non- Manufacturer Rule National Veterans Small Business Engagement November 18, 2015 Pittsburgh, PA

2 Presentation Overview

3 Presentation Overview Non-Manufacturer Rule Overview Application of the Non-Manufacturer Rule SBA Non-Manufacturer Rule Waivers Kit Assemblers & Simplified Acquisitions

4 Non-Manufacturer Rule Overview

5 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)

6 Non-Manufacturer Rule Overview 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

7 Non-Manufacturer Rule Overview 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

8 Non-Manufacturer Rule Overview First, the prime contractor cannot exceed 500 employees. Employee count is determined using the formula set forth in 13 C.F.R Most small business brokers have little difficulty meeting this requirement.

9 Non-Manufacturer Rule Overview 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))

10 Non-Manufacturer Rule Overview 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 (2012).

11 Non-Manufacturer Rule Overview 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.

12 Application of the Non-Manufacturer Rule

13 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.

14 Application of the Non-Manufacturer Rule Rotech Healthcare Inc. v. United States, No C (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

15 Application of the Non-Manufacturer Rule 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. See Size Appeal of Rich Chicks, LLC, SBA No. SIZ (2014).

16 Non-Manufacturer Rule Waivers

17 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

18 Non-Manufacturer Rule Waivers 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

19 Non-Manufacturer Rule Waivers 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:

20 Non-Manufacturer Rule 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

21 Kit Assemblers & Simplified Acquisitions

22 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

23 Kit Assemblers & Simplified Acquisitions 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

24 Kit Assemblers & Simplified Acquisitions The simplified acquisition exception: If a procurement is processed under the simplified acquisition procedures of FAR 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

25 Kit Assemblers & Simplified Acquisitions 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

26 For More Information Steven J. Koprince Managing Partner (785) Visit to sign up for our free monthly electronic newsletter