The SBA is proposing to exempt acquisitions valued between
$3,000 to $150,000 from the nonmanufacturer rule. The
nonmanufacturer rule is an exception to the limitations on
subcontracting for small business set-aside supply contracts. In
essence, if the small business awardee cannot perform 50% of the
cost of manufacturing the items on its own, the nonmanufacturer
rule allows a small business that is engaged in the wholesale or
retail trade to supply the items as long as they are manufactured
by a small business in the United States. By exempting all
acquisitions valued between $3,000 to $150,000 from the
nonmanufacturer rule, agencies will be permitted to purchase
supplies from small business resellers on a set-aside basis without
regard to the size of the manufacturer or the location of
manufacturing.
The SBA's stated intent is to incentivize small business
set-asides by eliminating the need to request waivers from the
nonmanufacturer rule, which the SBA suggests would delay the
procurement by several weeks. The SBA believes that agencies will
be more likely to set aside an acquisition valued between $3,000 to
$150,000 for small businesses if they do not have to request a
waiver from SBA if no small business manufacturers are available.
Given that agencies are already required to set aside acquisitions
valued between $3,000 and $150,000 for small businesses pursuant to
Section 15(j) of the Small Business Act, however, it is unclear how
a permanent "waiver" as envisioned in the proposed rule
will meaningfully increase the number of small business set asides.
While the proposed rule would appear to streamline a process that
is already taking place, such as routine waivers for brand name
computers, it may also have an unintended adverse impact on small
businesses. By eliminating the nonmanufacturer rule for these
smaller acquisitions across the board, the SBA may actually
incentivize the acquisition of supplies manufactured by large
businesses and/or those outside of the United States –
through a small business prime contractor – using multiple,
individual contracts not exceeding $150,000 since these
acquisitions would be exempt from the nonmanufacturer rule. In such
a scenario, the majority of the economic benefit of the "small
business" contract would flow to the large manufacturer.
Under existing requirements, per FAR 19.502-2(c), a waiver is only
obtainable when no small business manufacturers are available. In
contrast, under the proposed rule, a small business would be
permitted to supply the items of a large business or non-domestic
manufacturer irrespective of whether small business manufacturers
in the United States are available.
In addition to this proposed change, the proposed rule includes
several changes to the regulation governing waivers. Included among
them is a provision that would allow agencies to execute a waiver
for an individual contract both after proposal submission and after
contract award, if an in-scope modification requires the delivery
of supplies that cannot be sourced from a domestic, small business
manufacturer.
The Bottom Line: What You Should Know
The proposed changes to the nonmanufacturer rule would exempt
awardees of small business set-aside supply contracts valued
between $3,000 and $150,000 from the current requirement that they
source from domestic small business manufacturers. While the stated
aim is to encourage the use of small business set-asides, the new
rule may actually result in greater utilization of large business
manufacturers.
Contractors wishing to submit comments on these proposed rules can
do so through
regulations.gov by searching for RIN:
3245-AG58. Comments are due by February 27, 2015.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.