Inquiry – How does one apply the non-manufacturing rule when most manufacturers of IT products for example are large and the resellers are small?
Response – The non-manufacturing rule, found in part 19 of the Federal Acquisition Regulation (FAR), is complex, often confusing and difficult to properly apply. The definition of the "non-manufacturer rule" is found in FAR 19.001 and reads as follows:
"Non-manufacturer rule" means that a contractor under a small business set-aside or 8(a) contract shall be a small business under the applicable size standard and shall provide either its own product or that of another domestic small business manufacturing or processing concern (see 13 CFR 121.406).
The specific non-manufacturer rule policy is located at FAR 19.102(f)(1)-(7). Stating this rule using "plain" English- the "non-manufacturer" rule allows a small business to offer a product that it did not manufacturer under a small business set-aside if the Small Business Administration (SBA) has offered a waiver. Paragraphs (4); (5); and (7) of FAR 19.102(f) provide the three methods of obtaining a waiver. Remember that the waiver allows for a small business to qualify under a small business set-aside when it is NOT the manufacturer but is a reseller of a large business product instead.
The three means of obtaining a waiver, along with some commentary, are as follows:
The first method of "waiving" a small business from having to be a manufacturer of the product in question is to see if the SBA has included a class waiver for the product. The series of class waivers may be viewed at the SBA website at . This list of approved class waivers contains only a few Information Technology items, most notable of which is mainframe computers and peripherals as well as computer laser printers. Of course this is not helpful for laptops or desktops, many of which are not manufactured by small businesses.
(4) In the case of acquisitions set aside for small business or awarded under section 8(a) of the Small Business Act, when the acquisition is for a specific product (or a product in a class of products) for which the SBA has determined that there are no small business manufacturers or processors in the Federal market, then the SBA may grant a class waiver so that a non-manufacturer does not have to furnish the product of a small business. For the most current listing of classes for which SBA has granted a waiver, contact an SBA Office of Government Contracting. A listing is also available on SBA's Internet Homepage at . Contracting officers may request that the SBA waive the non-manufacturer rule for a particular class of products.
The second way of obtaining a waiver is found in paragraph (5) of 19.102(f) as follows:
(5) For a specific solicitation, a contracting officer may request a waiver of that part of the non-manufacturer rule which requires that the actual manufacturer or processor be a small business concern if no known domestic small business manufacturers or processors can reasonably be expected to offer a product meeting the requirements of the solicitation.
As noted, a specific waiver may be obtained from the SBA. However, in the case of small Information Technology procurements, this can add an onerous amount of time to the award process and may not be reasonable for numerous repetitive information technology procurements.
The final way to "waive" the requirement that a small business be a manufacturer of a product in order to qualify to offer the product under a small business set aside is found in paragraph (7) of 19.102(f), which states:
(7) The SBA provides for an exception to the non-manufacturer rule if--
(i) The procurement of a manufactured end product processed under the procedures set forth in Part 13--
(A) Is set aside for small business; and
(B) Is not anticipated to exceed $25,000, and (ii) The offeror supplies an end product that is manufactured or produced in the United States or its outlying areas.
As noted, if the procurement is less than $25,000; processed under FAR 13 procedures; and, is manufactured or produced in the United States or its outlying areas, a small business is able to offer a product that it did not manufacture under a small business set aside.
As the questioner has noted, the non-manufacturer rule can be onerous for many information technology procurements. For instance, a procurement that is over $25,000 for laptops or desktops does not qualify for either of the two standard exceptions (a class waiver or less than $25,000). In these situations, full compliance with the regulations requires the contracting officer to either obtain a specific waiver to the non-manufacturer rule from the SBA under 19.102(f)(5), or it would require the contracting officer to make a determination under FAR 19.502-2(a) (See also FAR 13.003(b)(1)).
This determination essentially "dissolves" the small business set-aside, specifically requiring that:
…the contracting officer contracting officer determines there is not a reasonable expectation of obtaining offers from two or more responsible small business concerns that are competitive in terms of market prices, quality, and delivery. If the contracting officer does not proceed with the small business set-aside and purchases on an unrestricted basis, the contracting officer shall include in the contract file the reason for this unrestricted purchase.
In sum, the non-manufacturer rule for many simplified acquisition procedure (FAR 13) acquisitions for information technology requires that the contracting officer either obtain a specific waiver of the non-manufacturer rule from the SBA, or requires the contracting officer to "dissolve" the small business set aside in accordance with FAR 19.502-2(a).
For your reference, the following letter shows a sample of a “Request for Waiver” To the SBA from the Department of Commerce:
UNITED STATES DEPARTMENT OF COMMERCE |
DATE: February 19, 1999
TO: U.S. Small Business Administration
Associate Administrator
for Government Contracting (Mail Code 6250)
409 Third Street, S.W.
Washington, D.C. 20416
FROM: Department of Commerce
Acting Chief Financial Officer and
Assistant Secretary for Administration
SUBJECT: Request for Waiver of the Nonmanufacturing Rule
In accordance with FAR 19.102(f)(5)(iii), the Department of Commerce (DOC) hereby requests a waiver of the Nonmanufacturing Rule for the Commerce Information Technology Services (COMMITS) acquisition.
1. Definitive Statement of the Specific Item(s) to be Waived.
The Department of Commerce in cooperation with the Small Business Administration is working to establish a government-wide acquisition contract (GWAC) vehicle for obtaining information technology services from small, small disadvantaged, 8(a), and women-owned firms. It is essential that these contracts be structured to be successful. Impediments to using these contracts must be removed if they are to be successful. For the reasons stated in paragraph 3 below, we believe the standard small business set aside non-manufacturing rule presents a significant impediment to the success of this very important program and request favorable review of this waiver request.
Secretary Daley announced this initiative and his support for it, at a recent Minority Enterprise Development Week function. Simply put, we believe that the small, small disadvantaged, 8(a), and small women-owned business community receives less than an appropriate share of the contract dollars that the Federal government spends on information technology services. The establishment of this GWAC is exactly the kind of outreach that is needed to ensure that this segment of the economy fully participates in, and receive the benefits of this Administration's procurement reform initiative. While there are approximately two dozen GWAC's currently in place, none are focused on the small, small disadvantaged, economically and socially disadvantaged, or women-owned firms.
We believe the Department of Commerce's planned GWAC would be unique in its focus on small business. As you are well aware, the vast majority of awards under existing GWAC contracts have been made to large business. The ease of ordering from these contracts has significantly reduced the opportunities for small business to act as prime contractors. A frequent complaint of our small, small disadvantaged 8(a) and small women-owned contractors are that they have been relegated to "body shops" to provide low-cost labor to the prime contractors. They are especially concerned in that they are not getting the prime contractor experience they need to grow and develop. This GWAC initiative Will provide that opportunity.
Another purpose of this initiative is to provide Federal Government agencies with a source of highly qualified contractors from which to choose in direct support of their minority business programs. We believe the GWAC contracts we award will be an important tool to assist other agencies meet their program goals.
2. Procurement History.
a. Period of Performance: The Period of performance of the contract will be five years, a base-year with four optionyears.
b. SIC Code: The SIC Code assigned to this requirement is 7379.
c. Cost: The estimated cost of this acquisition is $ 1.5 Billion, inclusive of options
d. Contract Type: The requirement will be satisfied through the use of a multiple award, government-wide acquisition, indefinite delivery/indefinite quantity contract, set aside for small, small disadvantaged, and women-owned business.
e. Acquisition History: This is a new requirement. No previous contracts have been awarded.
f. Solicitation History: A solicitation has not yet been released. The DOC is awaiting a delegation as an executive agent under section 5112(e) of the Clinger Cohen Act of 1996 for the planned GWAC.
g. Procurement Notice: The requirement has been synopsized in the Commerce Business Daily.
h. Factors Impacting Decision to Procure From this Specific 8(a) or Other Than 8(a) Small Business Concern: N/A
i. Other Interested Small Business or 8(a) Concerns: The DOC synopsized this acquisition in the Commerce Business Daily as prescribed in FAR Part 5 as a total small business set-aside.
j. Procurement Method: The DOC's acquisition strategy is to provide for a small business set-aside competition with a non-manufacturer waiver in effect for those concerns that are regular dealers and not manufacturers of the items.
3. Determination that There are No Known Small Business Manufacturing Sources for the Requested Item.
The proposed GWAC contracts are unique in that they are "solution" based. Under this arrangement the contract itself does not contain contract line number s, labor rates, or products. Instead, each prime contractor is free to propose the most advantageous solution to each task order requirement.
The problem arises when the solution requires IT products. Under the standard nonmanufacturing rule which would force the COMMITS contractors to only select IT products manufactured by small businesses. It is our experience- that many agencies will not use this contract if they are restricted to IT products manufactured by small businesses.
The dynamics of the IT industry is causing much of the problem. At any one time there may be small business products for any and all of the IT requirements. However, in our experience this situation does not last for very long. If a small business product is a hit, the manufacture quickly grows beyond small business designations. More often, the product' and company are bought by a large business. In either case the product is no longer available from a small business. This happens on a daily basis.
More significant to this contract are the products that are not "hits." These products cannot compete directly with the successful products in today's IT environment. Agency users will not use the COMMITS contract if they believe they cannot obtain state of the art, high quality IT products and software.
It is essential that the COMMITS contractors be allowed craft the best solution to the requirement. We therefore are requesting a waiver to the non-manufacturing rule and request favorable review of this requirement.
4. Point of Contact: The point of contact for any questions regarding this request is ____________ at ___________________.
5. Contracting Officer's Determination to Seek Waiver of the Nonmanufacturing Rule.
For your information, attached is our recent request for executive agent GWAC authority for OMB. We are optimistic that this request will be granted quickly. Also, attached is a draft agenda for our planned pre-proposal conference tentatively scheduled for February 24.
Under separate cover we are inviting your Deputy Administrator to join us in this event as it is important to show this innovative program as an administration initiative.
On the basis of the above, I hereby request a waiver to the non-manufacturing rule to the extent outlined herein.
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___________________________ ____________ |
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Name |
Date |
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Procurement Executive |
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Enclosures