This article explains non-manufacturer waivers and what Federal agency contracting officers are responsible for.   In addition, it explains the Small Business Administration’s non-manufacturer rule (NMR).

What is the Non-manufacturer Rule?

The Small Business Act and SBA’s regulations impose performance requirements (limitations on subcontracting) on firms that are awarded Federal set-aside contracts.

Applicable regulations are:

• 15 USC §§ 637(a)(14), 644(o);
• 13 CFR § 125.6;
• Federal Acquisition Regulation (FAR) §§ 52.219-14, 52.219-27

On a supply contract, a firm must perform at least 50% of the cost of manufacturing the supplies (not including the cost of materials).

The NMR is an exception to the performance requirements, and provides that a firm that is not a manufacturer may qualify as a small business on a supply contract set aside for small business if, among other things, it supplies the product of a small business made in the United States (15 USC § 637(a)(17); 13 CFR § 121.406).

What is the difference between a Manufacturer and a Non-manufacturer?

• A manufacturer is a concern which, with its own facilities, performs the primary activities in transforming inorganic or organic substances, including the assembly of parts and components, into the end item being acquired (13 CFR § 121.406(b)(2); FAR § 19.102(f)(1)).
• A concern may qualify a non-manufacturer if it:
  • Does not exceed 500 employees;
  • Is primarily engaged in the retail or wholesale trade and normally sells the type of item being supplied; and
  • Will supply the end item of a small business manufacturer or processor made in the United States, or obtains a waiver of such requirement (13 CFR § 121.406(b)).

Non-manufacturer Rule Reminders

Federal contracting officers applying the Nonmanufacturer Rule are to abide by the following guidelines:

• The NMR does not apply to service contracts. The NMR is an exception to the manufacturing performance requirements (limitations on subcontracting) applicable to supply contracts. Service and construction contracts have different performance requirements. See 13 CFR § 125.6; FAR §§ 19.102(f), 19.502-2(c).
• Contracting officers are to designate the proper NAICS code and size standard in the solicitation, selecting the NAICS code which best describes the principal purpose of the product or service being acquired. Primary consideration is given to the industry description in the NAICS, the product or service description in the solicitation and any attachments to it, the relative value and importance of the components of the procurement making up the end item being procured, and the function of the goods or services being purchased.
• Wholesale or retail trade NAICS code are not be applied to a procurement for supplies.
• Non-manufacturer waivers are not granted for HUBZone procurements.
• Non-manufacturer waivers cannot be granted after bids on a solicitation have been received.

Non-Manufacturer Waiver Information

In order to qualify as a small business on a small business set-aside, Service-Disabled Veteran-Owned set-aside or 8(a) Business Development procurement (sole source or competitive) for the acquisition of supplies, an offeror must either manufacture the item in accordance with the Limitations on Subcontracting (see FAR section 52.219-14, 52.219-27 and 13 C.F.R. section 125.6) or supply the product of a small business made in the United States. The requirement that a non-manufacturer supply the product of a small business concern is commonly referred to as the Non-Manufacturer Rule (NMR) (13 C.F.R. section 121.406). The Small Business Act also contains provisions that allow the Administrator of the SBA to waive this requirement when there are no small business manufacturers or processors available to supply the product to the Federal Government. The Administrator has delegated the authority to make decisions on waivers of the Non-Manufacturer Rule to the Associate Administrator for Government Contracting in the following cases:

• Individual waiver. After reviewing a determination by a contracting officer that no small business manufacturer or processor can reasonably be expected to offer a product meeting the specifications (including period of performance) required of an offeror or by the solicitation; or
• Class waiver. For a product or class of products after determining that no small business is available to participate in the Federal procurement market.

For the purpose of waivers, a class of products is defined based on the Office of Management and Budget’s North American Industry Classification (NAICS) Manual and the General Services Administration’s Product and Service Code (PSC) Directory. Within each NAICS code and PSC are subdivisions of products that can be considered for waiver. A request for a waiver of a class of products should refer to a specific subdivision, or statement of product, within the NAICS and PSC.

Any individual or organization (government agency, business, association, etc.) may request a waiver for a class of products. The request should be in writing addressed to the Associate Administrator for Government Contracting and should specifically state the class (or classes) of products for which the waiver is sought.

Requesting the Individual Waiver

Contracting officers are the only ones who can request an individual waiver for a specific solicitation.  At a minimum, waiver requests from contracting officers must include:

• A definite statement identifying the specific products for which a waiver is being requested, including market research documentation supporting the contracting officer’s determination that there are no known small business manufacturers or processors for the requested items.
• The solicitation number for the procurement on which the item(s) is required, the NAICS code, estimated dollar amount of the procurement, and a brief statement of the procurement history.
• For contracts expected to exceed $500,000, a copy of the Statement of Work.
• A determination by the procuring agency’s contracting officer that there are no known small business manufacturers for the requested items. The determination must contain a clear, narrative statement of the contracting officer’s efforts to search for small business manufacturers or processors of the item(s) and the results of those efforts. The information should include the findings of a search on the SBA’s Central Contractor Registration (CCR) “Dynamic Small Business Search” ; other market surveys performed; the results of discussions with small business representatives to find manufacturers (i.e., Office of Small Disadvantaged Business Utilization (OSDBU) Representative or Procurement Center Representative (PCR)); and, a statement by the contracting officer that there are no known small business manufacturers for the items and that no small business can reasonably be expected to offer the required supplies.
• A contracting officer may request an individual waiver for more than one item on a solicitation. The required information indicated above must be included for each item.

Requests for waivers of the Non-Manufacturer Rule should be sent to the Director for Government Contracting at: U. S. Small Business Administration, Office of Government Contracting, Mail Code 6700, 409 3rd Street, SW, Washington, DC 20416.

Class Waivers

Anyone can request a class waiver. The requester should supply SBA with the relevant NAICS code and other identifying information concerning the item. The requester should also supply SBA with market research and other data to support a determination that no small business manufacturer is participating in the Federal procurement market.

Use the following format for submitting class waivers:

Dear Director:

In accordance with 13 Code of Federal Regulations (Reference 12l.1204(a)(2)), the (your name and/or the name of your organization) hereby requests a class waiver of the Non-manufacturer Rule (NMR) for name of product(s)_______, under the North American Industry Classification (NAICS) code _______, Product Service Code (PSC) _____.

(Describe any background information relative to the product(s) you are requesting to be waived. Include detailed information on the efforts made to identify small business manufacturers or processors for the class.)

I can be reached at ( ) ______, fax number ( ) _______, and mailing address_______.

Sincerely,

_____________

Signed/dated

Send to: Director, Office of Government Contracting, U.S. Small Business Administration, 409 3rd Street, SW, MC 6700, Washington, DC 20416.

Timeframes for Handling

• A request for an individual waiver will take about 15 working days to process if the contracting officer provides complete information.
• Requests for waivers of classes of products take an average of 45 – 60 working days for processing.

This period of time allows SBA staff to publish Waivers of the Non-manufacturer Rule in the Federal Register, a required notice of an intent to grant a waiver for the class of products, a notice on the FedBizOpps web site of potential sources sought, and a final notice in the Federal Register of any decision to grant the waiver if no small business manufacturers or processors have been identified.

For questions about the Nonmanufacturer Rule, or questions on how to submit a waiver request, please contact SBA’s Edward Halstead  at edward.halstead@sba.gov