In its simplest form, the Small Business Non-Manufacturer Rule (NMR) states that for an acquisition exceeding $25,000, using a manufacturing NAICS code, small businesses must either manufacturer the product themselves or provide the products of a small business manufacturer. If they cannot, the acquisition must be done using full and open competition procedures and no set-aside can be made. The law that the NMR is based upon clearly states that the NMR does NOT apply to service or construction contracts.
However in a recent Court of Federal Claims ruling, they found that the language of the non-manufacturer rule indicates that the rule applies to “any” supplies being procured via a small business set-aside. COFC reasoned that “any” supplies includes even supplies procured as part of a service or construction contract.
The impact to small businesses could be huge. How would a small business service contractor EVER qualify as small under the new interpretation of the non-manufacturer rule? So what can contractors do?
Contractors of all sizes should conduct a review of any combination supply/services solicitations to determine if this interpretation of the NMR has any impact on the number of prime small businesses and small business manufacturers. Contracting Officer decisions to set aside supply/services solicitations for small businesses may be protested if no small business can comply with the NMR.
This ruling will most likely impact the number of supply/services solicitations capable of being set aside for small businesses, as it will require offerors to satisfy both the NMR and Rule of Two analysis.
Small business services contractors should review combination supply/service solicitations and decide if they can comply with the NMR for the supply component (supply end items manufactured by another small business in the United States). Failure to show compliance could be grounds for disqualification.
The SBA may receive more requests to issue waivers of the NMR. These require a determination that there are no small business manufacturers available to participate in the federal market for that class of products.
Under the SBA’s regulation, if a procurement is not designated with a manufacturing NAICS code, a small business need not worry about supplying the end products of a domestic small business or satisfying the other components of the non-manufacturer rule. But the Court’s decision in effect overturns the SBA’s regulation, requiring small contractors to comply with the non-manufacturer rule for all set-asides, regardless of the NAICS code.
Small businesses should contact their local and regional SBA representatives to discuss their concerns and find out SBA’s planned response, if any, to this ruling.