In 2014, the NMR was amended to require the non-manufacturer take “ownership” of the end item. This was done by adding language to section 121.406(d) stating that “the small business offeror must meet the requirements of paragraph (b)(1)(i) through(b)(1)(iv) of this section.”

Paragraph (b)(1) sets out the criteria for qualifying for the general non-manufacture rule and Paragraph (b)(1)(iii) states the new requirement that the non-manufacturer “takes ownership or possession of the item(s) with its personnel, equipment or facilities.”

However, paragraph (b)(1)(iv) creates confusion as it re-states the requirement that the non-manufacturer “supply the end item of a small business manufacturer, processor or producer made in the United States, or obtain a waiver of such requirement….” By including the reference in paragraph (b)(1)(iv), the regulation seemed to conflict with the primary purpose of the exception for SAP procurements.

The issue arose in an appeal by Jamaica Bearings Company (JBC) of a size determination of Electrical & Electronic Suppliers, Inc. (E&E), in which the SBA determined that E&E was a small business for a specific procurement, which was set aside for small business and conducted under SAP.  E&E was selected for award and JBC protested their eligibility as a small business. The SBA’s finding stated that E&E is an eligible small business under the NMR even though the end item would be manufactured by a large business, because the acquisition was conducted under SAP.

On appeal to OHA, JBC did not challenge this finding. However, when OHA reviewed the size determination of E&E, they included an opinion on the ambiguity discussed in the third paragraph above.  The decision stated “it is worth noting that this case also presents an issue of regulatory interpretation.” 13 C.F.R. § 121.406(d) provides that, for procurements processed under SAP, “the offeror does not have to supply the end product of a small business concern.” The decision further states that the final rules regarding the changes to the NMR which took place in 2014 did not indicate that SBA intended to change the NMR for simplified acquisitions. OHA concluded that the reference to the general requirement to supply the end item of a large business in in section 121.406(d) was an “administrative error” and does not require an offeror to supply the end item of a small business for procurements under SAP.

As a result of the appeal, in October 2015, the SBA Office of Hearing and Appeals (“OHA”) issued a decision that procurements conducted under simplified acquisition procedures (SAP) were not required to provide the end item of a small business to be eligible as a small business under the non-manufacturer rule (NMR).

The bottom line is if you are a small business proposing on a procurement where the NMR applies and the agency is using SAP procedures, you can provide the end item of either a small or large business and still be eligible for award.