Understanding the NonManufacturer Rule (NMR) U.S. Small Business Administration Office of Government Contracting FY 2014

The Nonmanufacturer Rule Program Applies to firms that receive supply contracts, above $25,000, under the 8(a) program or on a small business set aside, who can be either a manufacturer or a nonmanufacturer of a product; A nonmanufacturer who receives one of these contracts must agree to supply the product of a domestic small manufacturer or processor; SBA can waive this requirement; Once a waiver of the manufacturer rule is approved, a firm may supply the product of a large manufacturer. The Nonmanufacturer Rule (NMR) applies to firms that receive supply contracts, above $25,000, under the 8(a) program or on a small business set aside, who can be either a manufacturer or a nonmanufacturer of a product. A nonmanufacturer who receives one of these contracts must agree to supply the product of a domestic small manufacturer or processor. SBA can waive this requirement when there are no small manufacturers or processors available to supply the product. There are two types of waivers to the nonmanufacturer rule: (1) individual waivers, which apply only to a specific contract and are effective for the life of that contract, and (2) class waivers, which apply to categories of items and continue in effect unless revoked by SBA. Once a waiver of the manufacturer rule is approved, a firm may supply the product of a large manufacturer.

Overview Key Definitions Regulations, Laws Applicability Waivers Best Practices

Definitions Manufacturer Nonmanufacturer Kit Assembler Reseller Wholesaler

Who is a Manufacturer? A manufacturer is a concern which, with its own facilities, performs primary activities in transforming inorganic or organic substances, including the assembly of parts and components, into the end item being acquired. For example, a manufacturer may purchase all the separate parts and components necessary to build a personal computer, and assemble these parts within its own facility into the end-item. This is considered a manufacturer because of the necessary parts and components to produce the end item.

Who is a Nonmanufacturer? A concern may qualify as a small business nonmanufacturer if: Less than 500 employees; Primarily engaged in retail or wholesale and normally sells type of product being supplied; Takes ownership or possession of the item(s) with its personnel, equipment or facilities in a manner consistent with industry practice; and Will supply the end product of a small business manufacturer or processor made in U.S. or obtain waiver to non-manufacturer rule A concern may qualify as a non-manufacturer if: Less than 500 employees; Primarily engaged in retail or wholesale and normally sells type of product being supplied; Takes ownership or possession of the item(s) with its personnel, equipment or facilities in a manner consistent with industry practice; and Will supply the end product of a small business manufacturer or processor made in U.S. or obtain waiver to non-manufacturer rule FAR 19.102  Size standards. (a) The SBA establishes small business size standards on an industry-by-industry basis. (See 13 CFR Part 121.) (b) Small business size standards are applied by— (1) Classifying the product or service being acquired in the industry whose definition, as found in the North American Industry Classification System (NAICS) Manual (available via the Internet at http://www.census.gov/epcd/www/naics.html), best describes the principal nature of the product or service being acquired; (2) Identifying the size standard SBA established for that industry; and (3) Specifying the size standard in the solicitation so that offerors can appropriately represent themselves as small or large. (c) For size standard purposes, a product or service shall be classified in only one industry, whose definition best describes the principal nature of the product or service being acquired even though for other purposes it could be classified in more than one. (d) When acquiring a product or service that could be classified in two or more industries with different size standards, contracting officers shall apply the size standard for the industry accounting for the greatest percentage of the contract price. (e) If a solicitation calls for more than one item and allows offers to be submitted on any or all of the items, an offeror must meet the size standard for each item it offers to furnish. If a solicitation calling for more than one item requires offers on all or none of the items, an offeror may qualify as a small business by meeting the size standard for the item accounting for the greatest percentage of the total contract price. (f) Any concern submitting a bid or offer in its own name, other than on a construction or service contract, that proposes to furnish an end product it did not manufacture (a “nonmanufacturer”), is a small business if it has no more than 500 employees, and— (1) Except as provided in paragraphs (f)(4) through (f)(7) of this section, in the case of Government acquisitions set-aside for small businesses, furnishes in the performance of the contract, the product of a small business manufacturer or producer. The end product furnished must be manufactured or produced in the United States or its outlying areas. The term “nonmanufacturer” includes a concern that can, but elects not to, manufacture or produce the end product for the specific acquisition. For size determination purposes, there can be only one manufacturer of the end product being acquired. The manufacturer of the end product being acquired is the concern that, with its own forces, transforms inorganic or organic substances including raw materials and/or miscellaneous parts or components into the end product. However, see the limitations on subcontracting at 52.219-14 that apply to any small business offeror other than a nonmanufacturer for purposes of set-asides and 8(a) awards. (2) A concern which purchases items and packages them into a kit is considered to be a nonmanufacturer small business and can qualify as such for a given acquisition if it meets the size qualifications of a small nonmanufacturer for the acquisition, and if more than 50 percent of the total value of the kit and its contents is accounted for by items manufactured by small business. (3) For the purpose of receiving a Certificate of Competency on an unrestricted acquisition, a small business nonmanufacturer may furnish any domestically produced or manufactured product. (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 nonmanufacturer 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 http://www.sba/content/class-waivers. Contracting officers may request that the SBA waive the nonmanufacturer rule for a particular class of products. (5) For a specific solicitation, a contracting officer may request a waiver of that part of the nonmanufacturer 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. (6) Requests for waivers shall be sent to the— Associate Administrator for Government Contracting United States Small Business Administration Mail Code 6250 409 Third Street, SW Washington, DC 20416. (7) The SBA provides for an exception to the nonmanufacturer 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. (8) For non-manufacturer rules pertaining to HUBZone contracts, see 19.1303(e). (g) The industry size standards are published by the Small Business Administration and are available via the Internet at http://www.sba.gov/size.

Who is a Kit Assembler? When the manufactured item being acquired is a kit of supplies, or other goods provided an offeror for a special purpose, the offeror cannot exceed 500 employees, and 50 percent of the total value of the components of the kit must be a small business under the size standards for the NAICS codes of the components being assembled. The offeror doesn’t need to be the manufacturer of any items assembled When the manufactured item being acquired is a kit of supplies, or other goods provided an offeror for a special purpose, the offeror cannot exceed 500 employees, and 50 percent of the total value of the components of the kit must be a small business under the size standards for the NAICS codes of the components being assembled. The offeror need not itself be the manufacturer of any items assembled

Who is a Retailer? Wholesaler? Retailer -- a person who is authorized to sell someone else’s goods and/or services Wholesaler -- An intermediary (go-between) which sells to other intermediaries, such as a firm that buys from a manufacturer and sells to a retailer Retailer -- a person who is authorized to sell someone else’s goods and/or services Wholesaler -- An intermediary (go-between) which sells to other intermediaries, such as a firm that buys from a manufacturer and sells to a retailer

Regulatory Requirements The regulations that govern the NMR: Federal Acquisition Regulation (FAR) Part 19 FAR 19.001 et seq. - Definitions FAR 19.102 Size Standards FAR 52.219-1(a)(3) - Provision Code of Federal Regulations (CFR) 13 CFR 13 CFR § 121.406 – The Rule 13 CFR § 121.1202 et seq. - Waivers 13 CFR § 125.15 – SDVO Set-Asides 13 CFR § 127.505 – WOSB Set - Asides The regulations that govern the NMR: Federal Acquisition Regulation (FAR) Part 19 FAR 19 FAR 52.219-1(a)(3) Small Business Program Representations provision states that the small business size standard for a concern submitting an offer in its own name, but proposes to supply a product which it did not itself manufacturer, is 500 employees Code of Federal Regulations (CFR) 13 CFR 13 CFR § 121.406 13 CFR § 121.1201 13 CFR § 125.15 13 CFR § 127.505

Summary of CFR regulations SBA size regulations 13 CFR 121.103(h) HUBZone regulations 13 CFR 126.616 SBA Certificate of Competency 13 CFR 125.5 Service-disabled veteran 13 CFR 125.15(b) 8(a) and SDB regulations 13 CFR 124.513 Small disadvantaged business 13 CFR 124.1002(f) WOSB Program 13 CFR 127 SBA Prime Contracting 13 CFR125.2 SBA Subcontracting 13 CFR125.3

Interaction of Small Business Programs Below the SAT Small business set asides are mandatory for the acquisition of supplies and services valued from $3,000 to $150,000 FAR permits but does not require the reservation of an award of a contract with a value less than the SAT to different types of small businesses such as 8(a), HUBZone, WOSB, SDVO SBCs

Interaction of Small Business Programs Above the SAT SBA’s regulations provide for parity among certain small business programs KO will determine which set-aside program to use SBA’s regulations provide for parity among certain small business programs for acquisitions above the SAT --8(a), HUBZone, WOSB and SDVO. 13 C.F.R. §§126.607, 125.19, 124.503(j). In determining which program to use, the CO must conduct market research and should take into consideration historical data, anticipated award price, and other pertinent factors such as the procuring activity’s progress towards meeting its goals.

Analysis: Regulatory Applications Statute Federal Acquisition Regulations SBAs Regulations Sections 8(a)(17) and 46 of the Small Business Act, 15 U.S.C. §§ 637(a)(17) and 657s FAR 19 13 CFR 121.406, 1204 / 13 CFR 121, 124, 125, 126, 127 Small Business Jobs Act of 2010:   http://www.gpo.gov/fdsys/pkg/FR-2013-10-02/pdf/2013-22064.pdf FAR Subpart 8.4 amended to clarify that agencies may set aside orders and blanket purchase agreements under the GSA Schedule FAR Subpart 12.2 now acknowledges that discretionary set-asides may be used under multiple-award contracts FAR Subpart 16.5 and 19.5 amended to clarify that agencies may set-aside orders for small businesses in connection with multiple-award contracts (and orders thereunder) National Defense Authorization Act of 2013 - Section 1651 – Limitations on Subcontracting FAR Subpart 52.219-14 Limitations on Subcontracting will be affected although NDAA has not yet been implemented in the FAR 13 CFR 125.6 will be affected although NDAA has not yet been implemented in SBA’s regulations

Applicability of the NMR Small business set-asides on supply contracts, orders, BPAs over $25k The NMR will be applied when a small business nonmanufacturer will provide the end item of: a small business manufacturer an other than small business manufacturer under a waiver (an existing class waiver or individual –or solicitation specific-waiver) Does not apply to full and open solicitations For purposes of government contracting, the NMR applies to small business set-asides only. The NMR qualifies a small business nonmanufacturer for a set-aside on a supply procurement. The NMR will be applied when a small business nonmanufacturer will provide the end item of: a small business manufacturer an other than small business manufacturer under an existing class waiver an other than small business manufacturer under an existing individual (solicitation-specific) waiver While the NMR applies to small business set-asides, partial set-asides, and sole source small business acquisitions, the NMR does not apply to full and open solicitations.

When the NMR does NOT apply There are NO waivers to the NMR for: Service or construction contracts HUBZone Contracts NAICS codes outside of sector 31-33, Manufacturing Blanket Purchase Agreements – A waiver to the NMR is applied to the primary contract – orders placed against the contract are covered by the waiver. Service or construction contracts HUBZone Contracts (A HUBZone small business nonmanufacturer agrees to furnish in performing a contract only end items manufactured by HUBZone small business manufacturer concern. This does not apply in connection with construction or service contracts.) . HUBZone contracts valued below $25K, the offeror must supply the product of a domestic manufacturer. NAICS codes outside of sector 31-33, Manufacturing. SBA’s regulations prohibit the use of wholesale or retail NAICS codes in government contracting

Choosing NAICS Codes The North American Industry Classification System (NAICS) code chosen must be that which best describes the principal purpose of the product or service being acquired Procurements for supplies must be classified under the appropriate manufacturing NAICS code, NOT under the wholesale or retail trade NAICS code. 13 C.F.R. § 121.402(b) SECTORS 42, 44 and 45 ARE NOT TO BE USED FOR GOVERNMENT PROCUREMENT OF SUPPLIES The NAICS code chosen must be that which best describes the principal purpose of the product or service being acquired. Considerations include: Descriptions in the NAICS Manual Product or service description in the solicitation Value of the components of the procurement Function of the goods or services being purchased FAR 19.102(c)(d)&(e) c) For size standard purposes, a product or service shall be classified in only one industry, whose definition best describes the principal nature of the product or service being acquired even though for other purposes it could be classified in more than one. (d) When acquiring a product or service that could be classified in two or more industries with different size standards, contracting officers shall apply the size standard for the industry accounting for the greatest percentage of the contract price. (e) If a solicitation calls for more than one item and allows offers to be submitted on any or all of the items, an offeror must meet the size standard for each item it offers to furnish. If a solicitation calling for more than one item requires offers on all or none of the items, an offeror may qualify as a small business by meeting the size standard for the item accounting for the greatest percentage of the total contract price. Procurements for supplies must be classified under the appropriate manufacturing NAICS code, NOT under the wholesale or retail trade NAICS code. 13 C.F.R. § 121.402(b). SECTORS 42, 44 and 45 ARE NOT TO BE USED FOR GOVERNMENT PROCUREMENT OF SUPPLIES.

Applying NAICS Codes to Acquisitions The KO designates the size standard of the procurement by selecting the size standard in effect on the date the solicitation is issued. The basis for designation NAICS that best describes the goods or services that are going to be procured. SBA's size regulations pertaining to federal procurement are also found in the Federal Acquisition Regulation, 48 CFR part 19. To bid on a federal contract, a concern must self-certify that it is a small business under the appropriate size standard in the solicitation. For federal contracts, the contracting officer designates the size standard of the procurement by selecting the size standard in effect on the date the solicitation is issued. The basis for designation is the North American Industry Classification System (NAICS) that best describes the goods or services that are going to be procured. For example, when a non-manufacturer is being considered, the NAICS code is not a retail, or wholesale code because the business is not being procured, the end items of the business is being procured. “You are not buying the retailer, you are buying the products of the retailer.” SBA's size regulations pertaining to federal procurement are also found in the Federal Acquisition Regulation, 48 CFR part 19. To bid on a federal contract, a concern must self-certify that it is a small business under the appropriate size standard in the solicitation.

Applicable Size Standards-NMR A small business nonmanufacturer must meet size standards that apply to acquisitions covered by the NMR. A small business nonmanufacturer (500 or less employees) will provide the end item of: a small business manufacturer (as regulated by SBA’s Table of Size Standards 13 C.F.R. § 121 whether the size standard is 500 employees or not) an other than small business manufacturer under a waiver The size standard for a nonmanufacturer is 500 or less employees. In any case, a small business nonmanufacturer cannot exceed 500 employees. For purposes of government contracting, a small business nonmanufacturer must meet size standards that apply to acquisitions covered by the NMR. A small business nonmanufacturer (500 or less employees) will provide the end item of: a small business manufacturer (as regulated by SBA’s Table of Size Standards 13 C.F.R. § 121, whether the size standard is 500 employees or not) an other than small business manufacturer under an existing class waiver an other than small business manufacturer under an existing individual (solicitation-specific) waiver The size standard threshold for a small business nonmanufacturer is not based on a dollar (revenue) amount, but instead based on an employee number. In any case, a small business nonmanufacturer cannot exceed 500 employees.

Waivers to the NMR Two types of waivers Class Waiver Individual Waiver There are two types of waivers Class Waiver – Identification that no small business manufacturer exists within a specific industry Applied broadly to all set-aside solicitations Is used in combination with a GSA Product Service Code Number Turn around is approximately 60 days Individual Waiver – Justification that no small business manufacturer exists that can meet the requirement on a specific solicitation Solicitation-specific and is applied only to the primary contract Turnaround is approximately 15 business days depending on the complexity of the request

Class Waivers to the NMR A class waiver applies to all items in a class of products. Class waivers apply to categories of items and continue in effect unless revoked by SBA. A waiver of the NMR for classes of products has no time limitation or duration. Any government agency, business association, or interested party may request a waiver for a class of products. Discovery of even one small business manufacturer for a single item in the class will justify denial of a request for a class waiver. A class waiver applies to all items in a class of products, which is defined as a subcategory within a six digit NAICS code. For example, Computer and Electronic Product Manufacturing is 334, which is a sub-sector in the class of products. The six digit NAICS for electronic computer manufacturing is 334111. Class waivers apply to categories of items and continue in effect unless revoked by SBA. A waiver of the NMR for classes of products has no time limitation or duration. Any government agency, business association, or interested party may request a waiver for a class of products. Discovery of even one small business manufacturer for a single item in the class will justify denial of a request for a class waiver.

Four steps in checking “NMR” class waivers NAICS code Product description Product service code at http://www.acquisition.gov/ Federal Register, where SBA communicates “NMR” changes

Individual Waivers to the NMR SBA will consider granting in individual waiver when a KO determines no small business manufacturers exist to meet requirement The waiver to the NMR on an individual procurement is provided for in Section 8(a)(17) of the Small Business Act. An individual waiver is narrowly applied to select contract line item numbers (CLINS) for a specific solicitation. A NMR Waiver must be in place prior to receipt of offers in order for a nonmanufacturer to qualify as a small business for set-aside purposes. SBA will consider granting in 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. The waiver to the NMR on an individual procurement is provided for in Section 8(a)(17) of the Small Business Act. An individual waiver is narrowly applied to select contract line item numbers (CLINS) for a specific solicitation. A NMR Waiver must be in place prior to receipt of offers in order for a non-manufacturer to qualify as a small business for set-aside purposes.

How to Obtain an Individual Waiver 13 C.F.R. 121.406 and 121.1202 - 1204 www.sba.gov The basis of granting an individual waiver rests on the market research presented with an agency’s request to justify the claim that no small business manufacturers exist that can meet the procurement requirements The process to obtain a waiver to the NMR is found in 13 C.F.R. 121.406 and 121.1204. Additional guidance can be found on SBA’s website at www.sba.gov or http://www.sba.gov/category/navigation-structure/contracting/contracting-officials/non-manufacturer-waivers HOWEVER, a solid MARKET RESEARCH report should provide you with the justification needed for the waiver request.

What to Submit Using an SBA NMR request template, submit the following: NMR request on Agency letterhead, signed by a KO Include elements of SBA’s requirements (FAR has limited guidance) Market Research report or memo as an attachment Market research should be based on search for SB manufacturers using the NAICS code for the solicitaion Supporting documentation or copies of: FBO Sources Sought / RFI / Vendor Survey including a summary of findings Brand Name Justification for brand name items DSBS search results (don’t search for name brands, use generic terms and remember to search on the NAICS code used for the solicitation) Internet searches (Google, Thomasnet.com, etc.)

What to Submit, cont. List of items to be waived – provide specific information including multiple item requests Statement of Work is REQUIRED on contracts expected to exceed a total estimated value of $500,000 Any other documents that you think would help in the analysis and determination that no small business can produce the end product

One waiver per solicitation Identification of Small Business Sources on Multiple Item Request for a Single Solicitation (Individual Waiver) Each line item must identify whether the end product will be supplied by a small business manufacturer CLINs NSNs SINs One waiver per solicitation Each line item must identify whether the end product will be supplied by a small business manufacturer If small business will supply the end item, no waiver is needed If other than small business will supply the end item a waiver is needed for those items One waiver per solicitation

How to Submit Submit NMR waiver requests and attachments to the NMR program email address at: NonMfgRuleWaiverReqsts@sba.gov Use the solicitation number and agency abbreviation in the subject line – ex: SBA SBA123-14-Q-0001 Waiver Request

Analysis: Review for Completeness Regulatory vs Program Requirements Use the NMR Waiver Request template as a guide Minimum Required Documents NMR Request Package Request template preferred Required information must be included in the request Agency Request Research must be recent and specific Supporting documentation must be presented Market Research Required on contracts estimated to exceed $500,000 Other names include: Minimum Technical Requirements, Purchase Requirements, etc. Statement of Work (SOW) Agency request Market research SOW Minimum Required Docs Brand-name justification Copy of FBO notices (Sources Sought, RFI) DSBS results, including summary of findings Acquisition history Supporting Evidence Specific item(s) to be waived Identification of SB vs LB representation on multiple item procurements Item Description or List of Items

You have a Waiver, Now What? Excellent “NMR” reference with size standard

Excellent “NMR” reference with “LOS” You have a Waiver, Now What? Excellent “NMR” reference with “LOS”

FBO Notices Oops. Incorrect “4” NAICS code used

Class Waivers to the NMR Does the class waiver to the “NMR” apply? Are they looking for resellers or dealers?

Market Research Recommendations SBA’s Dynamic Small Business Search http://dsbs.sba.gov FedBizOpps – Sources Sought results Summary of event results, i.e. “Industry Day” etc. Online product information Acquisition history SBA Procurement Center Representative (PCR) FAR Part 10 SBA’s Dynamic Small Business Search - CCR or http://dsbs.sba.gov FedBizOps – Sources Sought results Summary of event results, i.e. “Industry Day” etc. Online product information Acquisition history SBA Procurement Center Representative (PCR) FAR Part 10

Best Practices Plan ahead Solid market research with supporting documentation Communicate to contractors how the NMR is applicable to solicitations (FBO listings, etc.) Communicate with the small business office to identify small business goaling needs or opportunities Work with an SBA PCR - Small Business Coordination Record (Form DD 2579) Use the right NAICS code for procurement of supplies Plan ahead Solid market research Communicate with the small business office to identify small business goaling needs or opportunities Work with an SBA PCR - Small Business Coordination Record (Form DD 2579) Use the right NAICS code for procurement of supplies

Questions? Nonmanufacturer Rule Program Amy Garcia Office of Contract Assistance Office of Government Contracting U.S. Small Business Administration Washington, D.C. amy.garcia@sba.gov 202/205-6842