Industry be aware! SBA recently issued proposed changes to the Non-Manufacturer Rule Process, and they did it as part of an unrelated proposed rule. The proposed changes are published HERE; and the comment period closes on 8 November 2022.

These proposed changes can significantly impact and potentially irreparably damage small business set-asides for prime vendors, integrators and resellers on large multi-item procurements.

These changes may not look harmful at first, but due to inefficiencies and impracticalities would do more harm than good without getting to the root of the problem: the small business industrial base.

Why is this happening?

A recent article by POGO unfortunately did not present a complete and accurate reading of the non-manufacturer rule, its intent, and waivers to the rule. In general, if a requirement is set-aside for a small business prime vendor, then the prime vendor must purchase products and supplies that are produced by small business manufacturers. 

However, as many people know, small businesses often do not produce what the government needs, or can’t produce it in the quantity or the quality that it demands. In those instances, a waiver is sought and issued by the SBA allowing a small business prime vendor/reseller to provide the products of both large and small business manufacturers. This is indeed a win-win. The government gets what it needs, when it needs it, at the right place, and at the right price; and both small business prime vendors and manufacturers participate in the federal marketplace.

POGO claimed and implied that small business set-aside dollars were inappropriately going to large manufacturers. What they didn’t share is that extensive analysis was conducted to determine that small business manufacturers, in general, could not provide the large and expansive list of products needed by the government. For over a decade when the underlying contract contained an indefinite quantity of items that could not be identified at contract execution, a basket or sample of products were analyzed to determine if a waiver was appropriate. If SBA deemed that the waiver was appropriate, the waiver was issued for the entire contract, not for the sample items analyzed.

In those situations, as mentioned above, the next best solution is a small business prime vendor. In those instances, the agency can request a waiver to the rule; and the small business winner (the prime vendor) can supply the products of both small and large businesses to the government. This is why the NMR waiver was created.  

What is being proposed?

As a knee jerk reaction, SBA has issued public statements inaccurately claiming that the waivers to existing large contracts were inappropriately and incorrectly implemented. SBA has claimed that waivers based on a basket of sample products were indeed just waivers for the specific products analyzed. This is, at best, disingenuous. All parties to the waiver, including the SBA, the Agency, and ultimately the Prime Vendor awarded the contract, understood that the waiver was a contract waiver, not a waiver on specific sample items, or on a small portion of the contract. To imply otherwise is disingenuous, as it would be contradictory to the intent of the program; and nullifies the efficiencies intended in creating the contract vehicles in the first place. For awareness, this interpretation of the NMR waiver process is not new; many of these set-aside contracts are in their third or fourth iteration.

More specifically, the SBA is proposing to amend the rule by adding, in part, the following language:

(f) Multiple item procurements. For a multiple item procurement, a waiver must be sought and granted for each item for which the procuring agency believes no small business manufacturer or processor can reasonably be expected to offer a product meeting the specifications of the solicitation. SBA’s waiver applies only to the specific item(s) identified, not to the entire contract.

Why is this dangerous?

It is untenable and not possible for buying agencies to know and analyze every potential item that may be eventually purchased on many indefinite item contracts (think NASA SEWP; VA FSS and DLA TLS Programs). If the changes are implemented, the result will be that these contracts will not be set-aside by buying agencies simply due to the gross increase in labor these changes would require. Small business prime vendors will have to compete with the likes of SAIC and other large businesses. The manufacturers and OEMs will be more inclined to negotiate discounted prices based on volume with the larger firms. This would hurt small businesses and be detrimental to competitiveness and costs. In the long run the competition will dry up, prices will increase, and small businesses will be irreparably harmed.

If you would like to weigh in on the proposed changes, you can add your comments here. The comment period closes on 8 November 2022.