The Ins & Outs of the Koprince Nonmanufacturer Rule Law … · Application of the Nonmanufacturer...
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Transcript of The Ins & Outs of the Koprince Nonmanufacturer Rule Law … · Application of the Nonmanufacturer...
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
The Ins & Outs of the Nonmanufacturer Rule
National Veterans Small Business Engagement
November 1-3, 2016Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Presentation Overview
Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Presentation Overview
• Nonmanufacturer Rule Overview
• Application of the Nonmanufacturer Rule
• SBA Nonmanufacturer Rule Waivers & Exceptions
• Kit AssemblersKoprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Non-Manufacturer Rule Overview
Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Nonmanufacturer Rule Overview
• Many Government contracts are issued as set-asides • Set-asides may be for small businesses or for certain
subcategories of small businesses, including SDVOSB, VOSB, HUBZone, WOSB and 8(a).
• All set-aside contracts contain certain “performance of work” or “limitation on subcontracting” requirements– Example: VAAR 852.219-10(c) requires, for an SDVOSB set-
aside for general construction, that SDVOSBs perform at least 15% of the cost of the contract incurred for personnelKoprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Nonmanufacturer Rule Overview
• When a set-aside contract is designated with a manufacturing (product/supply) NAICS code, the prime contractor is only eligible for award if:
– The prime contractor will not pay more than 50% of the amount paid by the government to firms that are not similarly situated, or
– The prime contractor qualifies as a nonmanufacturerKoprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Nonmanufacturer Rule Overview
• Being a “nonmanufacturer” means much more than “not manufacturing” the goods being ordered
• Four factors must be satisfied in order to qualify as a non-manufacturer
– See 13 C.F.R. 121.406
Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Nonmanufacturer Rule Overview
• First, the prime contractor cannot exceed 500 employees.– Employee count is determined using the formula set forth in 13
C.F.R. 121.106
– Most SDVOSB/VOSB resellers have little difficulty meeting this requirement
Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Nonmanufacturer Rule Overview
• Second, the prime contractor must be “primarily engaged in the retail or wholesale trade and normally sell the type of item being supplied.”
– Best practice: ensure that there is evidence of regularly selling item being acquired (See Size Appeal of Ira Green Inc., SBA No. SIZ-5287 (2011))Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Nonmanufacturer Rule Overview
• Third, the prime contractor must “[take] ownership or possession of the item(s) with its personnel, equipment, or facilities in a manner consistent with industry practice.” – Legal possession without physical possession (e.g., drop shipping)
is acceptable. See Size Appeal of Wear Mark Inc., SBA No. SIZ-5402 (2012). Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Nonmanufacturer Rule Overview
• Fourth, the prime contractor must “supply the end item of a small business manufacturer, processor or producer made in the United States, or [obtain] a waiver of such requirement.”
• Bottom line: in the absence of a SBA waiver or exception, a small business cannot supply the manufactured product of a large business on a set-aside contract designated with a manufacturing NAICS code. Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Nonmanufacturer Rule Overview
• Don’t forget the “domestic” component
– Size Appeal of Novex Enters., SBA No. SIZ-5637 (2013): company could not qualify as nonmanufacturer because end products would be manufactured in Turkey
Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Nonmanufacturer Rule Overview
• The HUBZone Program:– To qualify as a HUBZone as a nonmanufacturer, the
small business manufacturer must also be a HUBZone company (FAR 19.1303(e))
– Exception: for HUBZone contracts at or below $25,000, “a HUBZone small business concern may supply the end item of any manufacturer, including a large business, so long as the product is manufactured or produced in the United States” (FAR 19.1303(e)(2))
Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Application of the Non-Manufacturer Rule
Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Application of the Nonmanufacturer Rule
• SBA: the nonmanufacturer rule “applies only to procurements that have been assigned a manufacturing or supply NAICS code.”
• SBA: if a contract is classified as a services or construction contract, but has a supply component, the prime contractor need not comply with the non-manufacturer rule for that component.Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Application of the Nonmanufacturer Rule
• Rotech Healthcare Inc. v. United States, No. 14-502C (2014): Court holds that nonmanufacturer rule applies to all NAICS codes.
• 2016 NDAA: overturned Rotech Healthcare case and applies nonmanufacturer rule only to manufacturing/supply contracts. Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Application of the Nonmanufacturer Rule
• Compliance with the nonmanufacturer rule is determined “as of the date of the final proposal revision for negotiated procurements and final bid for sealed bidding.”
• A prime contractor cannot retroactively become compliant after submission of final proposals. SeeSize Appeal of Rich Chicks, LLC, SBA No. SIZ-5556 (2014). Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Application of the Nonmanufacturer Rule
• Compliance can be evaluated throughout the course of performance.– Third Coast Fresh Distribution, LLC, ASBCA No. 59696
(2016): awardee intended to comply with non-manufacturer rule at time of proposal, but found it “economically infeasible” to do so during performance
– ASBCA upholds agency’s decision to terminate contract for default for failure to actually comply with NMRKoprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Nonmanufacturer Rule Waivers
Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Nonmanufacturer Rule Waivers
• Exemption (not a waiver): Nonmanufacturer rule does not apply to small business set-aside contracts valued between $3,000 and $150,000– This change took effect June 30, 2016– SBA believes it will “spur small business competition” by
making it more likely that Contracting Officers will issue small business set-asides
– Previous exemption was $25,000– NMR does apply to socioeconomic set-asides in these ranges
(including SDVOSB and VOSB)Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Nonmanufacturer Rule Waivers
• SBA can waive fourth nonmanufacturer rule requirement (supply the end product of a domestic small business) so long as other three factors are met
• SBA waivers may be issued as “individual” or “class”
• There are no NMR waivers in the HUBZone program because end manufacturer must be a HUBZone (FAR 19.303(e)(1))Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Nonmanufacturer Rule Waivers
• The SBA may issue an individual waiver where “the contracting officer has determined that no small business manufacturer or processor reasonably can be expected to offer” a conforming product
• The Contracting Officer asks for the waiver; only the SBA can grant the waiver
• A contractor cannot ask for an individual waiverKoprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Nonmanufacturer Rule Waivers
• The SBA may issue a class waiver where it “determines that no small business manufacturer of the product or class or products is available to participate in the Federal procurement market”
• Anyone can request a class waiver—but they take considerable time to be evaluated
• Current list of class waivers available at: https://www.sba.gov/content/non-manufacturer-waiversKoprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Nonmanufacturer Rule Waivers
• Once granted, a class waiver has no specific time limitation
• However, the SBA will periodically review the existing class waivers to determine whether small businesses have become available to participate in the Federal marketKoprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Nonmanufacturer Rule Waivers
• If a procurement seeks multiple items and some of them are waived, but some not, “more than 50% of the value of the products to be supplied by the nonmanufacturer that are not subject to a waiver must be the products of one or more domestic small business manufacturers or processors.”Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Nonmanufacturer Rule Waivers
• Effective June 30, 2016: Contracting Officers must notify prospective offerors of any waivers that will be applied to the procurement.
– Notification must be given “at the time a solicitation is issued.”
Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Kit Assemblers
Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Kit Assemblers
• Where government seeks a kit of supplies or goods manufactured by different companies and assembled for a special purpose, a unique rule applies.
• A “kitter” qualifies as a nonmanufacturer so long as:
– It is under 500 employees
– 50 percent of the total value of the components of the kit is manufactured by small businesses in the United StatesKoprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Kit Assemblers
• Unlike a typical non-manufacturer, a kitter need only show that 50% of the value of its products comes from small businesses
• Additionally, if the solicitation specifies an item for the kit not produced by U.S. small businesses, the item is excluded from the 50% calculation Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
Kit Assemblers
• Size Appeal of B GSE Group, LLC, SBA No. SIZ-5679 (2015): SBA Office of Hearings and Appeals rejects argument that purchasing parts and assembling them is the delivery of a “kit”
• SBA OHA holds that a kit is a collection of items sourced from multiple suppliers, such as tool kits Koprince Law LLC 2016
Steven Koprince785-200-8919
www.koprince.comwww.smallgovcon.comTwitter @StevenKoprince
For More Information
Steven J. Koprince
Managing Partner
(785) 200-8919
Visit www.smallgovcon.com to sign up for our free monthly electronic newsletterKoprince Law LLC 2016