DoD Proposes to Apply Non-Manufacturer Rule to All 8(a) Contracts

April 5, 2019

By Samuel S. Finnerty

Nearly three years ago, the U.S. Small Business Administration (“SBA”) issued a final rule that standardized the limitations on subcontracting and the non-manufacturer rule (“NMR”) that apply to small business concerns, including participants in SBA’s 8(a) Business Development Program. In a step toward regulatory conformity, the Department of Defense (“DoD”) is now proposing to implement the revised NMR for 8(a) participants that contract with DoD. These entities should familiarize themselves with the proposed rule (“Rule”), which is summarized below.

As a brief background, the NMR allows a small business to supply products it did not manufacture—serving as an exception to the general rule for small business set-asides (other than construction or service contracts) that a prime contractor supplying products is required to cover at least fifty percent (50%) of the cost of manufacturing those products. Under SBA’s current rules, which implemented Section 1651 of the National Defense Authorization Act for Fiscal Year 2013, the NMR applies to 8(a) contracts awarded at any dollar value. As it stands, however, the Defense Federal Acquisition Regulation Supplement (“DFARS”) clause 252.219-7010, “Notification of Competition Limited to Eligible 8(a) Concerns—Partnership Agreement,” provides an exemption from the NMR for 8(a) contracts valued at or below $25,000.00 and awarded under simplified acquisition procedures. Currently, for these contracts, an 8(a) participant may offer end items manufactured or produced by any domestic firm.

DoD’s proposed Rule would remove that exemption from DFARS 252.219-7010. Consequently, if the Rule is enacted, the NMR will apply to 8(a) DoD contracts awarded at any dollar value, and 8(a) participants that are nonmanufacturers will be required to offer end items manufactured, processed, or produced by small business concerns in the United States or its outlying areas. The only exception to this rule would be where SBA has granted a waiver in accordance with 13 C.F.R. § 121.1204.

In analyzing the impact of the Rule, DoD noted that it awarded contracts for products (i.e., contracts to which the NMR would apply) to an average of 285 8(a) participants each year during fiscal year 2016 through fiscal year 2018. Approximately ninety (90) of those 8(a) participants were awarded contracts at or below $25,000, using simplified acquisition procedures. Therefore, DoD estimates that roughly ninety (90) 8(a) participants could be impacted by the Rule.

DoD has invited and will be accepting comments to the Rule, provided they are received on of before May 31, 2019. Instructions on where and how to submit comments can be found here.

If you would like to know more about the Rule and its potential impact on your company or industry, please contact PilieroMazza, and one of our government contracts attorneys will be happy to assist you.

About the Author: Sam Finnerty is an associate with PilieroMazza in the Government Contracts Group. He may be reached at sfinnerty@pilieromazza.com.
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