Small Business Size Standards; Waiver of Nonmanufacturer Rule

SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

Small Business Size Standards; Waiver of Nonmanufacturer Rule

AGENCY: Small Business Administration.

ACTION: Final rule.

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SUMMARY: The Small Business Administration (SBA) amends its regulations

governing waivers to its nonmanufacturer rule. In essence, this rule

reflects more accurately the statutory language set forth in section

8(a)(17)(B)(iv) of the Small Business Act to ensure that SBA's size

regulations are consistent with the statute.

EFFECTIVE DATE: This rule is effective September 27, 1994.

ADDRESSES: Written comments should be addressed to David R. Kohler,

Associate General Counsel for General Law, U.S. Small Business

Administration, 409 3rd Street, S.W., Washington, D.C. 20416.

FOR FURTHER INFORMATION CONTACT:

John W. Klein, Chief Counsel for Special Programs, (202) 205-6645.

SUPPLEMENTARY INFORMATION: Section 210 of the Small Business

Administration Reauthorization and Amendments Act of 1990, Public Law

101-574, 104 Stat. 2814, 2821, revised section 8(a)(17)(B)(iv) of the

Small Business Act (the Act), 15 U.S.C. 637(a)(17)(B)(iv), by providing

for the possibility of a contract-specific waiver to SBA's

nonmanufacturer rule (the requirement that, for a supply contract, a

small business concern that is not itself the manufacturer must provide

the product of a domestic small business manufacturer in order to be

considered a small business). An earlier statute, the Business

Opportunity Development Reform Act of 1988 (Pub. L. 100-656, 102 Stat.

3853) provided for the possibility of waivers to the nonmanufacturer

rule for classes of products for which there were no small business

manufacturers in the federal market.

In a final rule (the ``Rule'') published in the Federal Register on

September 21, 1993, 58 FR 48956, SBA defined the nonmanufacturer rule

as ``the requirement set forth in 13 CFR 121.906 and 121.1106 that a

contractor * * * provide its own product or that of another domestic

small business * * *'' (Emphasis added). 13 CFR 121.2102(e). The final

rule defined the term ``Federal market'' as acquisitions by the Federal

government from ``offerors located in the entire geographic United

States'' or a more restricted market area. 13 CFR 121.2102(d). The

final rule also set forth procedures for waiver of the nonmanufacturer

rule as to classes of products. On March 18, 1994, SBA published a

final rule amending 13 CFR 121.906 and 121.1106 to provide for a

contract-specific waiver. 59 FR 12811. These regulations permit waivers

of the nonmanufacturer rule for either classes of products or specific

procurements after a determination ``that no small business

manufacturer or processor is available to participate in the Federal

procurement market.'' 13 CFR 121.906(b)(3) and 121.1106(b)(3). As

further background, the prior wording of 13 CFR 121.906(b)(3) and

121.1106(b)(3) also referred to waivers for classes of products for

which there were no small business manufacturers or processors ``in the

Federal market''. Thus, SBA has consistently regarded the

nonmanufacturer rule and its waivers of that rule as involving a

single, non-severable requirement for domestic small business

suppliers.

On August 30, 1994, the SBA published a proposed rule that would

make various revisions to its section 8(a) program. 59 FR 44652.

Included within this rule was a proposal to clarify the nonmanufacturer

rule by specifically authorizing a small business nonmanufacturer to

supply other than a product made in the United States for a small

business set aside or section 8(a) contract where the procuring agency

makes a non-availability determination under the Buy American Act and

section 25.102(a)(4) of the Federal Acquisition Regulation (FAR), Title

48 of the Code of Federal Regulations. Id. at 44653-54, 44659-60. This

reference was designed to take note expressly of the separate domestic

business requirement imposed by the Buy American Act. The proposed rule

allowed a thirty-day comment period, or until September 29, 1994.

After a careful legal review of Section 210 of Pub. L. 101-574 (the

statutory provision authorizing a waiver to SBA's nonmanufacturer

rule), its accompanying legislative history, and a written comment

received prior to the publication of the August 30, 1994 proposed rule

that pertains to the ``domestic'' portion of the nonmanufacturing rule,

SBA has concluded that the correct interpretation of the Act is that a

waiver of the nonmanufacturer rule under section 8(a)(17)(B)(iv) is a

waiver of the entire requirement that a nonmanufacturer must supply the

product of a domestic small business. In this regard, section

8(a)(17)(B)(iv) of the Act states that a nonmanufacturer must ``supply

the product of a domestic small business manufacturer or processor,

unless [the Administrator grants] a waiver of such requirement.'' SBA

believes that the statutory reference to ``such requirement'' relates

to the entire requirement that, absent a waiver, a nonmanufacturer must

supply the product of a domestic small business. A waiver issued

pursuant to this statutory authority therefore serves to authorize a

nonmanufacturer to supply other than the product of a domestic small

business while still qualifying as a small business under the Act. It

should be noted, however, that SBA's waiver of its nonmanufacturer rule

does not waive other government-wide requirements applicable to

government procurement, such as the Buy American Act, and any

statements of SBA to the effect that the domestic requirement could not

be waived by SBA were intended only to make this point.

SBA recognizes that its current regulations may still cause some

confusion on this point. Currently, 13 CFR 121.906(b)(1), for small

business set asides, and 13 CFR 121.1106(b)(1), for 8(a) procurement,

each contain a separate paragraph (iv) ostensibly suggesting that a

nonmanufacturer must supply a product that was manufactured or produced

in the United States regardless of whether a waiver has been granted.

As indicated above, SBA believes that the waiver of any domestic

manufacture requirement is statutorily contained within any waiver of

the nonmanufacturer rule granted. These paragraphs are also

inconsistent with the other regulatory provisions described above which

have dealt with definitions relevant to the nonmanufacturer rule and

its waiver.

SBA believes clarification to its regulations is advisable to

eliminate any such inconsistency or confusion. This final rule

incorporates, without substantive change, the statutory language of

section 8(a)(17)(B)(iv) of the Act into SBA's size regulations at 13

CFR 121.906(b)(1)(iii) for small business set aside procurements and at

13 CFR 121.1106(b)(1)(iii) for section 8(a) procurements, and

eliminates any inconsistency in the regulations. It also adds

clarifying language by adding new paragraphs 121.906(b)(4) and

121.1106(b)(4) to explain that an SBA waiver of the nonmanufacturer

rule has no effect on other laws and regulations dealing with domestic

or foreign sources for government acquisitions which may exist outside

the Act.

Because the statutory requirement regarding waivers to the

nonmanufacturer rule of section 8(a)(17)(B)(iv) of the Act is being

implemented in this final rule, SBA believes that the portion of the

August 30, 1994 proposed rule regarding such waivers has been

superseded. The remainder of that proposed rule has not been affected

by this final rule, and will be completed upon publication of a further

final rule on revisions to the section 8(a) program.

Compliance With Executive Orders 12612, 12778, and 12866, the

Regulatory Flexibility Act (5 U.S.C. 601, et seq.), and the Paperwork

Reduction Act (44 U.S.C. Ch. 35)

This rule was not reviewed under Executive Order 12866.

SBA certifies that this final rule will not have a significant

economic impact on a substantial number of small entities within the

meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. This

rule is necessary to resolve a possible discrepancy between the Small

Business Act and SBA's size regulations concerning the size eligibility

of certain nonmanufacturers for small business set aside and section

8(a) contracts. It will have no significant effect, however, on the

amount or dollar value of any contract requirement or the number of

requirements set aside for small business or the 8(a) program. As such,

it is not likely to have an annual economic effect of $100 million or

more, result in a major increase in costs or prices, or have a

significant adverse effect on competition or the United States economy.

For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA

certifies that this final rule contains no new reporting or record

keeping requirements.

For purposes of Executive Order 12612, SBA certifies that this rule

does not have any federalism implications warranting the preparation of

a Federalism Assessment.

For purposes of Executive Order 12778, SBA certifies that this rule

is drafted, to the extent practicable, in accordance with the standards

set forth in Section 2 of that Order.

List of Subjects in 13 CFR Part 121

Government procurement; Government property; Grant programs--

business; Loan programs--business; Small businesses.

For the reasons set forth above, part 121 of Title 13, Code of

Federal Regulations, is amended as follows:

PART 121--[AMENDED]

1. The authority citation for 13 CFR Part 121 continues to read as

follows:

Authority: 15 U.S.C. Secs. 632(a), 634(b)(6), 637(a) and 644(c);

and Pub. L. 102-486, 106 Stat. 2776, 3133.

2. Section 121.906(b)(1) is revised and (b)(4) is added to read as

follows:

Sec. 121.906 Manufactured products under small business set-aside

procurements.

* * * * *

(b) * * * (1) In order to qualify as a small business, a concern

need not be the manufacturer of the item(s) being acquired under a

manufacturing contract, provided that the concern:

(i) Is a small business concern under this part under a 500

employee size standard;

(ii) Is primarily engaged in the wholesale or retail trade; and

(iii) Represents that it will supply the end product (as defined in

paragraph (b)(2) of this section) of a domestic small business

manufacturer or processor, or obtains a waiver of such requirement

pursuant to paragraph (b)(3) of this section.

* * * * *

(4) Any waiver of the nonmanufacturer rule granted by the

Administrator pursuant to paragraph (b)(3) of this section has no

effect on requirements external to the Small Business Act which involve

domestic sources of supply, such as the Buy American Act.

* * * * *

3. Section 121.906(b)(3) is amended by adding the word ``domestic''

after the words ``manufactured by a'' and before the phrase ``small

business manufacturer.''

4. and 5. Section 121.1106(b)(1) is revised and (b)(4) is added to

read as follows:

Sec. 121.1106 Manufactured products under section 8(a) contracts.

* * * * *

(b) * * * (1) In order to qualify as a small business, a concern

need not be the manufacturer of the item(s) being acquired under a

manufacturing contract, provided that the concern:

(i) Is a small business concern under this part under a 500

employee size standard;

(ii) Is primarily engaged in the wholesale or retail trade; and

(iii) Represents that it will supply the end product (as defined in

paragraph (b)(2) of this section) of a domestic small business

manufacturer or processor, or obtains a waiver of such requirement

pursuant to paragraph (b)(3) of this section.

* * * * *

(4) Any waiver of the nonmanufacturer rule granted by the

Administrator pursuant to paragraph (b)(3) of this section has no

effect on requirements external to the Small Business Act which involve

domestic sources of supply, such as the Buy American Act.

* * * * *

6. Section 121.1106(b)(3) is amended by adding the word

``domestic'' after the words ``manufactured by a'' and before the

phrase ``small business manufacturer.''

Dated: September 20, 1994.

Erskine B. Bowles,

Administrator.

[FR Doc. 94-23831 Filed 9-26-94; 8:45 am]

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