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An Easily Misunderstood Decision

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Don Mansfield

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In B&B Medical Services, Inc.; Rotech Healthcare, Inc.; B-404241, B-404241.2, (January 19, 2011), the Comptroller General held that the statutory nonmanufacturer rule does not apply to procurements set aside for Historically Underutilized Business Zone (HUBZone) small business concerns. The decision contains the following analysis:

The statutory non-manufacturer rule is set forth in 15 U.S.C. ? 637(a)(17)(A) and states as follows:

An otherwise responsible business concern that is in compliance with the requirements of subparagraph (B) shall not be denied the opportunity to submit and have considered its offer for any procurement contract for the supply of a product to be let pursuant to this subsection or subsection (a) of section 644 of this title solely because such concern is other than the actual manufacturer or processor of the product to be supplied under the contract.

15 U.S.C. ? 637(a)(17)(A) (2006). Thus, by the plain language of the statute, the statutory non-manufacturer rule applies only to ?contracts . . . let pursuant to? ? 637(a) or ? 644(a) of title 15. Id.

Section 637(a) provides the authority for agencies to conduct section 8(a) sole source procurements and section 8(a) competitive procurement set-asides. 15 U.S.C. ? 637(a)(16) (providing for sole source awards to section 8(a) companies); 15 U.S.C. ? 637(a)(1)(D) (providing for set-asides for section 8(a) companies in competitive procurements). Section 644(a) provides the authority for general small business set-asides, which do not include HUBZone set-asides. See Mission Critical Solutions, B-401057, May 4, 2009, 2009 CPD ? 93 at 3-4 (recognizing 15 U.S.C. ? 657a, not ? 644(a), as the statutory provision authorizing contracts to be set aside for HUBZone business concerns); Mission Critical Solutions v. United States, No. 09?864C at 12 (Fed. Cl. Mar. 2, 2010) (same); 67 Fed. Reg. 3826, 3831 (January 28, 2002) (setting forth SBA?s long-standing view that the statutory non-manufacturer rule applies only in connection with a section 8(a) or small business set aside contract, not in connection with a HUBZone procurement); 69 Fed. Reg. 29411, 29415 (May 24, 2004) (same).

Thus, the statutory non-manufacturer rule applies only to section 8(a) procurements and competitive procurements set aside for small business concerns, generally.7 The procurement at issue here is a HUBZone set-aside issued pursuant to ? 31(B) of the Small Business Act (15 U.S.C. ? 657a). Since the contract here is not awarded pursuant to 15 U.S.C. ? 637(a) or 15 U.S.C. ? 644(a), it is not covered by the statutory non-manufacturer rule. Because the statutory non-manufacturer rule does not apply to this solicitation, the Court of Federal Claims decision in Rotech Healthcare Inc., 71 Fed. Cl. 393 (2006) is inapplicable; that case involved solicitations that were set aside for small business.

The analysis is technically correct?the statutory nonmanufacturer rule does not apply to HUBZone set-asides. Reading this analysis, one may conclude that, for HUBZone set-asides, HUBZone small business nonmanufacturers need not provide end items that were produced by HUBZone small business concerns. However, that would be incorrect.

While it is true that the statutory nonmanufacturer rule does not apply to HUBZone set-asides, the regulatory nonmanufacturer rule does. The Small Business Administration (SBA), the agency with the authority to implement the HUBZone Program, has imposed a nonmanufacturer rule applicable to HUBZone small business concerns at 13 CFR 126.601:

(f) A qualified HUBZone SBC may submit an offer on a HUBZone contract for supplies as a nonmanufacturer if it meets the requirements of the nonmanufacturer rule set forth at ?121.406(B)(1) of this chapter, and if the small manufacturer providing the end item for the contact is also a qualified HUBZone SBC.

(1) There are no waivers to the nonmanufacturer rule for HUBZone contracts.

(i) SBA will not issue contract-specific waivers as it does for small business set-aside and 8(a) contracts under ?121.406(B)(3)(i) of this chapter.

(ii) Class waivers issued under ?121.406(B)(3)(ii) of this chapter do not apply to HUBZone contracts.

(2) For HUBZone contracts at or below $25,000 in total value, a qualified HUBZone SBC may supply the end item of any manufacturer, including a large business, so long as the product acquired is manufactured or produced in the United States.

This rule is implemented in the FAR at 19.1303(e) and the clauses at FAR 52.219-3(e) and FAR 52.219-4(f).

It?s remarkable that the GAO decision makes no mention of the regulatory nonmanufacturer rule. Perhaps the GAO limited its decision to the arguments that were made by the parties. If that?s the case, then it?s remarkable that the protesters would limit their argument to the applicability of the statutory nonmanufacturer rule to HUBZone set-asides without mentioning the HUBZone nonmanufacturer rule at 13 CFR 126.601(f). It wouldn?t have made a difference in the outcome of the protest?the requirement in question was determined to be a service by the SBA under an earlier NAICS code appeal. As such, the applicability of the statutory nonmanufacturer rule to the acquisition was a moot point.

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