I am an agency Small Business Program Manager and I discovered that some of our large business prime contractors have awarded small business subcontracts using NAICS Industry Sector 42 and take small business subcontracting credit.
In addition, another large business prime contractor awarded ordering agreements specifically using 423840, “Industrial Supplies Merchant Wholesalers” to a number of small businesses (a bullpen of sorts) with orders placed through a centralized electronic catalog by several other large business prime contractors in our agency – a kind of mini-strategic sourcing approach (better volume pricing/better T&Cs/more small business credit/etc.).
However, the footnote for this industry sector states,
“(These NAICS codes shall not be used to classify Government acquisitions for supplies. They also shall not be used by Federal Government contractors when subcontracting for the acquisition for supplies. The applicable manufacturing NAICS code shall be used to classify acquisitions for supplies. A Wholesale Trade or Retail Trade business concern submitting an offer or a quote on a supply acquisition is categorized as a nonmanufacturer and deemed small if it has 500 or fewer employees and meets the requirements of 13 CFR 121.406.)”
13 CFR 121.406(e) states, “(f) These requirements do not apply to small business concern subcontractors.”
Question 1: Am I safe to assume that the non-manufacturer rule also does not apply to a large business concern’s subcontractors? That is, the large business prime contractor can take small business credit when awarding subcontracts to small business wholesalers and resellers without having to address nonmanufacturer rule requirements?
Normally, I would direct the prime contractor to identify the most applicable manufacturing code for a new requirement and go make award. However, some of these agreements cover hundreds of supply items and dozens of NAICS codes – with no dominate NAICS. The mix of supplies purchased also varies order to order, again with no one NAICS being truly dominate.
Question 2: In this scenario, could I recommend to the prime contractor that they use a more broad code such as NAICS 339999, All Other Miscellaneous Manufacturing? This approach would also ease vendor concerns about having to update their SAM records with potentially multiple manufacturing codes.
Question 3: Regarding existing subcontracted ordering agreements under Sector 42, can the prime modify the NAICS out of this sector? Cancelling existing agreements would be extremely disruptive to the industrial complex and I would rather have them repair the issues during the follow-on competitions.
Any rules, regulations or other agency examples would also be helpful. Thanks...