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Martin

Buying Software under Small Business Set-Asides

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What self-performance requirements must a firm meet in order to provide "pre-packaged" software under a small business set-aside?

By "pre-packaged" think of a firm selling / licensing software that is available in the commercial marketplace (think Microsoft Office or similar).

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I worked in an IT procurement shop for 16 months, so I may be able to help, but I'm confused by the phrase "self-performance requirements". Could you shed some light?

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Jonfucius:

FAR 52.219-14©

By submission of an offer and execution of a contract, the Offeror/Contractor agrees that in performance of the contract in the case of a contract for --

(1) Services (except construction). At least 50 percent of the cost of contract performance incurred for personnel shall be expended for employees of the concern.

(2) Supplies (other than procurement from a nonmanufacturer of such supplies). The concern shall perform work for at least 50 percent of the cost of manufacturing the supplies, not including the cost of materials.

(3) General construction. The concern will perform at least 15 percent of the cost of the contract, not including the cost of materials, with its own employees.

(4) Construction by special trade contractors. The concern will perform at least 25 percent of the cost of the contract, not including the cost of materials, with its own employees.

If you consider pre-packaged software to be a manufactured product or other supply item and purchasing from a nonmanufacturer see also 13 CFR 121.406. Price of the software exceeds $25,000.

Would you classify pre-packaged software as a service or as a supply? What NAICS code would you use?

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Look into NAICS 541519 and see if that fits your acquisition.

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Jonfucius:

541519 under the VAR (150 employee size standard) - I am not buying any services, just software. The purchase does not meet the requirements of footnote 18 of the SBA Table of Small Business Size Standards.

Would you classify buying pre-packaged software as a service under NAICS code 541519 (subject to the $27.5 million size standard)?

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Unfortunately I'm not sure if I can answer your question. I'm hoping another, more experienced forum member can weigh in, because I'd like to see what they say.

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As for the NAICS quesiton, try 334614 - Software and other prerecorded compact disc, tape, and record reproducing.

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Martin, to answer your original question, there are no self-performance requirements for nonmanufacturers if the software is manufactured by a small business. Otherwise, either more than 50-percent of the total value needs to be performed by a small business or the SBA provides a waiver to the non-manufacturer rule. See FAR 19.102(f)(2):

FAR Section 19.102(f)(2) states:
"(f) Any concern submitting a bid or offer in its own name... that proposes to furnish an end product it did not manufacture (a "nonmanufacturer"), is a small business if it has no more than 500 employees, and...
(2) A concern which purchases items and packages them into a kit is considered to be a nonmanufacturer small business and can qualify as such for a given acquisition if it meets the size qualifications of a small nonmanufacturer for the acquisition, and if more than 50 percent of the total value of the kit and its contents is accounted for by items manufactured by small business."

Note: FAR Clause 52.219-14, Limitations on Subcontracting, paragraph (b )(2) includes an exception for nonmanufacturers.

SBA Size Standard Guidance concerning Footnote 18 that speaks to NAICS 541519 for IT VARs (with a size standard of 150 people) may have led to confusion. There is a formula for determining whether a firm falls within this NAICS code: If they provide "value-added services" between 15 to 49-percent" of the end-product (link: http://www.sba.gov/sites/default/files/files/Size_Standards_Table.pdf). FAR 19.102 is based upon statute, whereas the SBA Size Standard is just guidance. The SBA Size Standard does not have the authority to override the nonmanufacturer rule.

As for which NAICS code to use, I have seen COs use several codes for software (334614, 423430, 519130, 541519, and 551210). Take a look at those NAICS codes and pick the one you think fits the best. I have always classified software as you described as a supply.

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mettec:

I was aware of the calculations for the IT VAR. At least 15% and no more than 50% of value added services as measured by the total price less the cost of information technology hardware, computer software, and profit per footnote 18. My comment in regards to footnote 18 was to clarify that I am only buying software and as such cannot take advantage of the flexibilities afforded under the IT Value Added Reseller approach.

The reason for my post is a somewhat recent interaction I had with the SBA. I tried obtaining an individual waiver of the non-manufacturer rule from the SBA for the purchase of software licenses. At first I classified the procurement under NAICS code 511210 (Software Publishers, Packaged). The SBA responded that it was not a manufacturing NAICS code and as such a NMR waiver could not be processed. I then changed the NAICS to 334614, to which the SBA responded that designing developing and publishing software is a service, not manufacturing.

Just venting a bit, but while the SBA rules are relatively straightforward when dealing with services and “tangible” products they are a mess to apply in the case of software. After all, is software really manufactured as described in 13 CFR 121.406 ( b ) ( 2 ) and FAR 19.102( f )( 1 )?

Maybe I should have argued that the software was initially developed by a US small business concern and this small business subsequently sold the rights to commercialize the product to a large business (i.e. other than a small business concern). While we are acquiring a license to use the software from a large business the actual “manufacturer” was a small business concern and as such a NMR waiver is not required. The again, I should have stayed away from a small business set-aside and gone out unrestricted.

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The[n] again, I should have stayed away from a small business set-aside and gone out unrestricted.

An alternative approach would be to use a Government-Wide Acquisition Contract like NASA SEWP or GSA Alliant and take advantage of their small business only contracts.

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An alternative approach would be to use a Government-Wide Acquisition Contract like NASA SEWP or GSA Alliant and take advantage of their small business only contracts.

SEWP can be more convenient than GSA, since they can add products and services to their contracts as needed, usually within a business day. If you want to know more about using SEWP, send me a private message.

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You gave an example of Microsoft Office. Obviously, that is not the product of a small business manufacturer. If the acquisition exceeds $25k, you will need to apply the Non-Manufacturer Rule (FAR 19.502-2 ( c )).

Now if your scenario is for something other than Microsoft Office, the post by Metteec could apply.

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Question on this topic:

Reviewing the Non-Manufacturer Waiver list it seems like it would be tough to keep up to date. The Government standardizes on specific IT Platforms/Models for specific functions such as Firewalls or other COTS products that are included in the architecture and then could/would use small business acquisition vehicles to procure it.

is there some sort of master statement that says if the Government is buying "OEM Name-brand product" in the procurement that the requirement for any kind of manufacture waiver is not needed? For example- if the Government standardizes on Cisco Firewall XYZ (Specific model platform example) and wanted to procure it small business set aside would a waiver really be needed? Because Cisco makes Cisco Firewall XYZ and the Government is not shopping for a new brand.

Just curious for any thoughts on the topic.

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There is no exception to the waiver process to the non-manufacturer rule based upon specific software OEMs. Some agencies may be successful in seeking individual waivers for specific software brands. The intent of the non-manufacturer waiver is to prevent a large business from rebranding its products/services as a small business to compete with other small businesses. If you have a brand name justification stating that only a certain large business-manufactured IT product can meet the needs of the Government, and a non-manufacturer waiver does not exist, then a small business set-aside is not appropriate.

An alternative would be to work with your SBA representative to establish an individual waiver to the non-manufacturer rule and set-aside a class of acquisitions exclusively to small business concerns (see FAR Section 19.503).

As I mentioned in Post #10, there is a way to circumvent the non-manufacturer rule for IT products, and still conduct your acquisition as a small business set-aside. NASA SEWP set-aside contracts are a great source for Cisco hardware and software. In the case of a small business set-aside GWAC, a non-manufacturer waiver is not required by the ordering contracting office provided the fair opportunity requirements are met.

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Oh but wouldn't it make sense for SBA to add most IT software and hardware to the waiver list for the entire Federal Government and eliminate another paperwork mill. Congress and the Executive Branch keep adding more and more tasks for COs to do. We need to eliminate useless work.

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Agree with Boof.

The SBA proposed rule posted Dec 29 tries to clarify self-performance requirements for software under small business set-asides.

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