FAR 19.102 (f): Small business - set aside - domestic, non-domestic product

Comptroller General - Key Excerpts

New AeroSage’s first argument concerns what is known as the small business nonmanufacturer rule. Ordinarily, in order to qualify as a small business concern to provide manufactured products or other supply items for a procurement assigned a manufacturing or supply NAICS code, an offeror must be the manufacturer or producer of the end item being procured. 13 C.F.R. § 121.406(a)(1). If the offeror does not manufacture the item being purchased, the nonmanufacturer rule provides that the offer of a nonmanufacturer small business concern can be considered, provided, among other things, the small business offeror represents that it will supply the product of a domestic small business manufacturer or processor, or that a waiver of this requirement is granted by the SBA. 15 U.S.C. § 637(a)(17); 13 C.F.R. § 121.406(b).

Whether the nonmanufacturer rule should be included in a procurement set aside for small businesses primarily depends on the NAICS code assigned to the procurement by the procuring agency. See BlueStar Energy Solutions, B-405690, Dec. 12, 2011, 2011 CPD ¶ 275 at 3. In this regard, “[t]he nonmanufacturer rule applies only to procurements that have been assigned a manufacturing or supply NAICS code.” 13 C.F.R. § 121.406(b)(3); see FAR § 19.303(a)(2) (“A concern that submits an offer or [quotation] for a contract where the NAICS code assigned to the contract is one for supplies, and furnishes a product it did not itself manufacture or produce, is categorized as a nonmanufacturer and deemed small if it meets the requirements of [the nonmanufacturer rule].”).

As discussed above, the agency assigned NAICS code 324110, Petroleum Refineries, to the solicitation. NAICS code 324110 falls under the subsector for petroleum and coal products manufacturing. 13 C.F.R. § 121.201. The nonmanufacturer rule therefore applies under this NAICS code. Id.; FAR § 19.102(f)(1); see RFP at 2. As discussed in a decision by the SBA Office of Hearings and Appeals, the SBA has concluded that the nonmanufacturer rule, as applied to NAICS code 324110, requires a prospective small business offeror that is not a refinery to offer the product of one or more small business refineries. See AeroSage, LLC, SBA No. SIZ-5820, Mar. 23, 2017, 2017 SBA LEXIS 29.

DLA’s set-aside determination here assumed that, in order to comply with the nonmanufacturer rule, non-refinery offerors would need to obtain fuel from small business refineries. COS/MOL at 3-4, 6-7. AeroSage argues that the market for fuel involves a mixture of “fungible” fuel that is transported through intermediaries, and that fuel is therefore not traceable to specific refineries. See Comments at 2 (“There is a six-tier logistics network for direct delivery to individual installation[s] where fungible refined fuel goes into the pipeline throughout the country not at all directly to a location nearby.”). The protester reaffirmed its belief regarding the fuel market in its response to questions from our Office. See Protester’s Response to GAO Questions (June 26, 2017) at 3 (“As indicated [in] AeroSage DLA protest records, the practical realities of the multi-tier distribution system make it so no SDVOSB has ever met the unreasonable threshold . . . documenting . . . delivery orders from a specific refinery.”). The protester therefore argues that DLA should have sought a waiver from SBA of the nonmanufacturer rule.

As our Office has explained, however, agencies are not required to seek waivers of the nonmanufacturer rule. In this regard, the FAR provides that, in a specific solicitation, a contracting officer “may request a waiver” of the requirement that products acquired under small business set-asides be manufactured by small businesses. FAR § 19.102(f)(5). Because this provision is discretionary, we have explained that an agency’s refusal to seek a waiver of the nonmanufacturer rule does not provide a basis to sustain a protest. Latvian Connection, LLC, B-412701, Apr. 22, 2016, 2016 CPD ¶ 110 at 4 n.9. We therefore find no basis to conclude that the agency was required to seek a waiver of the nonmanufacturer rule and deny this protest allegation.  (AeroSage, LLC B-414640, B-414640.3: Jul 27, 2017)

Pacific Lock protests that Chinrose will not provide a domestic end item. In this regard, the protester contends that, based on its industry knowledge, Chinrose does not manufacture locks in the United States. Protest at 4.

When a vendor responds to a solicitation by representing that it will furnish products that comply with a solicitation’s domestic production requirements, the vendor is contractually obligated to comply with such representation. Simba USA, LLC; New Western Supply, LLC, B-401971,B-401971.2, Dec. 28, 2009 2009 CPD ¶ 265 at 2. Absent a basis to question a vendor’s representation in this regard, the agency may properly rely on the representation in making its source selection decision. However, where an agency has reason to believe that the firm will not provide compliant products,the agency should go beyond the firm’s representations to verify compliance,and our Office will review a procuring agency’s actions to ensure that the agency’s assessments and conclusions were reasonable. See, e.g.,Pacific Lock Co., B-309982, Oct. 25, 2007, 2007 CPD ¶ 191 at 4; General Kinetics, Inc., Cryptek Div., B-242052.2, May 7, 1991, 91-1 CPD ¶ 445 at7.

Here, Pacific Lock has not shown that the agency had any reason to question Chinrose’s representation, given that nothing on the face of its quotation indicated that the firm would not provide a domestic part. We see no basis to question the agency’s reliance on Chinrose’s certification that it would comply with the solicitation’s requirement for a domestic part.

The protester also complains that agency extended from 90days to 180 days the time for delivery in the order issued to Chinrose. The agency responds that it extended the delivery schedule to accommodate product verification testing. We need not resolve this dispute because Pacific Lock does not show that it was prejudiced by the agency’s actions. Competitive prejudice is an essential element of a viable protest, and where the protester fails to demonstrate prejudice, our Office will not sustain a protest. SeeArmed Forces Hospitality, LLC, B-298978.2, B-298978.3, Oct.1, 2009, 2009 CPD ¶192 at 9-10; McDonald-Bradley, B-270126, Feb. 8,1996, 96-1 CPD ¶ 54 at 3. Here, Pacific Lock does not state what it would have done differently had it been aware that the agency would accept a longer delivery schedule for the locks.

The protest is denied.  (Pacific Lock Company, B-405800, December 27, 2011)  (pdf)

BOT-USA submitted a quotation for the product of a large business--Bluefin--as well as the additional work to make the Bluefin AUV meet the agency’s requirements. However, there was no valid class waiver in place exempting AUVs from the nonmanufacturer rule, and the contracting officer did not seek or obtain a special waiver. While SBA’s list includes a class waiver for NAICS 334511--the code identified in the RFQ--the waiver, by its terms, covers only “airborne integrated components”; it undisputedly does not cover nautical products such as the AUV under the RFQ, and NOAA does not now assert that the waiver extended to the AUV. See Product Service Code 5821, www.sba.gov/GC/approved.html. Since BOT-USA’s quotation, on its face, showed that it was based on an item manufactured by a large business and, as explained above, it is undisputed that the class waiver for NAICS 334511 does not extend to nautical items such as the item here, the contracting officer was or should have been aware prior to issuance of the purchase order that BOT-USA was not an eligible small business. The contracting officer asserts neither that she believed there was an applicable waiver, nor that she was confused as to the existence of such a waiver. While, in the absence of a size protest from an offeror, there is no requirement that a contracting officer refer size status questions to SBA, we will review the reasonableness of a contracting officer’s failure to do so. Jensco Marine, Inc., B‑278929.7, Feb. 11, 1999, 99-1 CPD para. 32 at 5. Under the circumstances here--where the face of BOT-USA’s quotation showed that the firm was not an eligible small business--we can only conclude that it was unreasonable for the contracting officer to accept BOT-USA’s quotation rather than refer the matter to SBA. (Hydroid LLC, B-299072, January 31, 2007) (pdf)

Our Office has held that there is no conflict in a solicitation that includes both a requirement for a domestic end item and clauses that implement the Buy American Act. TRS Research, supra, at 4 (despite presence of Buy American Act clauses, inclusion of the more stringent small business set-aside restriction to domestic sources put offerors on notice that only domestic products could be offered); MTS Sys. Corp., B-238137, Apr. 27, 1990, 90-1 CPD para. 434 at 4 (no conflict between Department of Defense clause restricting offerors to domestic sources and Buy American Act clauses allowing evaluation of foreign end products).  (Power Connector, Inc., B-285395, August 24, 2000)

Comptroller General - Listing of Decisions

For the Government For the Protester
New AeroSage, LLC B-414640, B-414640.3: Jul 27, 2017 Hydroid LLC, B-299072, January 31, 2007 (pdf)
Pacific Lock Company, B-405800, December 27, 2011  (pdf) Power Connector, Inc., B-285395, August 24, 2000
TRS Research, B-283342, November 4, 1999  


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