There is an aphorism that goes “Buyer Beware”; time-honored sage advice to be sure. But perhaps a new aphorism is in order for the Federal marketplace: “Seller Beware.”
Many vendors and contractors selling to the Federal Government under contracts awarded under some type of small business set-aside are frequently unaware of an important requirement tucked neatly away in set-aside clauses. This requirement is set forth as portion of the clause which normally begins with the word “Agreement.”
As an example, Federal Acquisition Regulation (FAR) Clause 52.219-5, Notice of Total Small Business Set-Aside (Nov 2011), contains the following as part of the clause:
“(d) Agreement. A small business concern submitting an offer in its own name shall furnish, in performing the contract, only end items manufactured or produced by small business concerns in the United States or its outlying areas. If this procurement is processed under simplified acquisition procedures and the total amount of this contract does not exceed $25,000, a small business concern may furnish the product of any domestic firm. This paragraph does not apply to construction or service contracts.”
So why do set-aside clauses contain such an agreement? The answer is simple: The Small Business Administration’s (SBA) Nonmanufacturer Rule, often referred to as “NMR.” (Ref: 13 C.F.R. Section 121.406(b)).
In brief, the NMR requires small businesses receiving awards under the various set-asides used in government procurements, to provide their own product, or that of another domestic small business manufacturer or processor, unless SBA has granted an individual waiver to NMR for the procurement, or the procurement is covered by a class waiver to the NMR, also issued by SBA, and the contracting officer uses the class waiver.
The NMR also addresses how nonmanufacturers may qualify as a small business concern for a requirement to provide manufactured products or other supply items as a nonmanufacturer as well as for Kit Assemblers.
Unfortunately, all too often companies rely on the fact the government issued and awarded the procurement using small business set-aside procedures believe they are somehow protected or immunized from the consequences of non-compliance. The agreement provision in the various set-aside clauses can only be waived by an SBA issued waiver for an individual procurement, or when the contracting officer uses an existing class waiver. Unless the procurement is covered by an SBA waiver.
SBA amended its regulations in 2016 indicating the NMR does not apply to procurements between $3,500 and $150,000. However, the FAR still sets the applicability threshold for NMR at $25,000.
Non-compliance with NMR can have significant consequences for a company, ranging from contract enforcement actions to potential liability under the False Claims Act (FCA). FCA looms large these days as increasingly more qui tam lawsuits are being filed under FCA by disgruntled and former employees, and even a company’s competitors, as the person bringing the qui tam lawsuit can receive a lucrative payout.
Other set-aside clauses contain agreements relating to the NMR as well. Please be sure to thoroughly review the requirements of the set-aside clause(s) under which you are submitting an offer.
Sellers Beware! Protect your company by ensuring absolute compliance with NMR. Centre Law and Consulting offers a comprehensive 90-minute webinar on the NMR to help small businesses mitigate vulnerabilities in this area and to fully understand the requirements of NMR and ensure their compliance.
Best wishes for every continued success in the Federal Marketplace!