[Federal Register Volume 59, Number 186 (Tuesday, September 27, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-23831]


[[Page Unknown]]

[Federal Register: September 27, 1994]


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SMALL BUSINESS ADMINISTRATION

13 CFR Part 121

 

Small Business Size Standards; Waiver of Nonmanufacturer Rule

AGENCY: Small Business Administration.

ACTION: Final rule.

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SUMMARY: The Small Business Administration (SBA) amends its regulations 
governing waivers to its nonmanufacturer rule. In essence, this rule 
reflects more accurately the statutory language set forth in section 
8(a)(17)(B)(iv) of the Small Business Act to ensure that SBA's size 
regulations are consistent with the statute.

EFFECTIVE DATE: This rule is effective September 27, 1994.

ADDRESSES: Written comments should be addressed to David R. Kohler, 
Associate General Counsel for General Law, U.S. Small Business 
Administration, 409 3rd Street, S.W., Washington, D.C. 20416.

FOR FURTHER INFORMATION CONTACT:
John W. Klein, Chief Counsel for Special Programs, (202) 205-6645.

SUPPLEMENTARY INFORMATION: Section 210 of the Small Business 
Administration Reauthorization and Amendments Act of 1990, Public Law 
101-574, 104 Stat. 2814, 2821, revised section 8(a)(17)(B)(iv) of the 
Small Business Act (the Act), 15 U.S.C. 637(a)(17)(B)(iv), by providing 
for the possibility of a contract-specific waiver to SBA's 
nonmanufacturer rule (the requirement that, for a supply contract, a 
small business concern that is not itself the manufacturer must provide 
the product of a domestic small business manufacturer in order to be 
considered a small business). An earlier statute, the Business 
Opportunity Development Reform Act of 1988 (Pub. L. 100-656, 102 Stat. 
3853) provided for the possibility of waivers to the nonmanufacturer 
rule for classes of products for which there were no small business 
manufacturers in the federal market.
    In a final rule (the ``Rule'') published in the Federal Register on 
September 21, 1993, 58 FR 48956, SBA defined the nonmanufacturer rule 
as ``the requirement set forth in 13 CFR 121.906 and 121.1106 that a 
contractor * * * provide its own product or that of another domestic 
small business * * *'' (Emphasis added). 13 CFR 121.2102(e). The final 
rule defined the term ``Federal market'' as acquisitions by the Federal 
government from ``offerors located in the entire geographic United 
States'' or a more restricted market area. 13 CFR 121.2102(d). The 
final rule also set forth procedures for waiver of the nonmanufacturer 
rule as to classes of products. On March 18, 1994, SBA published a 
final rule amending 13 CFR 121.906 and 121.1106 to provide for a 
contract-specific waiver. 59 FR 12811. These regulations permit waivers 
of the nonmanufacturer rule for either classes of products or specific 
procurements after a determination ``that no small business 
manufacturer or processor is available to participate in the Federal 
procurement market.'' 13 CFR 121.906(b)(3) and 121.1106(b)(3). As 
further background, the prior wording of 13 CFR 121.906(b)(3) and 
121.1106(b)(3) also referred to waivers for classes of products for 
which there were no small business manufacturers or processors ``in the 
Federal market''. Thus, SBA has consistently regarded the 
nonmanufacturer rule and its waivers of that rule as involving a 
single, non-severable requirement for domestic small business 
suppliers.
    On August 30, 1994, the SBA published a proposed rule that would 
make various revisions to its section 8(a) program. 59 FR 44652. 
Included within this rule was a proposal to clarify the nonmanufacturer 
rule by specifically authorizing a small business nonmanufacturer to 
supply other than a product made in the United States for a small 
business set aside or section 8(a) contract where the procuring agency 
makes a non-availability determination under the Buy American Act and 
section 25.102(a)(4) of the Federal Acquisition Regulation (FAR), Title 
48 of the Code of Federal Regulations. Id. at 44653-54, 44659-60. This 
reference was designed to take note expressly of the separate domestic 
business requirement imposed by the Buy American Act. The proposed rule 
allowed a thirty-day comment period, or until September 29, 1994.
    After a careful legal review of Section 210 of Pub. L. 101-574 (the 
statutory provision authorizing a waiver to SBA's nonmanufacturer 
rule), its accompanying legislative history, and a written comment 
received prior to the publication of the August 30, 1994 proposed rule 
that pertains to the ``domestic'' portion of the nonmanufacturing rule, 
SBA has concluded that the correct interpretation of the Act is that a 
waiver of the nonmanufacturer rule under section 8(a)(17)(B)(iv) is a 
waiver of the entire requirement that a nonmanufacturer must supply the 
product of a domestic small business. In this regard, section 
8(a)(17)(B)(iv) of the Act states that a nonmanufacturer must ``supply 
the product of a domestic small business manufacturer or processor, 
unless [the Administrator grants] a waiver of such requirement.'' SBA 
believes that the statutory reference to ``such requirement'' relates 
to the entire requirement that, absent a waiver, a nonmanufacturer must 
supply the product of a domestic small business. A waiver issued 
pursuant to this statutory authority therefore serves to authorize a 
nonmanufacturer to supply other than the product of a domestic small 
business while still qualifying as a small business under the Act. It 
should be noted, however, that SBA's waiver of its nonmanufacturer rule 
does not waive other government-wide requirements applicable to 
government procurement, such as the Buy American Act, and any 
statements of SBA to the effect that the domestic requirement could not 
be waived by SBA were intended only to make this point.
    SBA recognizes that its current regulations may still cause some 
confusion on this point. Currently, 13 CFR 121.906(b)(1), for small 
business set asides, and 13 CFR 121.1106(b)(1), for 8(a) procurement, 
each contain a separate paragraph (iv) ostensibly suggesting that a 
nonmanufacturer must supply a product that was manufactured or produced 
in the United States regardless of whether a waiver has been granted. 
As indicated above, SBA believes that the waiver of any domestic 
manufacture requirement is statutorily contained within any waiver of 
the nonmanufacturer rule granted. These paragraphs are also 
inconsistent with the other regulatory provisions described above which 
have dealt with definitions relevant to the nonmanufacturer rule and 
its waiver.
    SBA believes clarification to its regulations is advisable to 
eliminate any such inconsistency or confusion. This final rule 
incorporates, without substantive change, the statutory language of 
section 8(a)(17)(B)(iv) of the Act into SBA's size regulations at 13 
CFR 121.906(b)(1)(iii) for small business set aside procurements and at 
13 CFR 121.1106(b)(1)(iii) for section 8(a) procurements, and 
eliminates any inconsistency in the regulations. It also adds 
clarifying language by adding new paragraphs 121.906(b)(4) and 
121.1106(b)(4) to explain that an SBA waiver of the nonmanufacturer 
rule has no effect on other laws and regulations dealing with domestic 
or foreign sources for government acquisitions which may exist outside 
the Act.
    Because the statutory requirement regarding waivers to the 
nonmanufacturer rule of section 8(a)(17)(B)(iv) of the Act is being 
implemented in this final rule, SBA believes that the portion of the 
August 30, 1994 proposed rule regarding such waivers has been 
superseded. The remainder of that proposed rule has not been affected 
by this final rule, and will be completed upon publication of a further 
final rule on revisions to the section 8(a) program.

Compliance With Executive Orders 12612, 12778, and 12866, the 
Regulatory Flexibility Act (5 U.S.C. 601, et seq.), and the Paperwork 
Reduction Act (44 U.S.C. Ch. 35)

    This rule was not reviewed under Executive Order 12866.
    SBA certifies that this final rule will not have a significant 
economic impact on a substantial number of small entities within the 
meaning of the Regulatory Flexibility Act, 5 U.S.C. 601, et seq. This 
rule is necessary to resolve a possible discrepancy between the Small 
Business Act and SBA's size regulations concerning the size eligibility 
of certain nonmanufacturers for small business set aside and section 
8(a) contracts. It will have no significant effect, however, on the 
amount or dollar value of any contract requirement or the number of 
requirements set aside for small business or the 8(a) program. As such, 
it is not likely to have an annual economic effect of $100 million or 
more, result in a major increase in costs or prices, or have a 
significant adverse effect on competition or the United States economy.
    For purposes of the Paperwork Reduction Act, 44 U.S.C. Ch. 35, SBA 
certifies that this final rule contains no new reporting or record 
keeping requirements.
    For purposes of Executive Order 12612, SBA certifies that this rule 
does not have any federalism implications warranting the preparation of 
a Federalism Assessment.
    For purposes of Executive Order 12778, SBA certifies that this rule 
is drafted, to the extent practicable, in accordance with the standards 
set forth in Section 2 of that Order.

List of Subjects in 13 CFR Part 121

    Government procurement; Government property; Grant programs--
business; Loan programs--business; Small businesses.

    For the reasons set forth above, part 121 of Title 13, Code of 
Federal Regulations, is amended as follows:

PART 121--[AMENDED]

    1. The authority citation for 13 CFR Part 121 continues to read as 
follows:

    Authority: 15 U.S.C. Secs. 632(a), 634(b)(6), 637(a) and 644(c); 
and Pub. L. 102-486, 106 Stat. 2776, 3133.

    2. Section 121.906(b)(1) is revised and (b)(4) is added to read as 
follows:


Sec. 121.906  Manufactured products under small business set-aside 
procurements.

* * * * *
    (b) * * * (1) In order to qualify as a small business, a concern 
need not be the manufacturer of the item(s) being acquired under a 
manufacturing contract, provided that the concern:
    (i) Is a small business concern under this part under a 500 
employee size standard;
    (ii) Is primarily engaged in the wholesale or retail trade; and
    (iii) Represents that it will supply the end product (as defined in 
paragraph (b)(2) of this section) of a domestic small business 
manufacturer or processor, or obtains a waiver of such requirement 
pursuant to paragraph (b)(3) of this section.
* * * * *
    (4) Any waiver of the nonmanufacturer rule granted by the 
Administrator pursuant to paragraph (b)(3) of this section has no 
effect on requirements external to the Small Business Act which involve 
domestic sources of supply, such as the Buy American Act.
* * * * *
    3. Section 121.906(b)(3) is amended by adding the word ``domestic'' 
after the words ``manufactured by a'' and before the phrase ``small 
business manufacturer.''
    4. and 5. Section 121.1106(b)(1) is revised and (b)(4) is added to 
read as follows:


Sec. 121.1106  Manufactured products under section 8(a) contracts.

* * * * *
    (b) * * * (1) In order to qualify as a small business, a concern 
need not be the manufacturer of the item(s) being acquired under a 
manufacturing contract, provided that the concern:
    (i) Is a small business concern under this part under a 500 
employee size standard;
    (ii) Is primarily engaged in the wholesale or retail trade; and
    (iii) Represents that it will supply the end product (as defined in 
paragraph (b)(2) of this section) of a domestic small business 
manufacturer or processor, or obtains a waiver of such requirement 
pursuant to paragraph (b)(3) of this section.
* * * * *
    (4) Any waiver of the nonmanufacturer rule granted by the 
Administrator pursuant to paragraph (b)(3) of this section has no 
effect on requirements external to the Small Business Act which involve 
domestic sources of supply, such as the Buy American Act.
* * * * *
    6. Section 121.1106(b)(3) is amended by adding the word 
``domestic'' after the words ``manufactured by a'' and before the 
phrase ``small business manufacturer.''

    Dated: September 20, 1994.
Erskine B. Bowles,
Administrator.
[FR Doc. 94-23831 Filed 9-26-94; 8:45 am]
BILLING CODE 8025-01-M