Overview
This section establishes the minimum self-performance requirements for small business contractors to ensure that set-aside funds primarily benefit small businesses rather than being passed through to large concerns. It also defines the "Nonmanufacturer Rule," which dictates the conditions under which a small business reseller can provide products manufactured by other firms.
Key Rules
- Subcontracting Limits by Contract Type:
- Services (except construction): The small business may not pay more than 50% of the amount paid by the Government to subcontractors that are not "similarly situated entities."
- Supplies: The small business may not pay more than 50% (excluding cost of materials) to subcontractors that are not "similarly situated entities."
- General Construction: The limit is 85% for subcontracting (the prime must perform at least 15% with its own personnel).
- Special Trade Construction: The limit is 75% for subcontracting (the prime must perform at least 25% with its own personnel).
- Similarly Situated Entities (SSE): Work performed by subcontractors with the same socioeconomic status as the prime (e.g., an 8(a) firm subcontracting to another 8(a) firm) does not count toward the subcontracting limit.
- Nonmanufacturer Rule (NMR): For supply contracts, a small business that does not manufacture the goods must provide products made by a domestic small business manufacturer unless the SBA has issued a class or individual waiver.
- NMR Eligibility: A nonmanufacturer must have fewer than 500 employees (150 for IT VARs), be primarily engaged in retail/wholesale, and take ownership or possession of the items.
- Compliance Period: Compliance is typically measured by the end of the base term and each subsequent option period, or by the end of the performance period for individual orders, at the Contracting Officer's discretion.
Practical Implications
- Small business primes must rigorously track subcontractor costs and status to ensure they do not exceed "pass-through" limits, especially when relying on "similarly situated entities" to meet performance requirements.
- Contracting Officers must conduct thorough market research to determine if an NMR waiver is necessary; if no small business manufacturers exist for a product, a waiver is required to allow a small business reseller to provide large business products.