SBA OHA: Providing Specifications & Funding Is Not “Manufacturing”

SBA OHA: Providing Specifications & Funding Is Not “Manufacturing”

Source: SMALLGOVCON, Legal news and notes for small government contractors, Published by Steven J. Koprince, Managing Partner, Koprince Law LLC, March 24, 2015

A business was not engaged in “manufacturing” within the meaning of the SBA’s regulations where the firm provided another entity with specifications and financing, and the second entity produced the end item being acquired by the government.

As demonstrated in a recent SBA Office of Hearings and Appeals decision, being a “manufacturer” means engaging in the primary activities of transforming substances into an end item.  Merely providing specifications and financing doesn’t do the trick.

OHA’s decision in Size Appeal of Camp Noble, Inc., d/b/a 3-D Marketing, SBA No. SIZ-5644 (2015) involved a DLA RFQ for antennae.  The RFQ was issued as a small business set-aside.  Although the RFQ failed to specify a NAICS code, the SBA subsequently determined that the appropriate NAICS code was 333316 (Photographic and Photocopying Equipment Manufacturing).

Camp Noble Inc., d/b/a 3-D Marketing submitted a quotation.  In its quotation, Camp Noble stated that Antcom Corporation was the “actual manufacturer” of the antennae.

After evaluating quotations, the DLA announced that Camp Noble was the apparent successful awardee.  An unsuccessful competitor then filed a SBA size protest.  The protester alleged that Camp Noble would purchase the antennae from Antcom, which the protester contended was a subsidiary of a large business.

The SBA Area Office attempted to gather information from Camp Noble in response to the size protest, but Camp Noble failed to respond to repeated requests for information.  The Area Office, therefore, assumed that the missing information would be adverse to Camp Noble.

The SBA Area Office noted that, in order to qualify as a small business for manufactured products, the offeror must either manufacture the end item itself, or comply with the non-manufacturer rule.  In this case, the Area Office found that Antcom would manufacture the antennae based on Camp Noble’s proposal and an email between Camp Noble and the DLA.  The Area Office then found that Antcom did not qualify under the non-manufacturer rule, which requires, among other things, that the offeror supply the end item of a small business manufacturer.  The Area Office issued a size determination finding Camp Noble to be ineligible for award of the DLA contract.

Camp Noble filed a size appeal with OHA.  Camp Noble primarily argued that it should have been considered the manufacturer of the antennae.  Camp Noble stated in part, that it “brought the project to Antcom,” “gave Antcom the specifications an overall requirments for our antenna,” “financed (via amortization) the costs associated with producing our antenna,” and “spent over $50,000″ to have the antennae tested.

OHA wrote that under 13 C.F.R. § 121.406, a “manufacturer” is the concern “which, with its own facilities, performs the primary activities in transforming inorganic or organic substances, including the assembly of parts and components, into the end item being acquired.”  In this case, Camp Noble admitted that the antennae would be manufactured at Antcom’s facilities.  OHA continued:

The appeal petition emphasizes that Appellant participated in the initial design and testing of the antenna; that DLA recognizes Appellant as an approved source; and that other firms also engage subcontractors to perform manufacturing efforts. Even if true, though, these assertions are irrelevant, as they do not demonstrate that Appellant “with its own facilities, performs the primary activities in transforming inorganic or organic substances … into the end item being acquired.” 13 C.F.R. § 121.406(b)(2). In short, the record does not support Appellant’s claim that Appellant is the manufacturer of the antennae, within the meaning of 13 C.F.R. § 121.406(b)(2).

OHA denied Camp Noble’s size appeal.

It is not uncommon for a company to design and finance a product, then pay another entity to manufacture the product to the design.  In such a case, the company engaged in the design and finance may think of itself as a manufacturer.  But as the Camp Noble case demonstrates, no matter how such a firm perceives itself, it is unlikely to qualify as a manufacturer under the SBA’s regulations.



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