E8-16681. Small Business Size Standards: Waiver of the Nonmanufacturer Rule

AGENCY:

U.S. Small Business Administration.

ACTION:

Notice of Retraction or Reclassification of Waivers from the Nonmanufacturer Rule for Industry Classifications that are not manufacturing.

SUMMARY:

The U.S. Small Business Administration (SBA) is proposing the retraction or reclassification of waivers from the non-manufacturer rule that have been erroneously extended or granted to industry classifications that are not manufacturing industry classifications under the North American Industry Classification System (NAICS).

DATES:

Comments must be submitted on or before August 15, 2008.

ADDRESSES:

You may submit comments to Edith G. Butler, Program Analyst, U.S. Small Business Administration, Office of Government Contracting, 409 3rd Street, SW., Suite 8800, Washington, DC 20416. A printout of approved class waivers can be found at http://www.sba.gov/​idc/​groups/​public/​documents/​sba_​program_​office/​gc_​approved.html .

FOR FURTHER INFORMATION CONTACT:

Edith G. Butler, Program Analyst, by telephone at [phone]; by FAX at [phone]; or by e-mail at [e-mail].

SUPPLEMENTARY INFORMATION:

Section 8(a)(17) of the Small Business Act (Act), 15 U.S.C. 637(a)(17), requires that recipients of Federal contracts set aside for small businesses, service-disabled veteran-owned small businesses, or SBA's 8(a) Business Development Program provide the product of a small business manufacturer or processor, if the recipient is other than the actual manufacturer or processor of the product. This requirement is commonly referred to as the Nonmanufacturer Rule. The SBA regulations imposing this requirement are found at 13 CFR 121.406(b). Section 8(a)(17)(b)(iv) of the Act authorizes SBA to waive the Nonmanufacturer Rule for any “class of products” for which there are no small business manufacturers or processors available to participate in the Federal market.

For the purpose of waivers, a class of products is defined based on the Office of Management and Budget's NAICS codes and the General Services Administration's Product and Service Code Directory. Within each six-digit code are subdivisions of products that can be considered for waiver. A request for a waiver of a class of products should refer to a specific subdivision, or statement of product, within a six-digit code in one of these manuals. A waiver of the Nonmanufacturer Rule does not waive the entire class of products under a specific NAICS code. The class waiver waives specific products within a subdivision within a NAICS code.

Any individual or organization (government agency, business, association, etc.) may request a waiver for a class of products. The request should be in writing, addressed to the Director for Government Contracting and should specifically state the class (or classes) of products for which the waiver is sought.

The SBA defines “class of products” based on a six digit coding system. According to 13 CFR 121.1202(d), Class of products is an individual subdivision within an NAICS Industry Number as established by the Office of Management and Budget in the NAICS Manual.

According to the NAICS Manual, the Manufacturing sector (31-33) comprises establishments engaged in the mechanical, physical, or chemical transformation of materials, substances, or components into new products. The assembling of component parts of manufacturer products is considered manufacturing, except in cases where the activity is appropriately classified in Sector 23, Construction.

Manufacturing industries are classified under Sectors 31-33 of the NAICS code system. 13 CFR 121.201. SBA's regulations provide that “Procurements for supplies must be classified under the appropriate manufacturing NAICS code, not under the wholesale trade NAICS code.” 13 CFR 121.404(a). A wholesaler or retailer can qualify as a small business on a manufacturing procurement by qualifying as a non-manufacturer. To qualify as a non-manufacturer, the retailer or wholesaler must supply the product of a small business unless a waiver has been granted. 13 CFR 121.406. A waiver can be granted if there are no small business manufacturers.

Thus, any solicitation for a manufactured product must have a manufacturing NAICS code, and SBA will use the manufacturing NAICS code to determine whether a waiver should be granted for a specific procurement. Further, in order to grant a class waiver for a particular product, SBA would use the manufacturing NAICS code to search for small business manufacturers, not a wholesale or retail NAICS code to search for retailers or wholesalers. Thus, any waiver from the non-manufacturer rule for a supply contract would be granted based on the applicable manufacturing NAICS code, and would apply to allow non-manufacturers, i.e., retailers or wholesalers, to qualify as small businesses on a small business program set-aside contract.

SBA is proposing to change the class waiver from the non-manufacturer rule for Product Service Code (PSC) 2620 (Tires and Tubes Pneumatic Aircraft) under NAICS codes 441320 (Tire Dealers) and 421130. NAICS 421130 was converted to NAICS code 423130 (Tire and Tube Merchant Wholesalers) when the government converted from the 1997 NAICS to the 2002 NAICS. NAICS 441320 is a retail NAICS code, and NAICS code 423130 is a wholesale NAICS code. The waiver from the non-manufacturer rule for PSC 2620 was improperly granted based on Standard Industrial Classification (SIC) code 5014 in 1992. (57 FR 6569, May 18, 1992). SIC code 5014 was a wholesale SIC code. The proper SIC code would have been SIC code 3011 (Tires and Inner Tubes), which corresponds to NAICS code 326211 (Tire Manufacturing (except Retreading)). Thus, for PSC 2620 we are proposing to change the corresponding NAICS code from NAICS 441320 and 421130 to NAICS code 326211.

On October 21, 2005, SBA proposed to waive the nonmanufacturer rule for Household Refrigerator Equipment. (70 FR 61322, November 15, 2005). SBA did not identify a PSC, and identified the applicable NAICS code as 335522, which does not exist. The proper manufacturing NAICS code would have been NAICS 335222, Household Refrigerator and Home Freezer Manufacturing. The proper PSC would be 7320, Kitchen Equipment & Appliances. However, when SBA finalized the waiver, it changed the NAICS code to 423620, which is a wholesaler NAICS code. (70 FR 69373, November 15, 2005). Thus, we are proposing to change the NAICS code corresponding to the waiver for Household Refrigerator Equipment, PSC 7320, to NAICS code 335222.

On September 26, 2005, SBA proposed to waive the nonmanufacturer rule for Commercial Refrigeration Equipment. (70 FR 56204, November 15, 2005). SBA identified the NAICS code as 423740, a wholesale NAICS code, and did not identify a PSC. SBA finalized the waiver on November 15, 2005. (70 FR 69372, November 15, 2005). Thus, we are proposing to waive the non-manufacturer rule for Commercial Refrigerator Equipment and identify the PSC as 4110, Refrigeration Equipment, under NAICS code 333415, Commercial Refrigeration Equipment Manufacturing.

On November 3, 2005, SBA proposed to waive the nonmanufacturer rule for office supplies, paper and toner. (70 FR 66889, January 12, 2006). SBA did not identify a PSC.

SBA identified the applicable NAICS codes as 424120, Stationary and Office Supplies Merchant Wholesalers; 339940, which does not exist; 325132, Synthetic Organic Dye and Pigment Manufacturing; 325992, Photographic Film, Paper, Plate, and Chemical Manufacturing; 322231, Die-Cut Paper and Paperboard Office Supplies Manufacturing; and 453210, Office Supplies and Stationary Stores. When SBA finalized the rule, it did not reference NAICS code 325132. (71 FR 2102, January 12, 2006). NAICS code 424120 is a wholesale code, NAICS code 453210 is a retail NAICS code, and 339940 does not exist, because there are more specific NAICS codes that describe products under that subsector. Thus, SBA is proposing to identify the applicable PSC as 7510, Office Supplies, and limit applicability to NAICS codes 325992 and 322231.

In Summary, the SBA is proposing to change the NAICS code for PSC 2620 (Tires and Tubes Pneumatic Aircraft) from NAICS codes 441320/421130 to 326211; Identify the waiver for Commercial Refrigeration Equipment as PSC 4110 (Refrigeration Equipment), and change the NAICS code from 423740 to 333415; change the NAICS code for the waiver for Household Refrigerator Equipment, PSC 7320, from NAICS 424120 to NAICS code 335222; and delete references to NAICS codes 453210, 339940, and 424120 from the waiver from the nonmanufacturer rule for Office Supplies, Paper & Toner.

The public is invited to provide comments to SBA on the proposed retraction or reclassification of products under the above mentioned class of NAICS codes within 15 days after date of publication in the Federal Register.

Authority: 15 U.S.C. 634.

Dated: July 15, 2008.

Karen C. Hontz,

Director for Government Contracting.