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GAO-03-311R 1 (2002-12-19)

handle is hein.gao/gaocrptapfs0001 and id is 1 raw text is: I ~G A 0 Accountability * Integrity * Reliability United States General Accounting Office Washington, DC 20548 December 20, 2002 The Honorable Christopher S. Bond Ranking Minority Member Committee on Small Business and Entrepreneurship United States Senate Subject: Waivers of the Small Business Administration's Nonmanufacturer Rule Have Limited Effect Dear Senator Bond: Under section 8(a) of the Small Business Act, the Small Business Administration (SBA) conducts a program for developing small businesses that are owned by socially and economically disadvantaged individuals. Participants can receive contracts under acquisitions that federal agencies offer to the 8(a) program as well as business development assistance from SBA. In fiscal year 2001, there were 5,110 small businesses that participated in the program. A firm that receives a supply contract under the 8(a) program or a small business set aside can be either a manufacturer or a nonmanufacturer of a product. Under SBA's rules, however, a nonmanufacturer who receives one of these contracts must agree to supply the product of a domestic small manufacturer or processor. This nonmanufacturer rule is one key mechanism for ensuring that procurement dollars under the 8(a) program and small business set-asides are spent on products made by small businesses. 2 SBA can waive this requirement when there are no small manufacturers or processors available to supply the product. There are two types of waivers to the nonmanufacturer rule: (1) individual waivers, which apply only to a specific contract and are effective for the life of that contract, and (2) class waivers, which apply to categories of items and continue in effect unless revoked by SBA. Once a waiver of the nonmanufacturer rule is approved, a firm may supply the product of a large manufacturer. In response to your concern about the extent waivers of the nonmanufacturer rule may be resulting in 8(a) procurement dollars going to firms that are not small businesses, we determined: (1) the number of individual waivers SBA approved in fiscal year 2001 and the dollar amount of fiscal year 2001 contract obligations that resulted from those waivers, and (2) the number of class waivers 1 A nonmanufacturer is also required to be small and a regular dealer primarily engaged in the retail or wholesale trade. 2 Section 303(h) of P.L. 100-656 and section 210 of P.L. 101-574 incorporated the nonmanufacturer rule and the waiver provision into the Small Business Act. The nonmanufacturer rule applies only to contracts that exceed $25,000. For contracts at or below that amount, an eligible 8(a) firm is not required to supply the product of a small business. In January 2002, SBA published a proposed rule that would raise the threshold to $100,000. As of November 2002, the final rule had not been published. GAO-03-311R Nonmanufacturer Rule Waivers Page 1

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