In order to qualify as a small business concern for a small business set-aside or 8(a) contract to provide manufactured products, an offeror must either:
(1) Be the manufacturer of the end item being procured (and the end item must be manufactured or produced in the United States); or
(2) Comply with the requirements of paragraph (b), (c) or (d) of this section as a nonmanufacturer, a kit assembler or a supplier under Simplified Acquisition Procedures.
(1) A concern may qualify for a requirement to provide manufactured products as a nonmanufacturer if it:
(i) Does not exceed 500 employees;
(ii) Is primarily engaged in the wholesale or retail trade and normally sells the items being supplied to the general public; and
(iii) Will supply the end item of a small business manufacturer or processor made in the United States, or obtains a waiver of such requirement pursuant to paragraph (b)(3) of this section.
(2) For size purposes, there can be only one manufacturer of the end item being acquired. The 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. The end item must possess characteristics which, as a result of mechanical, chemical or human action, it did not possess before the original substances, parts or components were assembled or transformed. The end item may be finished and ready for utilization or consumption, or it may be semifinished as a raw material to be used in further manufacturing. Firms which perform only minimal operations upon the item being procured do not qualify as manufacturers of the end item. SBA will evaluate the following factors in determining whether a concern is the manufacturer of the end item:
(i) The proportion of total value in the end item added by the efforts of the concern, excluding costs of overhead, testing, quality control, and profit; and
(ii) The importance of the elements added by the concern to the function of the end item, regardless of their relative value.
(3) The Administrator or designee may waive the requirement set forth in paragraph (b)(1)(iii) of this section under the following two circumstances:
(i) The contracting officer has determined that no small business manufacturer or processor reasonably can be expected to offer a product meeting the specifications (including period for performance) required by a particular solicitation and SBA reviews and accepts that determination; or
(ii) SBA determines that no small business manufacturer or processor of the product or class of products is available to participate in the Federal procurement market.
(4) The two waiver possibilities identified in paragraph (b)(3) of this section are called "individual" and "class" waivers respectively, and the procedures for them are contained in Sec. 121.1204
(5) Any SBA waiver of the nonmanufacturer rule has no effect on requirements external to the Small Business Act which involve domestic sources of supply, such as the Buy American Act.
(c) Kit assemblers.
(1) Where the manufactured item being acquired is a kit of supplies or other goods provided by an offeror for a special purpose, the offeror cannot exceed 500 employees, and 50 percent of the total value of the components of the kit must be manufactured by business concerns in the United States which are small under the size standards for the NAICS codes of the components being assembled. The offeror need not itself be the manufacturer of any of the items assembled.
(2) Where the Government has specified an item for the kit which is not produced by U.S. small business concerns, such item shall be excluded from the calculation of total value in paragraph (c)(1) of this section.
(d) Simplified Acquisition Procedures.
Where the procurement of a manufactured item is processed under Simplified Acquisition Procedures, as defined in Sec. 13.101 of the Federal Acquisition Regulation (FAR) (48 CFR 13.101), and where the anticipated cost of the procurement will not exceed $25,000, the offeror need not supply the end product of a small business concern as long as the product acquired is manufactured or produced in the United States, and the offeror does not exceed 500 employees. The offeror need not itself be the manufacturer of any of the items acquired.
Source: Code of Federal Regulations, Title 13, Volume 1, Revised as of January 1, 2003, Part 121 - Small Business Size Regulations, Subpart A - Size Eligibility Provisions and Standards, Size Eligibility Requirements for Government Procurement