Business Regulation and Consumer Protection:

Waivers of the Small Business Administration's Nonmanufacturer Rule Have Limited Effect

GAO-03-311R: Published: Dec 19, 2002. Publicly Released: Jan 22, 2003.

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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. 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. 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. GAO reviewed (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 available for use during fiscal year 2001 and the dollar amount of fiscal year 2001 obligations that resulted from those waivers. SBA approved 23 individual waivers of the nonmanufacturer rule in fiscal year 2001. Sixteen of the waivers were used on ten 8(a) contracts with a total of $6.3 million in fiscal year 2001 obligations. The remaining seven waivers either did not result in 8(a) contracts during fiscal year 2001 or did not involve fiscal year 2001 funds. SBA approved one class waiver in fiscal year 2001, and there were 84 other class waivers still in effect from prior years. Five of these 85 class waivers resulted in contracts with $20.5 million in fiscal year 2001 obligations. The other 80 approved class waivers were not used on 8(a) contracts during fiscal year 2001. In total, GAO identified $27 million in fiscal year 2001 obligations for contracts covered by individual or class waivers.

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