Tualatin Federal Solutions

What a veteran-owned reseller can and cannot supply on a set-aside

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A veteran-owned reseller can supply almost any commercial product on a small business set-aside of $350,000 or less. On SDVOSB and VOSB set-asides, the nonmanufacturer rule usually limits it to small US manufacturers' products or items SBA has waived. This guide from Tualatin Federal Solutions explains why software is the hard case.

First, the two certifications

SBA certifies both kinds of veteran-owned firm through its VetCert program:

  • VOSB. A small business "Not less than 51 percent owned and controlled by one or more veterans who reside in the United States."
  • SDVOSB. The same test for service-disabled veterans, meaning veterans registered with the VA's Veterans Benefits Administration "as a service-disabled veteran."

A firm must be certified "in order to be awarded a VOSB or SDVOSB set-aside or sole source contract," and recertifies "every 3 years" (13 CFR part 128). SBA says certified SDVOSBs compete for set-asides "across the federal government," while certified VOSBs have additional set-aside opportunities at the Department of Veterans Affairs.

The nonmanufacturer rule in four tests

When a set-aside buys products, a firm that did not make them is a nonmanufacturer. Under 13 CFR 121.406(b), it qualifies only if it:

  1. has 500 or fewer employees (150 under the IT value-added reseller exception to NAICS 541519),
  2. "Is primarily engaged in the retail or wholesale trade and normally sells the type of item being supplied,"
  3. "Takes ownership or possession of the item(s)," and
  4. "Will supply the end item of a small business manufacturer, processor or producer made in the United States, or obtains a waiver."

Test 4 decides most software buys, because most of the software buyers ask for comes from large publishers. Certified veteran firms follow the same rule: a certified VOSB or SDVOSB nonmanufacturer may offer on a VOSB or SDVOSB supply contract "if it meets the requirements of the non-manufacturer rule" (13 CFR 128.401(c)).

Where the rule applies

Where the nonmanufacturer rule applies
Set-asideDoes the rule apply?Source
Small business, over $15,000 and up to $350,000No, and neither do the limits on subcontracting13 CFR 121.406(c)
Small business, over $350,000YesFAR 19.505
SDVOSB set-aside or sole source at a non-VA agency (FAR subpart 19.14)Yes, "regardless of dollar value"FAR 19.505
VA SDVOSB or VOSB set-aside or sole sourceYes, "above the micro-purchase threshold," with a signed certificateVAAR 819.7003(d), 852.219-76

At the VA, the offeror certifies compliance on VAAR 852.219-76, and that certification is "subject to Title 18, United States Code, Section 1001," the federal false statements law.

Why software is the hard case

No class waiver. A class waiver is SBA's standing exception for a whole category of products. SBA's list, the June 2022 edition that the FAR and SBA both point to, includes "Commercially available off-the-shelf laptop and tablet computers," data processing storage and input/output devices, computer printers, PBX equipment and data communications equipment such as routers. It has no software row, and the newest Federal Register notice titled "Class Waiver of the Nonmanufacturer Rule" is from May 23, 2022.

Individual waivers are narrow. SBA "may grant an individual waiver for the procurement of software" that is "of a type customarily used by the general public," "sold in substantial quantities in the commercial marketplace," and offered "without modification" (13 CFR 121.1203(g)(1)). The waiver "applies only to the contract for which it is granted" (121.1203(d)).

Subscriptions never qualify. "Subscription services, remote hosting of software, data, or other applications on servers or networks of a party other than the U.S. Government are considered by SBA to be services," so SBA "will not grant waivers of the nonmanufacturer rule for these types of services" (121.1203(g)(3)).

SEWP VI does not cover it either. SEWP VI's list of technical areas with nonmanufacturer waivers leaves out "Software and Cloud Technology" (Technical Area 8a).

The 50% line for mixed orders

"If at least 50% of the estimated contract value is composed of items that are manufactured by small business concerns, then a waiver of the nonmanufacturer rule is not required," and if more than half comes from other-than-small manufacturers, "a waiver is required" (13 CFR 121.406(d)). For a nonmanufacturer, the limits on subcontracting are met when small US manufacturers' items plus waived items "account for at least 50% of the value of the contract" (13 CFR 125.6).

A worked example: $100,000 of one large publisher's licenses

Worked example: $100,000 of licenses
The set-asideCan a veteran-owned reseller supply it?
Small business set-aside, $100,000Yes. Between $15,000 and $350,000 the rule does not apply.
SDVOSB set-aside at a non-VA agencyOnly if the solicitation says SBA granted an individual waiver for that product.
VA SDVOSB or VOSB set-asideSame, plus the signed VA certificate.
SDVOSB set-aside, no waiver: $60,000 large-publisher licenses plus $40,000 from a small US publisherNo. $40,000 is 40%, under the 50% line. With a waiver on the $60,000 line, it works.
The same buy as a subscriptionTreated as a service. On an SDVOSB or VA set-aside, passing most of the price to the large provider would break the 50% services limit.

What a veteran-owned reseller can supply well

  • Any publisher's product on small business set-asides of $350,000 or less, on open-market buys and on purchase card buys.
  • Hardware covered by class waivers (laptops, tablets, storage devices, printers, routers) on veteran set-asides, if it meets the other three tests.
  • Software from small US publishers, on any set-aside.
  • Large-publisher software on a veteran set-aside when the solicitation states that SBA granted a waiver for it.

What a buyer can do before posting the requirement

  • Read the NAICS code. SBA says software buys that may need a waiver "should be classified under" 513210.
  • If a veteran set-aside must include a large publisher's software, plan the waiver early: FAR 19.505 sends requests "via email to nmrwaivers@sba.gov," and a waiver cannot be applied unless the contracting officer gives notice and "additional reasonable time for responses when required" (13 CFR 121.1206(b)).
  • Under $350,000, a small business set-aside lets any small reseller, veteran-owned or not, supply the brand you need without a waiver.

Where we stand

We are not SBA-certified yet. We say SDVOSB only if SBA certifies it. Before we quote a set-aside, we tell you which case above applies. See how to buy from us and our answers to common questions.

Questions buyers ask

Does the nonmanufacturer rule apply to VOSB set-asides outside the VA?

Government-wide VOSB set-asides do not exist outside the VA: SBA describes VOSB opportunities as additional set-asides at the Department of Veterans Affairs, while SDVOSB set-asides run across the federal government. At the VA, VAAR 819.7003(d) applies the nonmanufacturer rule to all SDVOSB and VOSB set-aside and sole source contracts above the micro-purchase threshold.

Can a veteran-owned reseller sell Microsoft or Adobe licenses on an SDVOSB set-aside?

Only with an SBA waiver for that contract, or when products from small US manufacturers make up at least half of the order. SBA's class waiver list has no software row, so a large publisher's licenses need an individual waiver that the contracting officer requests. Subscriptions cannot be waived at all, because SBA treats them as services.

What should a contracting officer check before setting aside a software buy?

Check the NAICS code (513210 for software that may need a waiver), whether the buy is licenses or subscriptions, and whether a small US publisher could meet the need. Under $350,000, a small business set-aside avoids the nonmanufacturer rule. For a veteran set-aside, plan any waiver request and its notice early.

Sources

Planning a set-aside? Ask us before you write it, read about buying software with a purchase card, or browse all our guides.