How Section 1611 of the NDAA Will Help Supply Chain Businesses

There is a very little understood aspect of Section 1611 of the National Defense Authorization Act that has some fairly important implications for those heavily involved in the logistics and supply chain, especially those who supply lots of small things to the federal government.

Let’s suppose you want to supply the government with hardware equipment – hammers, nails, etc. Clearly, you’re not the manufacturer of all those things. You rely on various companies across your supply chain to manufacture all sorts of things – one company makes the hammer, another makes screws, while another might make fancy saws.

When you submit your supplier prices to the government under one of the GSA multiple award schedules or any contract award, you are, in general, required to obtain the permission of the manufacturer to offer this as a pricing program to the federal government. The purpose of this provision is to prevent circumstances whereby the middle man is getting in the way of the government from buying directly from the manufacturer and perhaps buying it cheaper.

Supply chain or large-scale logistics programs that fall within certain NAICS codes are exempt from this manufacturing provision, and do not have to obtain permission from the manufacturers. However, this has changed recently as the small business administration SBA has begun to consolidate NAICS codes and redefine things to make them more responsive to how the government is actually buying stuff. Some large-scale procurement companies that have been exempt have now been moved into NAICS codes that are not exempt, placing a very onerous burden on those involved.

Section 1611 of the National Defense Authorization Act includes provisions that re-exempt businesses within the supply chain NAICS codes from the manufacturing permission requirement.

This is all part of the NDAA that is being debated as we move towards sequestration and the fiscal cliff resolutions. How will it all turn out? You have a say in that!

For large businesses who are still required to ask permission of manufacturers before submitting their pricing in a bid to the federal government, there is another option that is relevant to small businesses. If you’re a large business, your requirements are specified as “full and open” – open to everyone – however in order for the government to continue to achieve it’s small business goals, a certain percentage (currently 23%, hopefully rising to 25%) of contracts must be set-aside for small business.

When large and small businesses team up to pitch for contracts, the large business can take advantage of the less onerous documentation requirements got plans that combine a lead contractor and a sub-contractor. This makes a major difference and makes teaming with a small business much more attractive for the supply chain suppliers that have all of a sudden lost their exemption as described above.