The nonmanufacturer rule is the reason a dealer can be the low, responsive bidder on a federal small business set-aside for commercial treadmills and still lose the award. The rule does not ask who sells the equipment. It asks who built the end item, and whether that builder is a small business and the item itself was made in the United States.
For a commercial fitness dealer that question lands in the middle of a quote. A dealer that resells rather than manufactures depends on whoever built the line it quotes, and a commercial cardio or selectorized strength line may be built by a company far larger than a small business, or built outside the United States. That combination can disqualify an otherwise compliant offer unless the Small Business Administration has waived the requirement for the class of product or for that one contract.
The rule is not new, but the dollar line beneath it moved. A Federal Acquisition Regulation final rule published on August 27, 2025 raised the simplified acquisition threshold from $250,000 to $350,000 and the micro-purchase threshold from $10,000 to $15,000, effective October 1, 2025. The adjustment is the periodic inflation update required by 41 U.S.C. 1908, and it moved a band of equipment packages out of the rule’s reach entirely.
What the nonmanufacturer rule requires
SBA’s guidance for contracting officials states the duty in one line: when a small business receives a set-aside award but does not manufacture what it sells, “it must supply the products of another small business that’s manufactured in the United States.” SBA applies the rule to the 8(a), HUBZone, service-disabled veteran-owned and women-owned small business programs as well as to small business set-asides.
The regulation sits at 13 C.F.R. 121.406(b)(1). A firm may qualify as a small business concern “for a requirement to provide manufactured products” “or other supply items as a nonmanufacturer if it” meets four conditions, which the published regulation text lists in this order.
- Size. The firm “Does not exceed 500 employees.” This is an alternative standard for nonmanufacturers and is separate from the size standard tied to the dealer’s own primary industry code.
- Trade. The firm “Is primarily engaged in the retail or wholesale trade and normally sells the type of item being supplied.” A dealer that has never sold the product category is exposed here.
- Possession. The firm “Takes ownership or possession of the item(s) with its personnel, equipment or facilities” “in a manner consistent with industry practice.” Factory-direct drop shipments deserve a hard look against this condition.
- Domestic small-business end item. The firm “Will supply the end item of a small business manufacturer, processor or producer made in the United States” “or obtains a waiver of such requirement pursuant to paragraph (b)(5) of this section.”
Condition four is where commercial fitness bids break. The dealer can be small, long established in the category, and willing to receive, stage and install the units, and still fail because the line on the quote is built by a large manufacturer or built abroad.
Where the nonmanufacturer rule stops
Two thresholds decide whether the requirement reaches a given solicitation. Under 13 C.F.R. 121.406(c), the limitations on subcontracting, the ostensible subcontractor rule and the nonmanufacturer rule “do not apply to small business set-aside acquisitions with an estimated value” “between the micro-purchase threshold and the simplified acquisition threshold.” On the acquisition side, FAR 19.505(a)(1) says the section “applies to small business set-asides above the simplified acquisition threshold,” and FAR 19.505(a)(2) applies it regardless of dollar value to certain awards under FAR subparts 19.8, 19.13, 19.14 and 19.15, the socioeconomic programs.
Read together, those provisions mean a small business set-aside sized between $15,000 and $350,000 generally sits outside the nonmanufacturer rule, while a set-aside above $350,000 generally sits inside it, and a socioeconomic program award can sit inside it at a much lower value. Confirm the applicable threshold in the solicitation rather than from the estimate on a buyer’s email, because the estimated value in the solicitation is what the clauses key to.
| Estimated value of a small business set-aside | General treatment under 13 C.F.R. 121.406(c) and FAR 19.505 | What it means for the quote |
|---|---|---|
| At or below $15,000 | Micro-purchase range; the cited exemption is written for values between the two thresholds | Price normally and read the solicitation for any origin clause |
| Between $15,000 and $350,000 | Exempt from the limitations on subcontracting, the ostensible subcontractor rule and the nonmanufacturer rule | Any compliant line may be quoted, subject to other origin terms |
| Above $350,000 | Section applies to small business set-asides | The end item must come from a small domestic manufacturer, or a waiver must cover it |
| Socioeconomic program awards | FAR 19.505(a)(2) applies the section regardless of dollar value for the listed subparts | Check the rule even on a small 8(a), HUBZone, SDVOSB or WOSB order |
Class waivers and individual waivers
Where the specified line is not the end item of a small business manufacturer made in the United States, 13 C.F.R. 121.406(b)(1)(iv) leaves a waiver as the route to a compliant offer, and it is not something a dealer can grant itself. Section 121.406(b)(5) provides that “The Administrator or designee may waive the requirement set forth in paragraph (b)(1)(iv) of this section,” and (b)(6) notes that “The two waiver possibilities identified in paragraph (b)(5) of this section are called” “‘individual’ and ‘class’ waivers respectively.”
According to SBA’s guidance, a class waiver may issue when no small business manufacturer has submitted, performed or been awarded an offer for a class of products within the previous two years. Anyone may request one, and a request should carry market research showing the effort made to find a small business manufacturer. A class waiver stays in place until SBA finds that small business manufacturers have become available for the class.
An individual waiver is narrower. SBA’s guidance says it may issue when no small business manufacturer can meet a specific contract’s requirements, that only a contracting officer may request it, that the request must include a determination and a summary of market research, that the waiver must be used within one year of issuance, and that it is contract-specific and expires at the end of the contract.
The procedural point that matters most to a bidder is in FAR 19.505(c)(4)(iv): “The contracting officer shall provide potential offerors with written notification of any class or individual waiver” in the solicitation, and if that notice arrives after the solicitation is issued, offerors are to be allowed a reasonable additional time to respond. A solicitation that is silent on waivers is telling a dealer something, and a dealer that assumes a waiver exists is pricing on an assumption it cannot document.
A worked example, with the assumptions stated
The figures below are assumptions chosen to show the arithmetic, not industry averages. Assume a small dealer with 40 employees is looking at two solicitations in the same month. Both are small business set-asides for cardio equipment, both specify a line built by a manufacturer with 3,000 employees, and the dealer would receive, stage and install the units with its own crew.
| Assumption | Solicitation A | Solicitation B |
|---|---|---|
| Estimated value stated in the solicitation | $310,000 | $640,000 |
| Set-aside type | Small business set-aside | Small business set-aside |
| Dealer employees | 40 | 40 |
| Manufacturer employees | 3,000 | 3,000 |
| End item built in the United States | Yes | Yes |
| Rule generally reaches the award | No, value sits between the two thresholds | Yes, value sits above $350,000 |
| Practical result | Quote the specified line | Quote only if a class or individual waiver covers it, or do not bid |
The pair is worth internalizing because the two bids look identical on a pipeline report. The difference is one number in the solicitation, and it decides whether the dealer’s usual line card is usable at all. The same discipline applies when quoting against a GSA schedule contract, where the Trade Agreements country-of-origin clause governs instead.
Seven checks before you price a federal set-aside
- Read the set-aside type and the estimated value together. Record both in the bid file, because they decide whether the nonmanufacturer rule applies at all.
- Search the solicitation for waiver language. FAR 19.505(c)(4)(iv) requires written notification of any class or individual waiver, so its absence is information.
- Confirm the manufacturer’s size for the specific end item. Ask for the employee count or receipts the manufacturer would certify to, not a marketing statement about being family owned.
- Confirm where the end item is made, model by model. A brand can build some frames domestically and import others in the same catalog.
- Document your own nonmanufacturer standing. Keep evidence that the firm is under 500 employees, normally sells the category, and takes possession with its own people and facilities.
- Decide the drop-ship question in writing. If the plan is factory-direct delivery, write down how the possession condition is satisfied in a manner consistent with industry practice.
- Ask the contracting officer before bid, not after award. A clarification question costs nothing; an award unwound on protest costs the proposal, the freight plan and the relationship.
Warning signs in a solicitation
- A brand-name specification with no equal alternative, paired with a set-aside above the simplified acquisition threshold and no waiver notice.
- A buyer who answers an origin question with a statement about the dealer’s own small business status, which is a different question.
- A line card letter that confirms authorized dealer status but says nothing about the manufacturer’s size or the country of manufacture.
- An estimated value just above $350,000 on a package the buyer describes as routine, which is exactly where the rule starts to apply.
- A solicitation that cites domestic-content terms from another regime, such as Build America Buy America requirements on grant-funded equipment, as if they settled the small business manufacturer question. They do not.
Records that decide a protest
Keep the solicitation, the amendment history, any waiver notice, the manufacturer’s written statement of size and country of manufacture, the bill of lading showing who took possession, and the installation record showing whose crew performed the work. Build this file while quoting, the way a disciplined bid team already builds a compliance matrix before pricing an institutional bid. A protest is decided on documents that existed before award.
One last caution on marketing language. Satisfying condition four is a procurement determination about the manufacturer’s size and the place of manufacture. It is not permission to describe the equipment to commercial buyers in origin terms the FTC’s Made in USA label conditions would not support. Two different agencies, two different tests, and a dealer can pass one while failing the other.
The practical takeaway is small and cheap to adopt. Before a federal quote leaves the building, write the set-aside type, the estimated value, the manufacturer’s size, the country of manufacture and any waiver citation on one line at the top of the bid file. If any of the five is blank, the quote is not ready, and a contracting officer is generally the fastest way to fill the gap. Rules and thresholds change, so confirm current requirements with counsel familiar with federal procurement before relying on a threshold in a live bid.
