Although seemingly straightforward, a NAICS code selection for a federal government contract can fundamentally impact the competitive pool. As a gatekeeper of sorts, NAICS codes dictate what type of firms can compete for work and whether a firm is small for a given federal set-aside contract.
Some contractors may think that they simply have to live with the selected NAICS code. Not so. A NAICS code can always be challenged at the SBA’s Office of Hearings and Appeals.
For the uninitiated—and if you’re reading this you’re probably not one of those—NAICS stands for North American Industry Classification System. This system, developed by the Census Bureau, classifies industries by sectors and subsectors using six digit numeric codes. These codes come into play in federal government contracting through solicitations set aside for any type of small business. In those procurements, the contracting officer has a duty to assign the NAICS code that best describes the procurement. And for every NAICS, SBA has assigned a size standard, either monetary (e.g., $30 million) or employee-based (e.g., 1000 employees). Those firms falling under the small standard are small; those exceeding are large and ineligible for set-aside work.
So, what happens if the contracting officer picks the wrong NAICS code, or you believe that another fits the procurement better? That’s where the NAICS appeal comes in.
Let’s first address timing. One must file a NAICS code within 10 days after the solicitation is issued (or a solicitation amendment affecting the NAICS code). So lesson one: if you want to challenge a NAICS code, don’t delay. You must quickly act after the agency releases the solicitation.
Another important consideration is the standard used by OHA to determine NAICS codes: clear error of fact or law. Using this standard, OHA will assess whether contracting officer’s choice made sense. Typically, OHA will only change the NAICS code if its strongly feels that the chosen NAICS code does not suit the procured work. Even if OHA would have selected a different NAICS code for the procurement, that isn’t necessarily enough. The decision to apply a certain NAICS code must be defective; otherwise, OHA will defer to the contracting officer.
That’s not to say that NAICS code appeals are not worth it. On the contrary, OHA does grant these appeals when an error is clearly apparent, sometimes adopting the appellant’s advocated NAICS code, other times selecting an entirely different NAICS code.
Normally, a firm appeals a NAICS code because the associated size standard renders the firm ineligible for the procurement. So, for example, let’s say a CO assigns NAICS code 541310 (Architectural Services), which carries an $8 million size standard, to a procurement. An engineering firm, with a $10 million size standard, might challenge the NAICS code arguing that the procurement, in reality, should be classified under NAICS code 541330 (Engineering Services), which carries a size standard $16.5 million. If the engineering firm convinced OHA that the CO made a clear error in assigning 541310 (Architectural Services), then–poof!–the firm would suddenly become an eligible small business. Why? Because NAICS code 541330’s size standard is significantly higher than NAICS code 541310’s.
But let’s say that Contracting Officer has selected a broad code, such as Facilities Support Services, which carries a size standard of $41.5 million, but the work is merely for janitorial services (which has a much smaller $19.5 million standard). This means that a specialist perfect for the work will have to compete with much larger businesses with, frankly, much more play in the financial joints. Sounds fundamentally unfair and anti-competitive right? Maybe someone should challenge the decision.
In short, keep the idea of a NAICS code in your back pocket. There may be certain procurements where a NAICS appeal make sense—especially where the CO’s choice is questionable and you stand a good shot at winning the procurement if OHA changes the NAICS code.
We have considerable experience in counseling clients about NAICS code appeals and pursuing them at OHA. So, if you’d to talk more about appealing a certain NAICS code designation, give us a call at 913-354-2630.