Perhaps the Department of Education took a cue from Congress, which has a reputation for kicking the can down the road, delaying major decisions until after elections (or month-long recesses). In a recent SBA Office of Hearings and Appeals NAICS code appeal decision, ED decided to forego picking a NAICS code until after contract award.
SBA OHA was having none of it, and ED’s own lawyers even agreed–an agency’s NAICS code designation cannot be delayed until contract award.
A federal regulation states that NAICS code appeals are timely if filed within ten business days. So why was one small business’s NAICS code appeal dismissed even though it filed the appeal within the time period called for by the regulation?
According to SBA OHA, the regulation was erroneous, and the actual NAICS code appeal deadline is ten calendar days. I don’t know about you, but to me, the result doesn’t seem particularly fair to the contractor.
NAICS code appeals can be powerful competitive weapons–either shrinking or expanding the competitive playing field if they are successful. Sometimes, simply filing a NAICS code appeal can convince the procuring agency that the wrong NAICS code was assigned, leading to a successful outcome before the SBA Office of Hearings and Appeals even has the opportunity to rule on the merits.
A little more than a week ago, I blogged about the SBA Office of Hearings and Appeals decision in NAICS Appeal of Delphi Research Inc., SBA No. NAICS-5377 (2012), in which a small business used the NAICS code appeal process to change the relevant size standard from 1,500 employees to $25.5 million. The Delphi NAICS code appeal decision effectively lowered the solicitation’s size standard, increasing the ability of smaller companies like the protester to compete.
However, it is important to remember that the NAICS code appeal process works both ways. If a company is too large for the size standard the procuring agency assigns to a solicitation, it may be able to use the NAICS code appeal process to replace the agency’s preferred NAICS code with a NAICS code carrying a higher size standard. This is precisely what happened in a recently-decided SBA OHA case, NAICS Appeal of CHP International, Inc., SBA No. NAICS-5367 (2012).
A successful NAICS code appeal can be a powerful competitive game changer. Case in point: the recent decision of the SBA Office of Hearings and Appeals in NAICS Appeal of Delphi Research, Inc., SBA No. NAICS-5377 (2012).
In the Delphi Research NAICS code appeal, a contractor questioned the procuring agency’s decision to assign a NAICS code carrying a 1,500-employee size standard. SBA OHA agreed with the appellant, rewriting the solicitation to exclude companies with more than $25.5 million in average annual receipts–in essence, a much lower size standard.
Know your SBA size standards. That’s the lesson to be drawn from the decision of the SBA Office of Hearings and Appeals in NAICS Appeal of Ash Stevens, Inc., SBA No. NAICS-5368 (July 12, 2012).
In the Ash Stevens NAICS code appeal, the solicitation erroneously stated that the SBA size standard associated with a particular NAICS code was much larger than is actually the case. By the time the agency corrected its mistake, SBA OHA held that it was too late for a contractor to challenge the NAICS code.
Size always matters–even on unrestricted procurements. That’s the message coming from SBA in light of a proposed rule making a number of changes to its size regulations, primarily to address small business set-asides within the context of multiple-award award contracts. Buried in the proposed regulation is an interesting change: the SBA intends to give the SBA Office of Hearings and Appeals the right to hear challenges to NAICS code designations, even when a procurement is not set-aside for small businesses.
For many years, SBA OHA has dismissed NAICS appeals on unrestricted procurements, stating, in essence, that there is no purpose in appealing the NAICS code when no set-aside is involved. Although the SBA’s proposed rule doesn’t go into great detail, it seems to me that size can be advantageous, even on an unrestricted procurement. For instance, a small business generally is exempt from the subcontracting plan requirement, but an “other than small” business typically must submit a subcontracting plan. Likewise, a HUBZone-certified company will only qualify for the HUBZone price preference if it qualifies as small for the procurement.
Kudos to SBA for recognizing that size always matters, and proposing to amend the NAICS appeal rules accordingly. Let’s hope that this proposal sticks in the final regulation.