NAICS code appeals, while little known, can be an extraordinarily powerful tool when it comes to affecting the competitive landscape of government acquisitions.
Case in point: in a recent NAICS code appeal decision issued by the SBA Office of Hearings and Appeals, the appellant prevailed–and obtained an order requiring the contracting officer to change the solicitation’s size standard from 500 employees to $15 million.
OHA’s decision in NAICS Appeal of Hendall Inc., SBA No. NAICS-5762 (2016) involved an HHS solicitation for support for its public engagement platform. HHS issued the solicitation as a small business set-aside under NAICS code 511199 (All Other Publishers), with a corresponding 500 employee size standard.
Here’s where many small businesses would throw in the towel: “500 employees? I can’t compete with that. I’m moving on to the next solicitation.”
But Hendall Inc. understood that a prospective small business offeror has the right to file a NAICS code appeal directly with OHA. So Hendall filed a NAICS code appeal, arguing that the HHS had assigned an incorrect NAICS code. Hendall made the case that the appropriate NAICS code was 561422 (Telemarketing Bureaus and Other Contact Centers), with a corresponding $15 million size standard.
The incumbent contractor–which presumably was small under the 500-employee size standard, but not under the $15 million size standard–intervened in the case. The incumbent argued that HHS’s original NAICS code designation was correct.
OHA evaluates NAICS code appeals primarily by comparing the solicitation’s statement of work to the NAICS code definitions in the Census Bureau’s NAICS Manual. In this case, OHA noted that the NAICS Manual defines NAICS code 511199 as establishments “generally known as publishers,” who “may publish works in print or electronic form.” NAICS code 561422, in contrast, comprises “establishments engaged in operating call centers that initiate or receive communications for others via telephone, facsimile, email, or other communication modes . . ..”
After examining the statement of work, OHA wrote that “the Contractor will not be writing, editing, or in any other way producing publications for [HHS].” Because “the Contractor will not be engaged in activities which constitute publishing . . . the CO’s designation of a publishing NAICS code for this procurement is clear error.”
Having found the original NAICS code to be erroneous, OHA then turned to the question of what NAICS code was appropriate. This second part of the analysis is as important as the first; OHA is under no obligation to accept the appellant’s proffered NAICS code even when OHA agrees that the original NAICS code was incorrect. In many cases, OHA has assigned a third code–one that neither the appellant nor the agency wanted.
In this case, however, OHA wrote that “the operating of the Contact Center appears to be the major part of this procurement.” The Contact Center, in turn, “responds to inquiries by telephone, email, fax and postal mail.” Thus, while Hendall’s suggested NAICS code might not be the “perfect fit,” OHA concluded that NAICS code 561422 “best describes the principal purpose of the instant acquisition . . ..”
OHA granted Hendall’s NAICS code appeal. OHA issued an order requiring HHS to “amend the solicitation to change the NAICS code designation from 511199 to 561422.” And just like that, the solicitation’s size standard changed from 500 employees to $15 million.
The Hendall NAICS code appeal, on its surface, is a fact-specific case about a particular HHS solicitation. But beyond that, the Hendall case is an example of the potential power of a NAICS code appeal. By successfully appealing the solicitation’s NAICS code, Hendall dramatically affected the competitive pool for the solicitation–including, potentially, excluding the incumbent as an eligible offeror.