NAICS code appeals are a useful tool in any small business government contractor’s toolbox. If successful, an appeal can dramatically change a procurement’s competitive landscape—either by limiting the pool of eligible offerors, or expanding it.
Even still, NAICS code appeals are underutilized among contractors. So I wanted to take just a few minutes to walk through the basics of NAICS codes appeals, in case your business ever needs to file one.
Here are 5 Things You Should Know about NAICS appeals:
1. What’s a NAICS code, and why would I appeal it?
To understand why a NAICS code appeal is such a vital tool, let’s start at first principles: a NAICS code (or North American Industry Classification System code) is a unique code that, in general, describes the corresponding industry. These codes are determined by the U.S. Census Bureau. For each code, the Small Business Administration assigns a corresponding size threshold (either in terms of annual receipts or number of employees). When issuing a solicitation, a contracting officer is tasked with assigning a NAICS code that most closely corresponds to a procurement’s primary purpose.
For example, the NAICS Manual describes NAICS code 541430 (Graphic Design Services) as relating to “establishments primarily engaged in planning, designing, and managing the production of visual communication in order to convey specific messages or concepts, clarify complex information, or project visual identities.” This NAICS code carries a $7.5 million size standard—in other words, to qualify as a small business under a solicitation issued under NAICS code 541430, an eligible offeror’s average annual receipts must be under $7.5 million.
The assigned NAICS code, in effect, thus dictates the competitive pool of offerors. For example, if your company’s average annual receipts totaled $7.6 million, it wouldn’t be eligible to bid on a solicitation issued under NAICS code 541530. Instead, it would have to try to reframe the competition by having a different NAICS code—with a larger corresponding size standard—assigned to the procurement.
2. Who can challenge a NAICS code designation?
SBA’s regulations allow “any person adversely affected by a NAICS code designation” to challenge its designation.
This standing typically arises in one of two instances:
First, if the company is a large business under the assigned NAICS code (and, thus, not eligible to bid), it can argue that the contracting officer should have issued the procurement under a NAICS code with a larger size standard.
Second, if the company is a small business under the assigned NAICS code, it might nonetheless argue that the contracting officer should have issued the procurement under a NAICS code with a smaller size standard, to further reduce the pool of potential offerors. Say, for example, a company with $3.8 million in average annual revenues intends to bid on a solicitation issued under a NAICS code that carries a $15 million size standard. It might challenge the NAICS code designation to try to have the solicitation reissued under a NAICS code that carries a $7.5 million size standard.
3. When is a NAICS appeal due?
If you’re considering a NAICS code appeal, act fast: to be timely, an appeal must be filed within 10 calendar days after the solicitation is issued (or, after the solicitation is amended, if that amendment affects the NAICS code designation or size standard).
4. How are NAICS appeals decided?
NAICS code appeals must be filed at the SBA’s Office of Hearings and Appeals (with a copy to the contracting officer). The appeal should, in general, explain the factual and legal reasons why the assigned NAICS code doesn’t correspond to the solicitation’s primary requirements. After the appeal is filed, the agency will have a chance to file a response that explains its position.
Once briefing is complete, the OHA will issue its decision relatively quickly: on average, these decisions take anywhere from a few weeks to one month. That quick turnaround is important—if the OHA recommends that the NAICS code be changed, the solicitation will have to be amended, potentially causing a delay in the procurement process.
5. How can I prepare for a NAICS code appeal?
To be successful, a NAICS code appeal must demonstrate that the solicitation’s NAICS code designation was clearly erroneous. It’s not enough, therefore, just to say that the assigned NAICS code was wrong. The challenger should not only explain why the assigned NAICS code doesn’t closely fit the solicitation’s primary purpose, but also offer up an alternative NAICS code (with a full explanation of why this code would be more appropriate).
How can you make this determination? Look closely at the solicitation’s scope of work and level of effort. If one task makes up a majority of the associated costs or hours, it’s arguable that that task is the solicitation’s primary purpose. Then, consider the industry descriptions in the NAICS Manual to determine whether there’s a code that best describes that task. Finally, note whether there are any historical examples of similar work (or perhaps even the incumbent work) being procured under a different NAICS code. All of this might help show that a different NAICS code is more appropriate.
As mentioned, NAICS code appeals are a tremendously useful tool, in that they can dramatically affect the pool of eligible offerors. As we’ve previously written, NAICS codes appeals are often successful—a recent GAO study found that, of 27 NAICS code appeals considered on the merits, the OHA granted 12.
A successful NAICS code appeal might make your business eligible to bid on a solicitation, or result in your competitor not being eligible to bid. Either way, the results can be dramatic.
Questions about this post? Or need help with a government contracting legal issue? Email us or give us a call at 785-200-8919.