Don’t Skip the Notes: OHA NAICS Code Decision Relies on Footnote

Many people skip the footnotes when they read. Why not? There’s rarely anything important in them, right?

Not necessarily. In recent NAICS appeal Advanced Concepts Enterprises, Inc., SBA No. NAICS-5968 (Oct. 24, 2018), a single footnote made all the difference.

In September 2018, the Missile Defense Agency issued an RFP seeking expansion of existing Ballistic Missile Defense System (BMDS) “test assets.” The “test assets” are used “to realistically emulate/simulate the complex weapon systems of the BMDS” and “include guided missiles and space vehicles tactical hardware and software.” Simply, these assets required updates to include new sensors and tactical systems.

The RFP was designated as a WOSB set-aside under NAICS code 541715, “Research and Development in the Physical, Engineering, and Life Sciences (except Nanotechnology and Biotechnology).” While the NAICS code’s corresponding size standard is normally 1,000 employees, an exception exists for “Guided Missiles and Space Vehicles” which extends the size standard to 1,250 employees. However, Advanced Concepts Enterprises, Inc. (the Appellant) filed a NAICS code appeal with the SBA Office of Hearings and Appeals, arguing that NAICS code 541513, Computer Facilities Management Services, which has a corresponding $27.5 million annual receipts size standard, was more applicable.

In deciding the case, OHA took a deep dive into the requirements of the RFP. An estimated 41 % of the Full Time Equivalents were dedicated to Network Design, which the Appellant argued did not contain research and development, while three other primary objectives each amounted to less than 17%. Despite the Appellant’s arguments to the contrary, OHA ultimately decided that the Research and Development NAICS code was appropriate.

Normally, the NAICS Manual defines “research” as “original investigation undertaken on a systematic basis to gain new knowledge”, and ““experimental development” as “the application of research findings or other scientific knowledge for the creation of new or significantly improved products or processes.” Both a “research” and a “development” component must be present for a “Research and Development” NAICS code to apply. Footnote 11(d), however, presents a slight exception.

Footnote 11(d) to 13 C.F.R § 121.201, which provides small business size standards in accordance with their NAICS codes, states that under NAICS code 541715 “‘Research and Development’ for guided missiles and space vehicles includes evaluations and simulation, and other services requiring thorough knowledge of complete missiles and spacecraft.” In other words, when a solicitation deals with guided missiles or spacecraft, the definition of “Research and Development” is broad enough to include almost any task requiring a deep understanding of missiles or spacecraft.

OHA hammered home the importance of a broader definition when it comes to guided missiles, stating “the BMDS is an extraordinarily complicated and sophisticated undertaking, compared to ‘hitting a bullet with a bullet.'” OHA concluded that because “[t]he contractor will be servicing the necessary [BMDS] modeling and simulation equipment,” the solicitation “explicitly require[d] . . .  a thorough knowledge of missiles, and thus fits into the description of the NAICS exception in Footnote 11(d).”

While this decision can also teach us a lot about how guided missile systems work, the most important take away for contractors is the importance of checking out the footnotes. Footnotes were the deciding factor in this case and had a significant impact on the applicable size standard. The same may be true in any case, so make sure you glance at the superscript references.

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