NAICS Code Challenges Must Show why the Code Chosen is Incorrect, OHA Says

We’ve all seen cases of agencies assigning NAICS codes to solicitations that just seem…off. But, unless a contractor can show that the code chosen was clearly erroneous, government contractors will simply have to make do with what they’ve been given. The OHA recently handed down a decision confirming this.

The decision concerned an Army Request for Proposals No. W91QEX-21-R-0003 issued in February 2021. A 100% set-aside for 8(a) participants, the contracting officer assigned the solicitation the NAICS code 561210, Facilities Support Services. Businesses under this code must have average annual receipts of less than $41.5 million to qualify as a small business. The solicitation requested the following services: personnel security (processing and keeping records on visitors), information security (assisting with secure transmission of classified information and training), physical security (assessing and maintaining physical security systems), security administration (administrative tasks in support of base security programs, and conference center security (general security work for a conference center on base grounds)

Shortly thereafter, Taurean General Services, Inc. (Taurean) appealed this code assignment, arguing that NAICS code 541690, Other Scientific and Technical Consulting Services, was the proper code. Businesses under NAICS code 541690 must have average annual receipts under $16.5 million in order to qualify as a small business.

The OHA decision noted that NAICS code 561210 includes businesses that provide a variety of support services, including maintenance and guard/security services. These services can be performed at a military base as well as at civilian governmental facilities. Referring to a footnote describing the industry code, OHA stated that if one of the services listed in code 561210 accounted for more than 50% of the work to be performed, or did not involve three or more separate activities, each in a separate industry, 561210 should not apply. 13 C.F.R. § 121.201, note 12.

Turning to NAICS Code 541690, the code proposed by Taurean, OHA explained it covers services related to providing consulting on scientific and technical issues. The activities it covers includes legal advice, computer services, engineering, and other “professional, scientific, and technical services.” It excludes, however, day-to-day administrative services, such as recordkeeping, physical distribution, and personnel supply.

Regarding the legal standard, OHA went on to say that the contractor “must show that the CO’s NAICS code designation is based upon a clear error of fact or law.” 13 C.F.R. § 134.314. The burden of proof is on the contractor.  “OHA will not reverse a NAICS code designation” simply because it may have chosen a different code.

Considering the above, OHA concluded that Taurean did not prove that the contracting officer clearly erred in selecting NAICS code 561210. Referring to a past decision, OHA stated “[m]ere assertions concerning the work required for the procurement without specific reference to those portions of the solicitation describing the work, and analysis of the various tasks as compared to the NAICS Manual descriptions do not establish clear error in a CO’s NAICS code designation.” In other words, simply saying that it’s the wrong code without breaking down the various jobs the solicitation is asking for will not do. In fact, Taurean had not even argued that NAICS code 561210 was clearly incorrect, just that code 541690 was more appropriate.

Regardless, OHA continued, NAICS code 561210 was a reasonable choice. “NAICS code 561210 may apply when a contractor performs ‘a combination of support services’ — including ‘maintenance’ and ‘guard and security’ services — to support the operation of a client’s facilities, such as a ‘[m]ilitary base’…(i)n addition, in order for NAICS code 561210 to be utilized, work must fall within at least three different NAICS codes, and no one NAICS code may constitute a majority of the contract value.”

OHA went through the list of various duties that the solicitation would require, ranging from processing visitors to training to supporting the security of computer systems, finding there to be eight separate labor categories associated with the requested work. All the work was security-related, yes, but it was not the same in terms of labor category. “Accordingly, the work contemplated by the RFP can plausibly be viewed as falling within at least three different services NAICS codes, and there is no indication that any one NAICS code accounts for more than half of the value of the procurement. NAICS code 561210 thus is not, on its face, an improper choice(.)”

So, OHA denied the protest, as Taurean had not demonstrated that NAICS code 561210 was “clearly incorrect”. There was no need to consider other codes, nevertheless, OHA did say it didn’t believe NAICS code 541690 was a proper alternative in any event, as it applies to consulting or advice on scientific/technical matters. Nothing in the solicitation asked for such, OHA stated.

Lesson for contractors: The standard for protesting a code assignment is stringent to say the least. You may well be right that there is a more apt NAICS code for a solicitation, but unless you can show that the assigned code is practically unreasonable or its use would violate some statute or regulation, it will not matter. Note the last part of that sentence, however. In this case, the NAICS code’s description said it wouldn’t apply in certain circumstances, such as if there were fewer than three separate kinds of work involved. Even if a code would otherwise apply to a solicitation, be sure to read the code carefully, as it may just have an exception that renders it inapplicable.

Believe an agency used the wrong NAICS code and considering appealing it? Email us or give us a call at 785-200-8919.

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