No Wholesaler NAICS Codes For Set-Aside Contracts, SBA OHA Confirms

Federal agencies must classify procurements for supplies under the appropriate manufacturing or supply NAICS code, not under a wholesale trade or retail trade NAICS code.

In a recent NAICS code appeal decision, the SBA Office of Hearings and Appeals confirmed that supply procurements should not be classified under wholesale or retail trade NAICS codes–and rejected a prospective offeror’s claim that the agency should have assigned a wholesale trade NAICS code to the solicitation.

OHA’s decision in NAICS Appeal of Global Precision Systems, LLC, SBA No. NAICS-5681 (2015) involved an Air Force solicitation for commercial items in support of maintenance functions, including items such as protective globes, paint brushes, coveralls, drill bits, and flashlights.  The solicitation was issued as a total small business set-aside.

The Air Force originally designated the solicitation with NAICS code 423840 (Industrial Supplies, Merchant Wholesalers), with a corresponding 100-employee size standard.  The Air Force later amended the solicitation to change the NAICS code designation to NAICS code 332510 (Hardware Manufacturing), with a corresponding 500-employee size standard.

Global Precision Systems, Inc. filed a timely NAICS code appeal with OHA. Global argued that the NAICS code should be switched back to NAICS code 423840.  Global contended that, under the solicitation, the contractor was not required to perform any manufacturing.  Instead, Global said, the solicitation called for the contractor to distribute items manufactured by others, maintain inventory and records, and perform site visits.

OHA wrote that “[t]he key regulation for this case is 13 C.F.R. § 121.402(b)(2).”  That regulation provides, in relevant part, that “[a]cquisitions for supplies must be classified under the appropriate manufacturing or supply NAICS code, not under a Wholesale Trade or Retail Trade NAICS code.”  OHA continued:

Appellant here seeks to apply a Wholesale trade NAICS code to this procurement, something the regulation expressly prohibits.  Further, there is no significant services component to the procurement.  The Contractor will have to keep track of the items delivered, their usage, and see that its personnel comply with base security policy.  This is minimal administrative work, of the type that any Contractor providing goods would have to perform.  The real heart of this procurement is the consumable items used in maintenance.  This is thus a contract for supplies, and thus must be categorized under a manufacturing or supply code, as the CO has done here.

OHA denied Global’s NAICS code appeal.

Contractors are sometimes confused about why a set-aside solicitation for supplies is assigned a manufacturing NAICS code, even though the solicitation does not require the contractor to engage in manufacturing.  The answer, as the Global Precision Systems, Inc., case demonstrates, is straightforward: when a set-aside procurement is for supplies, the SBA’s regulations require the procuring agency to assign the appropriate manufacturing NAICS code, not a wholesale trade or retail trade NAICS code.

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