Contracting officers are given significant discretion in choosing NAICS codes for procurements. But, as decision makers, they aren’t infallible. As a recent OHA case shows, using the NAICS Manual can help small business contractors challenge an incorrect NAICS code.
In Keystone Turbine Services, LLC, SBA No. NAICS-5996 (Apr. 5, 2019), the Navy issued an RFQ for engine overhaul and engine repair for the TH-57 helicopter. The Navy originally issued the RFQ under NAICS code 336412 (Aircraft Engine and Engine Parts Manufacturing), which carries a size standard of 1,500 employees. The Statement of Work noted that “the Contractor shall provide all labor, engineering, configuration management, equipment, tools, facilities, technical data, parts, and material to accomplish the repair and overhaul of TH-57 engines.”
Eventually, the Navy issued Amendment 3, which made several noteworthy changes to the RFQ. First, it changed the NAICS code to 488190 (Other Support Activities for Air Transportation), which carries a $32.5 million size standard. Second, it stated the contract would have five CLINs (only the first two are relevant to the appeal): Engine Overhaul (estimated quantity of 12) and Engine Repair (estimated quantity of 10). Third, it revised the definition of “repair” to “restoring an engine (excluding accessories, e.g., FCU, gov pump, etc.) inducted for discrepancies such as failing power assurance tests, leaking oil, making smoke or other items not functioning properly” and “[t]he engine shall be restored to the full OEM condition and ready for fielding.” Fourth, it revised the definition of “overhaul” to “major restoration of an engine assembly (excluding accessories, e.g., FCU, gov pump, etc.) due to metal discovered in the engine oil, or after a catastrophic event, and includes replacing any components with less than 50% service life remaining.”
Keystone argued that code 336412 (Aircraft Engine and Engine Parts Manufacturing) was proper, not 488190 (Other Support Activities for Air Transportation). For one, the Navy had issued the procurement initially under code 336412 and couldn’t articulate a reason for the subsequent change to code 488190. Also, CLIN 0001–the first and largest CLIN–was for engine overhaul work. Further, it argued that 488190 excluded the overhaul and rebuilding of aircraft engines.
In reply, the Navy pointed to the examples connected with NAICS code 448190 in the NAICS Manual, that in its view, were “precisely the scope of this procurement.” It also argued that code 336412–advocated by Keystone–covers manufacturing of aircraft engines and components, and none of the work would be performed in a factory.
OHA held that, although contracting officers aren’t required to select the perfect NAICS code, the contracting officer clearly erred in selecting code 488190:
Having reviewed the RFQ, the descriptions in the NAICS Manual, OHA’s prior decisions, and the arguments of the parties, I find that Appellant has met its burden of proving that the CO clearly erred in selecting NAICS code 488190. As a result, the appeal is granted.
The instant RFQ calls for both the “overhaul” and “repair” of aircraft engines. . . . According the NAICS Manual, “[a]ircraft engine overhauling” and “[a]ircraft engine rebuilding” fall under NAICS code 336412. . . . The NAICS Manual defines aircraft engine overhaul and rebuilding as the “restoration of aircraft propulsion system[s] to original design specifications”, a description which parallels the definition of aircraft engine “overhaul” in the RFQ. . . . Further, the NAICS Manual expressly excludes aircraft engine overhaul and rebuilding work from NAICS code 488190. . . . On the other hand, according to the NAICS Manual, the “routine repair and maintenance” of aircraft engines falls under NAICS code 488190. In short, then, the NAICS Manual distinguishes between routine aircraft engine “maintenance and repair services”, which are classified under NAICS code 488190, and “factory conversion, overhauls, and rebuilding” of aircraft engines, which are classified under NAICS code 336412.
In further support of its holding, OHA pointed out that the RFQ estimated the quantity of engine overhauls, under CLIN 0001, would be greater and much more extensive than the engine repairs estimated under CLIN 0002.
Interestingly, OHA noted that because its “decision was rendered after the deadline for receipts of quotations, the decision does not apply to the instant RFQ.” But it would apply to future procurements for the same supplies and services.
The clear error standard applied in NAICS codes is hard to meet. This makes NAICS appeals, oftentimes, an uphill battle. But, when an assigned NAICS code simply doesn’t fit the procurement’s work, OHA isn’t reluctant to grant a NAICS code appeal.
Questions about this post? Or need help with a government contracting legal issue? Email us or give us a call at 785-200-8919.