NAICS code appeals are now allowed on unrestricted procurements, so long as a change in NAICS code would affect the offeror’s size status for the procurement.

In a recent size appeal decision, the SBA Office of Hearings and Appeals confirmed that recent SBA regulatory amendments have overturned prior OHA case law prohibiting most NAICS code appeals on unrestricted procurements.

OHA’s decision in NAICS Appeal of National Electric Coil, SBA No. NAICS-5666 (2015) involved a Corps of Engineers solicitation for work at the Dworshak Dam in Idaho.  The solicitation was issued as unrestricted, under NAICS code 237990 (Other Heavy and Civil Engineering Construction), with a corresponding $36.5 million size standard.

After the solicitation was issued, National Electric Coil filed a NAICS code appeal with OHA.  NEC alleged that the Contracting Officer should have assigned NAICS code 333611 (Turbine and Turbine Generator Set Unit Manufacturing), with a corresponding 1,000-employee size standard.  NEC argued that the Corps’ chosen NAICS code was erroneous because construction represented only 16% of the value of the contract.  NEC stated that it did not qualify as a small business under a $36.5 million size standard, but did qualify as small under a 1,000 employee size standard.

The Corps argued, in part, that NEC lacked standing to appeal.  Citing prior OHA decisions, the Corps contended that NEC would not be affected by a change in the NAICS code because the solicitation had been issued as unrestricted.

OHA rejected the Corps’ argument.  OHA wrote that “[i]t is true, as the Corps observes, that OHA historically has held” that NAICS code appeals are usually not available on unrestricted solicitations.  However, “the Corps’ motion fails to address recent amendments to 13 C.F.R. 121.1103(a)(1), which now states that [a]n interested party [for a NAICS code appeal] would include a business concern seeking to change the NAICS code designation in order to be considered a small business for the challenged procurement, regardless of whether the procurement is reserved for small business or unrestricted.”

In this case, OHA noted, NEC “asserts that it is not a small business under NAICS code 237990, but is a small business under NAICS code 333611; thus [NEC] seeks to be considered a small business for the instant procurement, and would appear to have standing under 13 C.F.R. 121.1103(a)(1), notwithstanding that the procurement is unrestricted.”  OHA denied the Corps’ motion to dismiss.  Unfortunately for NEC, though, it won the battle but lost the war; OHA ultimately held that the Corps had chosen the correct NAICS code.

Three years ago, I applauded the SBA for proposing to permit NAICS code appeals on unrestricted procurements.  That proposed change was adopted, and as the National Electric Coil case demonstrates, is now in effect.