Agency Gets SBA Size Standard Wrong; SBA OHA Dismisses Late NAICS Code Appeal

Know your SBA size standards.  That’s the lesson to be drawn from the decision of the SBA Office of Hearings and Appeals in NAICS Appeal of Ash Stevens, Inc., SBA No. NAICS-5368 (July 12, 2012).

In the Ash Stevens NAICS code appeal, the solicitation erroneously stated that the SBA size standard associated with a particular NAICS code was much larger than is actually the case.  By the time the agency corrected its mistake, SBA OHA held that it was too late for a contractor to challenge the NAICS code.

The Ash Stevens NAICS code appeal involved a Department of Health and Human Services solicitation seeking the manufacture of bulk chemicals and bulk pharmaceutical ingredients for preclinical and clinical studies.  HHS set the solicitation aside for small businesses and assigned NAICS code 541990 (All Other Professional, Scientific and Technical Services).

The solicitation erroneously stated that the size standard associated with NAICS code 541990 was 500 employees.  In fact, the correct size standard, at the time the solicitation was issued, was $7 million (it has since been raised to $14 million).

Ash Stevens, Inc., submitted a proposal and was included in the competitive range.  After conducting discussions with offerors, HHS informed Ash Stevens that although NAICS code 541990 was the proper NAICS code, the corresponding size standard listed in the solicitation, 500 employees, was incorrect.  By the time HHS corrected the mistake, more than four months had passed since the solicitation had been issued.

Ash Stevens informed HHS that it was not a small business under the correct size standard but asked HHS to either retain the 500 employee size standard or grant HHS a waiver.  HHS replied that it lacked authority to do so, and stated that Ash Stevens’ proposal could not be considered for award.

Ash Stevens then filed a NAICS code appeal with SBA OHA.  Ash Stevens alleged that NAICS code 541990 was improper, and that HHS should have assigned NAICS code 541712 (Research and Development in Physical, Engineering, and Life Sciences (except Biotechnology)), with a corresponding size standard of 500 employees.

SBA OHA dismissed the NAICS code appeal as untimely.  SBA OHA noted that under the SBA’s regulations, a NAICS code appeal must be filed within 10 days of the date of the initial solicitation, or within 10 days after an amendment affecting the NAICS code.  In this case, Ash Stevens filed its NAICS code appeal more than five months after the solicitation was issued, rendering it untimely.

SBA OHA wrote that Ash Stevens “had full opportunity to review the assigned NAICS code and size standard, and could have challenged them upon issuance of the solicitation.”  Additionally, SBA OHA noted that Ash Stevens had not filed its NAICS code appeal within 10 days of receiving HHS’s notice that the size standard was erroneous, although SBA OHA did not say whether filing within that 10-day period would have made any difference in the outcome of the case.

Of course, Ash Stevens had little reason to challenge the solicitation’s NAICS code when it thought it qualified as small.  SBA OHA’s decision suggests that when the solicitation was issued, Ash Stevens should have verified that the size standard associated with NAICS code 541990 was correct–and filed a NAICS code appeal when it discovered otherwise.

Contracting officers probably do not make errors of the sort seen in the Ash Stevens NAICS code appeal very often.  Nevertheless, it can’t hurt to check the size standard listed in the solicitation against the SBA Size Standards Table to see if it is correct.  Had Ash Stevens done so, things might have turned out very differently.

4 thoughts on “Agency Gets SBA Size Standard Wrong; SBA OHA Dismisses Late NAICS Code Appeal

  1. Steven,

    This is a great catch for you to present to the GovCon community. Far too often, assigned NAICS codes are overlooked when many times they should be challenged for relevance to the acquisition. While this case was an apparent exception, we always advise companies to review the NAICS Codes for technical relevance AND size standards every single time to ensure they are a small business for direct contracting (if a set-aside) or for subcontracting if it is not set-aside.

    Guy Timberlake
    The American Small Business Coalition

    • Guy,

      Thank you for the comment. Your advice to small contractors is spot on. Small contractors should review the NAICS code as soon as the solicitation is issued to make sure the NAICS code is appropriate for the solicitation, that the contractor qualifies as small, and that the agency has correctly identified the size standard associated with the NAICS code.

      Steven

  2. A prime example why small businesses should always consider/review the government’s chosen NAICS code to see if makes sense or not. Government Contractors can get it wrong as evidenced in this SBA OHA ruling. Steve and Guy are extremely correct. Small businesses need to always be vigilant and attentive to every aspect in the federal contracting cycle.

Leave a Reply

Your email address will not be published. Required fields are marked *