When a contractor believes an agency assigned the wrong North American Industry Classification System (NAICS) code to a solicitation, it can file an appeal with the SBA’s Office of Hearings and Appeals (OHA). However, for OHA to correct the NAICS code, the contractor must show the contracting officer’s assignment was clearly erroneous. As we’ve discussed, counting just those NAICS code appeals decided on the merits, about 45% were granted, per a GAO report.
In recent NAICS appeal Dellew Corp., SBA No. NAICS-6314 (Nov. 1, 2024), OHA examined whether the contracting officer clearly erred in assigning NAICS code 561210, Facility Support Services, to a procurement.
The Defense Information Systems Agency (DISA) issued a task order looking for a contractor to provide facility maintenance for a one-year base period and up to four option years. DISA issued the Request for Quotations (RFQ) seeking work for facility maintenance and assigned NAICS code 561210. The RFQ sought the following services:
Preventative Maintenance (PM) service and repair related to heating, ventilation, air conditioning (HVAC) air handling units (AHUs), fan terminal units (FTUs), variable air volumes (VAVs), package computer room air conditioning units (PACs), roof top unit, heat pump unit, hot water boilers, exhaust fans, pumps, unit heaters (UHs), cabinet unit heaters (CUH), controls, piping, ductwork, evaporative coolers, and water treatment, uninterrupted power supply (UPS) & batteries, phone switch batteries, power distribution units (PDUs), water detection, site monitoring software, and all above mentioned equipment and associated parts of those systems.
Dellew Corporation (Dellew) appealed this NAICS code assignment, arguing that NAICS code 561210 did not describe the principal purpose of the procurement. Instead, Dellew believed NAICS code 238220 Plumbing, Heating, and Air-Conditioning was the proper code.
OHA noted that NAICS code 561210 for facility maintenance applies when a contractor performs “a combination of services”–including “maintenance”–to support the operation of a client’s facilities, such as a military base. The support services the contractor provides under this code are not involved in the core business or activities of the client. For code 561210 to be applicable, the work must fall within at least three different NAICS industries, and no single NAICS code may account for 50% of the work described. 13 C.F.R. § 121.201 n. 12.
Dellew challenged the assigned code’s applicability, arguing more than 50% of the work described was within code 238220. This NAICS code consists of “establishments primarily engaged in installing and servicing plumbing, heating, and air conditioning equipment,” including “new work, additions, alterations, maintenance, and repairs.”
When filing a NAICS code appeal, the appellant has the burden of proving that the contracting officer’s NAICS code assignment was based upon clear error of fact or law. 13 C.F.R. § 134.314. OHA has stated that the SBA regulations do not require the contracting officer to assign the perfect NAICS code nor will OHA reverse a NAICS code “merely because OHA would have selected a different code.”
In its review of the services listed in the RFQ, OHA found a variety of support tasks were requested, including HVAC system maintenance, maintenance of “uninterrupted power supply & batteries, phone switch batteries, [and] power distribution units,” and management and maintenance of certain “site monitoring software.” OHA concluded these services fell within at least three different NAICS codes, and no clear evidence indicated that any single NAICS code accounted for 50% or more of the value of the procurement. OHA concluded that NAICS code 561210 was a reasonable choice for the procurement. Even though the RFQ described services within the definition of NAICS code 238220, Dellew failed to prove NAICS code 238220 accounted for a majority of the contract value. Therefore, Dellew did not meet the burden of proving NAICS code 561210 was erroneous.
Appealing a NAICS code designation can be a useful tool for contractors. But before deciding to file an appeal, ask yourself (or a friendly government contracts attorney) if the assigned NAICS code was unreasonable. Even though you might disagree with the chosen NAICS code for a specific procurement, OHA will not overturn the assignment unless you can demonstrate that the selection was clearly erroneous. Since a NAICS appeal can have a powerful effect on the size standard, it’s still a useful tool.
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