This matter again involves NASA and a particularly interesting government procurement, this time concerning NAICS appeals. NAICS codes, or the North American Industry Classification System codes, are how both businesses are classified by their industry and procurements are classified by what they’re for. If the procurement uses an inappropriate NAICS code, a protestor can appeal this code determination. It is important to note that some NAICS codes have “exceptions” which can affect their corresponding size standards. For example, NAICS code 541330, “Engineering,” has a size standard of $16.5 million, but, if the engineering services are for military equipment and weapons, an exception applies that balloons the size standard to $35.5 million. But, just like regular NAICS codes, these exceptions have to make sense in light of the kind of solicitation in question, leading us to this matter.
In Applewood Engineering, SBA No. NAICS-6119, in late July 2021, NASA issued a request for proposals seeking Support for Atmospheric Modeling and Data Assimilation II (“SAMDA II”). It set aside this procurement for small businesses, and assigned it NAICS code 541715, “Research and Development in the Physical, Engineering, and Life Sciences (except Nanotechnology and Biotechnology.” This code normally has a size standard of 1,000 employees. However, the agency stated that the procurement fit within the exception for “Guided Missiles and Space Vehicles, Their Propulsion Units and Propulsion Parts.” This exception increased the size standard from 1,000 employees to 1,250 employees.
The solicitation itself was to specifically support the research and development activities of the Earth Sciences Division-Atmospheres (“Code 610AT”) and the Global Modeling and Assimilation Office (“GMAO”). Code 610AT conducts comprehensive observation and modeling of the Earth’s atmosphere, such as the science of clouds, precipitation, atmospheric chemistry, and the like. In other words, Code 610AT involves a wide range of research on the atmosphere. GMAO, for its part, does similar work regarding the atmosphere, but further develops and operates models and data systems for the Earth’s ocean and land, monitoring ocean biogeochemistry. The solicitation required much of the same sort of work from prospective offerors. It did, however, outline that it was to assist in GMAO’s Goddard Earth Observing Systems (“GEOS”), which uses space-born platforms among others to collect data. The Solicitation also noted that contractors were responsible for providing “support for project scientists and principal investigators in formulating future satellite missions, overseeing the implementation of it, managing its operation, and formulating other plans within the scope of its mission.”
Applewood Engineering (“Applewood”) filed a NAICS appeal with SBA OHA on August 6, 2021. While it agreed that the correct NAICS code was 541715, Applewood disagreed with the application of the exception for Guided Missiles and Space Vehicles, stating that the procurement’s principal purpose was the development of climate modules and forecast systems, not research and development into space vehicles and guided missiles. The fact the data would come from scientific instruments on satellite platforms does not mean space vehicle research is the primary purpose of the solicitation. Therefore, the exception is inapplicable.
For its part, NASA responded that the exception was appropriate as the solicitation demands contractors support “the full range of research and development activities” of 610AT and GMAO. The design, development, testing, and deployment of satellite instruments is the key aspect of the solicitation, and those instruments are the main purpose of such space vehicles. Furthermore, the contractor would design and develop orbital technologies, support the near-real time transmission of science data to and from NASA satellites, develop satellite data assimilation, develop tools for new satellite missions, and provide development and maintenance “to develop, operate, and maintain the GMAO production systems so the systems can operate in near-real time to support 20 ongoing NASA satellite missions…” NASA also pointed to the NAICS manual, noting it states “that research and development involving space vehicles includes “evaluations and simulation, and other services requiring thorough knowledge of complete…spacecraft.” As design of the satellite instruments would require knowledge of spaceflight, NASA felt the exception was proper. Additionally, NASA argued Applewood’s principal purpose argument applies only to the main NAICS code choices, not size standards or any exceptions that are used, and so the agency need not conduct a specific accounting of which size standard in the NAICS code is appropriate.
OHA reviewed the NAICS code and noted it describes research and development on areas concerning the physical, engineering, and life sciences. NAICS Manual at 476. As for the exception, the size standards table stated that: “’Research and Development’ for guided missiles and space vehicles includes evaluations and simulation, and other services requiring thorough knowledge of complete missiles and spacecraft.” 13 C.F.R. § 121.201, n.11(d).
Turning to the actual question, OHA noted that the burden rested on Applewood to prove the designation was erroneous, and Applewood met those burdens. While the NAICS code itself was correct, the exception was inapplicable. “OHA has long held that procurements classified under a research and development NAICS code ‘must be for research and development, and thus must look to creating new processes or products.’” (quoting Dayton T. Brown, Inc., SBA No. NAICS-5164 (2010)).
OHA recognized that “the categorization of procurements as research and development is therefore not as strict as it is in other disciplines and in the complex world of missiles and spacecraft, research and development may be viewed more expansively than in traditional disciplines.” (citing Advanced Concept Enterprises, Inc., SBA No. NAICS-5968 (2018)). Further, evaluations and simulations involving missiles and similar devices may fall under the exception. However, OHA explained:
“Unlike Advanced, where the procurement involved the research and development of ballistic missile defense system, falling squarely within Footnote 11(d), here, SAMDA II’s principal services do not involve evaluations and simulations involving missiles and similar devices, as well as a thorough knowledge of these technologies, in the context of Guided Missiles and Space Vehicles. While the CO identified specific SOW’s requirements involving simulations, spacecraft, satellite instruments, and spaceflight, these involvements alone do not best describe the principal purpose of the procurement, which the CO conceded to be the full range of research and development activities of NASA GSFC’s Earth Sciences Division-Atmospheres and Global Modeling and Assimilation Office.”
In summary, the mere fact the solicitation involved space vehicles and satellites does not mean it called for research into those very vehicles and satellites. It calls for research into the Earth’s climate, atmosphere, and oceans. Although not outright stating such, OHA clearly rejected NASA’s argument that “principal purpose” only applies to the NAICS code designation, not size standard exceptions that may fall under those codes.
While again notable for being a particularly fascinating subject for a solicitation, there is an important lesson in terms of government contracts law here: OHA will consider “principal purpose” objections to size standard exceptions even if the protestor and agency agree on the actual NAICS code designation.
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