While every federal government contractor is likely familiar with bid protests, whether directly involved in one or not, it is far less likely that those same contractors are as familiar with NAICS code appeals. This is probably due to the infrequent nature of NAICS code appeals, with roughly 20 being filed each year. However, even if so few are filed annually, they tend to have a relatively high success rate, with appeals decided on the merits being decided in favor of the Appellant about 50% of the time. Below, I will take a look at a recent NAICS code appeal to help demonstrate what the Small Business Administration’s (SBA) Office of Hearings and Appeals (OHA) takes into account when reviewing NAICS code appeals, and why you, as a contractor, should review a solicitation’s classification to potentially give you a leg up.
The NAICS code appeal in Laredo Technical Services is, by all means, a relatively straightforward NAICS code appeal, as far at those things go. The solicitation sought a contractor to provide 41 radiology technologists for placement in the Department of Veterans Affairs’ medical facilities. The Contracting Officer assigned NAICS code 561320—Temporary Help Services—to the solicitation, which has a size standard of $34 million. Laredo Technical Services, Inc., SBA No. NAICS-6216 (2023).
Laredo Technical Services, Inc., the appellant in this case, challenged the Contracting Officer’s decision to assign NAICS code 561320 to the solicitation, believing that the solicitation should have been assigned NAICS code 621399—Offices of All Other Miscellaneous Health Practitioners—with a size standard of $10 million. Or, in the alternative, NAICS 621512—Diagnostic Imaging Centers—with a size standard of $19 million.
So, why is the NAICS code important?
Well, to put it simply, each solicitation has a NAICS code, and each NAICS code has a size standard. Those size standards are either based on annual average receipts, which range from $2.25M to $47M, or number of employees, which range from 100 to 1,500. And a business that earns $47M annually, or that has 1,500 employees, is almost guaranteed to have more resources than one who earns $2.25M, or that has 100 employees, making the larger, more profitable business more likely to win awards.
One way the SBA works to make federal contracting more equitable among small businesses is by narrowing eligible bidders through size standards. This means that a $47M business cannot compete against a $2M business on a federal contract for corn farming, because the size standard for corn farming contracts is $2.5 million. Thus, the $47M business is deemed too large to compete, and the $2M business is only required to compete with other small businesses that are $2.5M and under. The same logic applies for small businesses that file a NAICS code appeal trying to recategorize the solicitation to a larger NAICS code, allowing a bigger (relatively speaking) small business to be eligible to compete for a solicitation it was initially too large for.
Back to the instant size appeal, Laredo claimed that 621399 was the appropriate NAICS code because the procurement was for radiological services on-site within the VA facilities, not radiological centers or laboratories off-site without the VA facilities. Furthermore, the RFP stated that the contractor and contractor’s technologists would not be considered VA employees, but rather independent contractors, and the services sought by the solicitation was for non-personal services. To reach a decision, SBA looked to the three potential NAICS codes mentioned in the appeal, beginning with the NAICS code assigned by the Contracting Officer.
SBA stated, “[t]he NAICS code chosen by the CO, 561320, Temporary Help Services, covers establishments primarily engaged in supplying workers to clients’ businesses for limited periods of time to supplement the working force of the client. The individuals provided are employees of the temporary help services establishment. However, these establishments do not provide direct supervision of their employees at the clients’ work sites.”
Here, SBA agreed with Laredo that 561320 was not the proper NAICS code for the work anticipated by the solicitation, stating that 561320 is clearly for contractors providing workers for limited periods of time, while the solicitation focused on workers for “up to three years.” Accordingly, SBA then looked to the NAICS codes proposed by Laredo to determine whether either of those best described the “principal purpose of the products or services being required.” First, SBA looked at Laredo’s preferred NAICS code: 621399.
Here, SBA noted, “[t]he NAICS code advocated by Appellant, 621399, Offices of All Other Miscellaneous Health Practitioners, is comprised of establishments of independent health practitioners (except physicians; dentists; chiropractors; optometrists; mental health specialists; physical, occupational, and speech therapists; audiologists; and podiatrists). These practitioners operate private or group practices in their own offices (e.g., centers, clinics) or in the facilities of others, such as hospitals or HMO medical centers.”
SBA determined that 621399 was not the proper NAICS code either, stating that Laredo’s assertion that the location of performance should be taken into account when determining NAICS codes was incorrect, and that the location of performance was not relevant in making the determination. Finally, SBA looked to the third option: 621512.
SBA explained that NAICS code 621512 included “establishments known as diagnostic imaging centers primarily engaged in producing images of the patient generally on referral from a health practitioner…[this includes] ‘CAT (computerized axial tomography) scanner centers’, ‘[c]omputer tomography (CT-SCAN) centers’, ‘[d]iagnostic imaging centers (medical)’, ‘[l]aboratory testing services, medical radiological or X-ray’, ‘[m]agnetic resonance imaging (MRI) centers’, ‘[m]ammogram (i.e., breast imaging) centers’, ‘[m]edical radiological laboratories’, ‘MRI (magnetic resonance imaging) centers’, and ‘[r]adiological laboratory services, medical’.”
SBA reasoned that the professional radiology technologists sought by the solicitation would perform “the full range of radiology imaging care,” including x-rays, MRIs, ultrasounds, and CAT scans for VA inpatients and outpatients. Accordingly, the agency was directed to amend the NAICS code from 561320, Temporary Help Services, which has a size standard of $34M, to 621512, Diagnostic Imaging Centers, with a size standard of $19M.
As the infamous words of Mick Jagger said, “You can’t always get what you want. But if you try sometimes you’ll find you get what you need.” And what Laredo needed here, was a different NAICS code.
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