SBA: NAICS Code Must Match the Work Sought, not the Offeror’s Work

We here at SmallGovCon like to spend our free time pondering the intricacies around how and why certain NAICS codes are assigned to the myriad of contracting opportunities posted every day. But we realize others may not have the same appetite for the intricacies of Federal Contracting as us. Luckily, the SBA’s Office of Hearings and Appeals (OHA) recently issued a great roadmap for understanding NAICS code assignments in a NAICS code appeal decision, which serves as a great refresher for how NAICS codes are applied to a procurement.

In NAICS Appeal of: Laredo Technical Services, Inc., SBA No. NAICS-6173 (Sept. 23, 2022), the SBA OHA received a NAICS code appeal discussing whether the selection of a NAICS Code was correctly chosen for a subject Solicitation. The first step is to review the Solicitation at issue in order to discuss the NAICS code standards.

The Solicitation:

In Laredo a Request for Quotations (RFQ) was issued by the VA for Medical Support Assistants and administrative personnel that would perform a variety of support duties at a VA location. The RFQ at the time of its posting was assigned NAICS code 561311, Employment Placement Agencies, which carried a $30 Million size standard. The statement of work for the RFQ in Laredo called for at least 8 supervisory medical support assistants, and over 150 full time employees. These employees would conduct general administrative functions, perform a variety of technical support that will help the work of medical staff, cover general administrative staff on leave, and help cover vacancies, among other duties. After reviewing the RFQ, a potential bidder disagreed with the assigned NAICS code and utilized the NAICS code appeal process to bring this to the SBA’s attention. (If you happen to want to know more about NAICS codes as a whole, and the NAICS Code Appeal process itself, take a look at our blog post on the Five Things You Should Know: NAICS Code Appeals)

The Arguments:

The protest alleged that the statement of work made it apparent that the NAICS code assigned by the contracting officer was chosen by looking at the “primary business of offerors” rather than selecting the NAICS code “which best describes the principal purpose of the product or service being acquired.” The protester argued that the RFQ calls for “100% administrative services” and that there is no requirement for the agency to “purchase the suppliers of the administrative services.” Consequently, the protesterr proposed that NAICS 56110, Office Administrative Services, would be a better fit for this RFQ.

The agency responded by stating that the purpose of the RFQ is to “obtain additional staffing to supplement the current [medical support assistant] full-time employee (FTE) workforce” and it is quite difficult for the agency to fill these positions through the typical federal hiring process. As the typical hiring process for federal agencies is quite time-consuming, and has many processes within it, utilizing NAICS 561311, Employment Placement Agencies, lets the agency acquire staff much faster through an employment agency. Also, the agency argued that the NAICS suggested by the protester denotes routine office work of existing staff, rather than integration with agency staff at each location that the RFQ calls for.

SBA’s Ruling:

OHA started its analysis by reviewing the actual NAICS manual guidance for the NAICS code assigned to the RFQ, as well as for the NAICS code suggested by the protester. For the NAICS code assigned to the RFQ, the NAICS manual states that examples of businesses under that code may include employment registries, babysitting bureaus, and employment agencies. For the NAICS code suggested by the protester, the NAICS manual provides examples of businesses such as, administrative management services, management services, managing offices of physicians and surgeons, and medical office management services.

The OHA judge confirmed that the standard that should be applied when assigning a NAICS code to a procurement, is to assign the NAICS code that “best describes the principal purpose of the product or service being acquired” in light of the NAICS manual, the solicitation, the value and importance of what is being procured, and the function of what is being procured. SBA OHA also cautioned that it will not overturn a NAICS code assigned to a procurement simply based on OHA believing it would choose a different NAICS code for the procurement.

With all that in mind, SBA agreed with the protestor: the NAICS code assigned to the RFQ was not suitable. The NAICS should reflect that the agency was seeking a contractor to perform administrative support functions, rather than a contractor who would recruit and refer staff. SBA OHA found that for this RFQ the contractor will be providing the services through their staff rather than acquiring staff for the agency. Due to SBA OHA finding the current NAICS as unsuitable, OHA decided to assign the protester’s suggested NAICS code, as the NAICS manual included “medical office management services” for NAICS 56110, which is what is being sought by the agency in the RFQ.

Laredo confirms that when a contractor feels that a NAICS code is incorrectly applied to a solicitation, SBA will take a focused, unbiased, and determined approach to assessing whether the NAICS code being protested is truly appropriate. The standard that will be applied and should be remembered by contractors when questioning a NAICS code, is whether the NAICS code matches the work or items the agency is attempting to procure. Contractors should also keep in mind that one of the ways a NAICS code could be misapplied to a procurement by an agency is focusing on the type of work that the anticipated offerors undertake, rather than focusing on the needs of the agency, when selecting a NAICS code. This case provides a great baseline of the requirements of a NAICS code, but also confirms that if a contractor feels a NAICS code is misapplied, they should keep in mind the NAICS Code appeal process to remedy the issue. If find yourself in this situation, and would like our help on your NAICS code issue, or any federal contracting issue, please contact us.

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