When designating the NAICS code for a solicitation, the procuring agency should not consider which NAICS code will help increase competition and decrease the risks of unsuccessful performance.

According to a recent decision of the SBA Office of Hearings and Appeals, these factors should play no bearing on an agency’s NAICS code designation.  Instead, in most cases, the agency must select the NAICS code that best describes the principal purpose of the product or service being acquired.

SBA OHA’s decision in NAICS Appeal of Pacific Shipyards International, LLC, SBA No. NAICS-5464 (2013) involved a Navy solicitation for maintenance, operations and logistical support services at Joint Base Pearl Harbor Hickam, Hawaii.  The Navy set aside the procurement for small businesses under NAICS code 488310 (Port and Harbor Operations), which carries a $33.5 million size standard.

Pacific Shipyards International, LLC filed a NAICS code appeal with SBA OHA.  Pacific Shipyards alleged that the correct NAICS code was 336611 (Ship Building and Repairing), which carries a 1,000-employee size standard.  Among its arguments, Pacific Shipyards contended that selecting NAICS code 488310 restricted competition and increased the risk of unsuccessful performance of the contract.

SBA OHA rejected this argument, deeming it “meritless.”  SBA OHA wrote that Pacific Shipyards had offered no evidence to support its allegation that NAICS code 488310 would reduce competition and increase performance risks, and “even if [these arguments] were shown to be valid, OHA has held that such considerations are not part of the criteria for selecting the NAICS code.”  Rather, “by regulation, the CO must designate the NAICS code that best describes the principal purpose of the product or service being acquired.”  SBA OHA denied Pacific Shipyards’ NAICS code appeal.

SBA OHA’s conclusion in Pacific Shipyards makes sense.  After all, if Contracting Officers were permitted to consider which NAICS code would increase competition, they would be motivated to select the NAICS code carrying the largest possible size standard, to the potential detriment of smaller businesses.